I have been writing these San Diego real estate market outlooks for ten years now. This annual exercise always makes me examine macroeconomic data, talk to local politicians and business owners, and try to spot micro trends in the San Diego residential real estate market. I am generally right about direction (except for last year when I recanted within two months) and sometimes off on timing.
"Buy land, they're not making it anymore"-- Mark Twain
I chose that Twain quote (which is sometimes attributed to Will Rogers) because it reflects the reason why you should buy a home in San Diego County-- we have a housing backlog and it is only getting marginally better. Our state and local governments are the problem because they just won't issue housing permits to keep up with demand. Worse, rather than get out of the way and issue those permits, the California Legislature passed a "Housing Affordablity Plan Tax" which takes effect this year. Yes, in order to make housing more affordable, the government is taxing housing transactions--you just can't make this stuff up.
"The more the plans fail, the more the planners plan"-- President Ronald Reagan
If you're trying to buy a home in San Diego County, do it in 2018. I can't guarantee that price appreciation will be a straight line up but, the supply demand imbalance tells me that prices will be as much as 50% higher in 2028 than they are in 2018. If you put $100,000 down on a $500,000 house, you can expect to pay about the same amount for your mortgage as you would for monthly rent and, in ten years, should get three times your original down payment back when you sell. That's an annual ROI north of 11%. Mortgage rates will probably rise in 2018 (not as badly as you might think) but that shouldn't blunt the steady march up in home prices.
Can you just buy any property in San Diego County and make money?
Probably but I want to focus on two themes to improve your chances: the rise of the suburban, single-family home and the 78 and 94 corridors.
Buy a single family home
Millennials are moving to the suburbs and that trend will get stronger in the next 10 years. Since 2008, millennials predictably flocked to the traditional beach towns of Pacific Beach and Ocean Beach but, because there are so many of them, helped to repopulate the I-8 San Diego neighborhoods of Hillcrest, Mission Hills, North Park, South Park, and Normal Heights. Five years ago, a late-20s man might want to live in an area where he could walk to a craft brewery, take a bus to his job, and go running in Balboa Park. Today, our leading-edge millennial man is in his early 30s, married, and has plans to build a family. The two-bedroom condo he bought in 2012 has substantial equity and he and his wife are going to want a house with a yard.
While millennials will cycle from the I-8 neighborhoods to the suburbs, those I-8 neighborhoods will be populated by the next generation; the centennials. The centennial generation is almost as large as the millennials and considered to be more serious and grounded. I won't be surprised if our millennial homeowners aren't selling their condos to 22-year old centennials (that's an early age for San Diego homebuyers). Today's teenagers are just that darned pragmatic.
I talk about the housing backlog easing up a bit but, within the San Diego County housing permit data is an interesting statistic; three times the permits are issued for multifamily housing than are issued for single-family homes. What this means is that the suburban, single family home will be in VERY high demand in ten years. If you can afford to buy one (even if it means compromising your desired location), do it.
The 78 and 94 corridors
One thing I always watch is our military's footprint. San Diego County is home to the largest concentration of veterans and active-duty service members in the world. Traditionally, service members buy single-family homes in Oceanside or Clairemont but I've seen a shift this past year. As the county's job growth moves north, the 78 corridor has become popular. Carlsbad and Oceanside have seen significant price appreciation and Vista was popular last year. Our pick for the 78 corridor is Escondido. City government is fiscally responsible, NIMBY-friendly, and offers great opportunities to own a 1600 sq foot, single-family home with a yard, for under $500,000. Escondido is less than 30 minutes from the back gate at Camp Pendleton and MCAS Miramar. Don't be surprised if you start seeing these flags in front of more Escondido homes.
