SAN DIEGO MORTGAGE AND REAL ESTATE

Which offer should a San Diego home seller accept during the COVID shutdown crisis?

Q- Which offer to buy your home should you accept?

A- The highest net offer which is most likely to close.

 

That seems obvious, doesn't it, Let's consider the second part of the answer though. An old friend and Phoenix real estate broker Greg Swann, was promoting this new listing on his Facebook and asked me this question:

 

Q- Can you reflect on the current state of borrowers? I've never loved FHA-ish loans, especially not in cash-poor offers. Obviously, everyone loves cash, and 80/20 conventional is hard to turn down. Are government loans still doable? If so, are they more or less risky to close than they were two months ago?

 

My answer is:

 

Great questions. Government loans are fine and, based upon whom the buyers may be, might be preferable. Here is the biggest concern from a lender/servicer's point of view; will the new buyers start deferring mortgage payments under the blanket of COVID?

 

Lenders are going to verify employment before the loan is approved, right before the loan docs are drawn, and right before they fund the loan-- yes, three times.

 

How might a seller mitigate that risk? Consider the buyers' jobs as well as their qualification standards. "Essential