The 94 corridor includes the popular I-8 neighborhoods (already mentioned) but has two hidden gems where someone can purchase a single-family home for less than $500,000: Skyline Hills and Spring Valley. Skyline Hills in the City of San Diego, has a 77% homeownership rate, is 20 minutes to 32nd Street Naval Base and Downtown San Diego, and offers nice views. Spring Valley is 30 minutes from Downtown San Diego and offers different but equally as nice views. These foothills, suburban style neighborhoods are poised for better than average price appreciation as millennials start looking for affordable suburban homes in the next 5-10 years. Don't be surprised if you see more of these flags in front of Skyline Hills and Spring Valley homes.
What areas might decline in San Diego County?
Probably none of them but, on a relative basis, price appreciation might not be as great in the over $900,000 market as it should be in the under $600,00 market. I talk about this in detail in my article about tax reform (read the full article).
The luxury market (over $2,000,000) is strong today but that market is tied more to the stock market than mortgage rates. The stock market was up 140% under President Obama and up another 25% under President Trump. Tax reform should help most of these buyers but, if the stock market cools down there could be some weakness in the luxury market. This is somewhat relative. If the stock market cools down, you might get a chance to buy a single-family home in Rancho Santa Fe's Whispering Palms for under $1,000,000 or a Del Mar beach front home might drop from $20 million to $15 million. Generally speaking, I don't care too much about those markets because we typically don't advise, broker, nor fund those transactions.
In summary, 2018 should continue to be what 2017 was. Mortgage rates will increase a bit, home appreciation should outpace inflation, and new opportunities will emerge in markets which have been underappreciated before.
Call me at 858-777-9751 if you ever want to discuss my thoughts.
Posted at 12:46 PM in FHA Loans, Jumbo Mortgage Rates Report, La Jolla Real Estate , Mission Valley Condo Loans, Mortgage Financing, Mortgage Rates Report, Radio Mortgage, Real Estate, San Diego Condo Loans, Solana Beach Real Estate, VA IRRL Home Loan Refinance, Veterans Admin Home Loans | Permalink | Comments (0)
Multigenerational homes are coming back in a big way! In the 1950s, about 21%, or 32.2 million Americans shared a roof with their grown children or parents. We know how to provide the best financing options for multigenerational buyers. Our years of experience and background in financial planning helps us match multigenrational households up to the most cost effective finaicng programs; especially when the older generation is trying to preserve and grow assets for retirement.
According to an article by Realtor.com, “Ne
Another report that proves this point is the National Association of Realtors’ (NAR) 2017 Profile of Home Buyers and Sellers which states that 13% of home buyers purchased multigenerational homes last year. The top 3 reasons for purchasing this type of home were:
This shift can be attributed to several social changes over the decades. Growing racial and ethnic diversity in the U.S. population helps explain some of the rise in multigenerational living; Additionally, women are a bit more likely to live in multigenerational conditions than are their male counterparts (12% vs. 10%, respectively). Last but not least, basic economics.
Valerie Sheets of Lennar Homes brings to light the fact that home prices have been skyrocketing in recent years. She says that, “As home prices increase, more families tend to opt for living together.”
Multigenerational households are making a comeback. While it is a shift from the more common nuclear home, these households might be the answer that many families are looking for as home prices continue to rise in response to a lack of housing inventory.
Speak with Debra or me and find out why we are the best financing consultants for your multigenerational buyers. I can be reached at 858-777-9751
STEP 1-- Determine how much you can afford. This is best done with a loan pre-approval (which Debra, my wife, will handle). She will send you a list of documents to upload to the DropBox (copies of W2 forms, most recent LES, bank statements, IDs). With that information, she will pull your credit and input your income and assets into the underwriting program. The underwriting program is provided to us by the VA and will give us the amount for which you are approved.
READ: Understanding The VA Home Loan Approval Process: Active Military Service Members
STEP 2--- Determine how much you want to pay (as long as it doesn't exceed the loan approval amount). You may be approved for $500,000 with a $3000/mo payment but you may not want your payment be more than $2700/month. If that's true, you want to be searching for homes at a lower price point. Also, you'll need about $9-10,000 for closing costs. If you don't want to pay for closing costs, we can ask the seller to pay them
READ: What is a VA "No-No" mortgage?
STEP 3--- Shopping for a home. There are two things I want to determine when I initially show you homes: What neighborhoods do you want to live in AND What are your "need to haves" and "nice to haves"?. We will look in neighborhoods you like, in the price range you determined in step 2. Now that we know which neighborhoods you like, I will want to determine what your MUST HAVES are (a garage, three bedrooms, two baths, etc). Then I will try to ask you what your "nice to haves" are (a TWO car garage, a single family detached home, a big kitchen, etc)
STEP 4: Look for homes in the neighborhoods you like with the must haves. When you find one, we will make an offer.
STEP 5: Prepare an offer to purchase a home. We fill out an offer form (about 30 pages long). Here, we specify the price you will pay, whether or not the seller will pay closing costs, how long before we close the transaction, when you get your keys, and when your move in date will be. The seller can accept the offer, reject it, or counter the offer (in writing). An example might be this: You offer to purchase the home for $440,000 with the seller paying $10,000 towards your closing costs and we will cose it in 45 days. The seller counter with a $450,000 price and only offers to pay $5,000 of your closing costs and wants to close the transaction in 30 days.. You can counter back (in writing) or accept the seller's counter offer.
STEP 6: Once we have an accepted offer, we "open escrow". To do this, we deposit the executed and accepted contract, along with a good-faith deposit, with a neutral third party (we call that an escrow company). The escrow company acts like the "referee" in the transaction and makes sure that all parties follow the contract. The California contract has a 17-day contingency period. During that 17 days, you can to order a property inspection (about a $400 cost), need to get the loan submitted to the underwriter (Debra will help you with that), and order an appraisal to determine whether or not you are paying a fair price (Debra will order that).
STEP 7: Request repairs and remove loan and appraisal contingencies. At the end of the 17 days, we have to remove the contingencies on the transaction and submit a request for repairs The seller can agree to some, all, or none of the repairs and, if we are satisfied with their response, we remove contingencies. This means that you agree to buy the house and your good faith deposit becomes non-refundable.
STEP 8: Review the closing disclosure statement. Debra will send you an updated loan disclosure statement. This will have your final monthly payment and cash-to-close figures on it.
STEP 9-- Sign the final loan documents (3-4 days after the closing disclosure statement). This is where you agree to the terms of the loan and sign the deed to the house
STEP 10-- Final walk through. We will walk through the home one last time to make sure that the agreed upon repairs were completed and that the condition is the same or better when you offered on the home.
STEP 11--- Lender wires the loan funds to escrow. The seller signs the deed.
STEP 12-- The escrow company sends the deed to the County to be recorded.
FINAL STEP-- Pick up the keys to your new home.
...and a worse time to be a San Diego buyers' agent.
San Diego is in a housing crisis and the simple explanation for it is that we have a tremendous backlog of new housing--the politicians aren't helping us either. NIMBY-ism, water restrictions, and traffic density are core issues which restrict housing and, while they are legitimate issues, the county has a 65,000 unit backlog of new housing.
Experts believe that San Diego County needs 170,000 housing units built from 2012-2025 to meet demand and population growth- some 15,000 housing units each year. Over the past five years, San Diego County has averaged 2000 new housing units.. We are already 65,000 units behind and, if we continue at this anemic pace, we will end up 120,000 housing units short in 8 years. That is pushing up prices of existing homes.
You might think that rising housing prices, and double digit rent increases, will halt population growth in the County. While it might, SANDAG believes the region will grow by another million people within 25 years. Increased demand for housing and restricted supply means one of two things to your clients: they have to move out of San Diego County or home ownership is now, more than ever, the only defense against this housing shortage. Your role, as a buyer's agent, is now more important than ever to your clients' futures.
We are here to help you--here are three ways we can do that.
1- TBD approvals: this isn't a pre-qualification, this isn't a pre-approval, this is a full underwriting approval for the buyers' credit and income. We take an application, gather up supporting documentation, submit the file to the underwriter, and have a clean approval within 5 business days. What this means is that we can close a transaction in 21 days, giving your buyers a competitive advantage when they make offers.
2- "Selling" the buyer to the listing agent: a lot of the buyer's agents we work with ask us to speak to the listing agent when they make the offer. We communicate to them that we have that underwriting approval and, more importantly, tell them exactly what that means. It means that the only issues for a full loan approval are property related: appraisal, homeowners insurance and title insurance. When we explain the process to the listing agent, and represent the strength of the buyer, more offers get accepted.
3- VA and FHA condo approvals. So many condominium buyers are shut out because the complex lacks an agency approval, The perception is that VA and FHA condominium complex approvals are burdensome and lengthy--nothing could be farther from the truth. Debra and I are experienced experts at VA condo approvals-- we have approved over 130 of them in the past 8 years and we get those purchase transactions closed in 45 days or less. FHA condo approvals are easier for us because we have a HUD-delegated underwriter who has the ability and discretion to approve the complex FHA-eligible
This is a great time to be a real estate agent in San Diego County, especially if you list a lot of properties. Representing buyers however, is difficult. We're here to make that job easier on you.
Posted at 09:26 AM in 92130Realtors.org, Blue Collar Beach Towns, Carmel Valley Realtors, FHA Loans, Jumbo Mortgage Capital, La Jolla Real Estate , Mission Valley Condo Loans, Mortgage Financing, Oceanside Townhouse For Sale, Real Estate, San Diego Condo Loans, Show me a Good Deal, Solana Beach Real Estate, Value Investing, Veterans Admin Home Loans | Permalink | Comments (0)
Whether you like President Trump or not, his Presidency (like President Obama's) should be positive for San Diego real estate. Two things are driving San Diego real estate prices higher right now:
1- A back log of housing. Population growth in the County created demand for an average of 15,000 new housing units each year, for the past five years. Only an average of 2,000 housing units a year were built in the County during that time. This means that today, we have a housing back log of some 65,000 housing units. The NIMBYs and environmentalists are fighting every new development proposed so that problem will likely become more severe. This means higher rents and home prices are on the horizon.
2- Good paying jobs are being created. A housing back log means nothing id residents can't afford higher prices and/or rents but employment data suggest otherwise. San Diego County is created a (positive) disproportionate amount of well paying jobs. Our base industries are: 1- military 2- technology 3- life sciences and 4-tourism The top three base industries are attracting higher than median income jobs to the County.
In 2011, President Obama shifted American foreign policy towards the Asia-Pacific Rim. This makes sense because most world wide growth is coming from that region rather than Old Europe. Obama believed that trade opportunities and foreign threats are more likely to come from Asia rather than the Middle East and/or Europe. This shifted defense spending from East Coast military facilities to West Coast military installations.
President Trump has not hidden that he thinks the military needs to be rebuilt. He gave a speech on the deck of the USS Gerald Ford where he announced his request for a $54 .billion increase in military spending. He also signaled that he wants to Navy to have more ships, specifically 2 more aircraft carriers.
Trump will likely succeed, too. Republicans control both chambers of Congress (and the budget).
Politics does play a role on local real estate and federal spending will likely favor San Diego County so demand should increase. State and local politics are anti-growth so supply will be limited.
Do the math. If supply is restricted and demand is increasing, higher prices are on the way.
If you have an FHA loan in process this month. you were "given a gift" only to have it "taken away" nine days later. It was a political stunt by past HUD Chairman Julian Castro and it's a darned shame it happened to you. Let me break it down for you:
The FHA charges borrowers money to insure their loan against default. It adds 1.75% to your loan and charges a monthly mortgage insurance premium in addition to that added 1.75%. You can avoid this by having at least a 20% down payment and getting a conventional loan (although FHA rates are lower than conventional rates)
The FHA monthly mortgage insurance premium WAS based on an annual charge of .5% of the loan amount prior to the Obama Administration taking office. During the housing crash, the FHA insurance pool (the money collected from the premiums) was depleted because of all the foreclosures. The first term Obama HUD Secretary (Shaun Donovan ) started to increase the monthly mortgage insurance premium cost, from the annual charge of .5%, to an annual charge of 1.4%. This increased the monthly cost of a new $400,000 FHA loan from $166/month to $466/month.
This was a bummer for new FHA borrowers because they were essentially paying for the failures of the past borrowers. Still, if FHA was going to be sustainable, it had to do something so they opted this approach. It worked. The FHA insurance pool grew from being depleted to sustainable. As the size of the FHA reserve pool increased, the HUD Secretary during Obama's second term (Julian Castro) started reducing the monthly mortgage premium from an annual charge of 1.4% to its current annual charge of .8%. This reduced those monthly mortgage costs (on a $400,000 loan) from $466 to $266.
A few months ago, HUD Secretary Julian Castro floated another premium cut from its current .80% annual cost to .55% annual cost. This would reduce the monthly cost (on a $400,000 loan) from $266 to $183. This move was met with vocal opposition from career HUD bureaucrats and the Republicans in Congress. The prevailing thought was to leave the annual FHA mortgage premium be for now and let the reserve fund grow more.
HUD Secretary Castro ignored the advice of career HUD bureaucrats and issued the order to cut the FHA monthly mortgage cost anyway. He issued this order on January 11, 2017 to take effect for loans FUNDED after January 27, 2017. I thought this was suspicious when he issued it because all previous HUD orders were effective for loans STARTED after the effective date. This seemed "too good to be true".
If it looks too good to be true, it usually is untrue. HUD Secretary Castro's order, breaking with normal HUD policy on effective dates, was a legitimate HUD order anyway. We (like other lenders and REALTORS) delayed closings so that borrowers would benefit from the monthly cost reduction. Here's what you need to know:
Castro's FHA order to reduce costs was never gonna happen and Castro knew it when he issued it on January 11, 2017.
Castro was playing politics with borrowers' money. His intention was to put the new HUD Secretary (Dr. Ben Carson) and the new President into the tough spot of saying "Sorry. This was never a good idea". As such, Castro timed the repeal of the January 11, 2017 FHA order to come out just an hour before the new President was inaugurated. Castro was quick to release this repeal order to the media so that it could run with the story that "The New President RAISED FHA monthly mortgage costs".
Let me give you a simple analogy:
I am the principal of a school and you are taking my job next Friday. Last month. I asked all the teachers if we could cut the dismissal time from 3PM to 2PM, The teachers said "this is a bad idea" and you (the new principal) agreed with the teachers. Last week, I ignored the teachers advice and sent an email to all of the pupils saying that the new dismissal time would be 2PM, effective the Monday after you become the new principal. My last act as principal, before I hand you the keys to the school, will be to send an email to the pupils saying "Sorry, the new principal might be a meanie so I can't keep that 2PM promise to you". Guess who won't be popular with his new pupils next Monday? You.
It's political scheming and it's garbage. The Obama Administration took a parting shot at the incoming Trump Administration and, if you have an FHA loan in process, you are the loser in this political game. In my opinion, the incoming Administration should honor the reduction for 30 days and restore the (higher) premium for loans funded after February 28, 2017. They might not have time to do that and I don't make policy so, if you have an FHA loan in process, expect to pay the original (higher) amount.
Posted at 10:27 AM in Carmel Valley Realtors, Carmle Valley Realtors, FHA Loans, Jumbo Mortgage Capital, Jumbo Mortgage Rates Report, La Jolla Real Estate , Mission Valley Condo Loans, Mortgage Financing, Mortgage Rates Report, Real Estate, San Diego Condo Loans, Solana Beach Real Estate, Triple Crown Condos | Permalink | Comments (0)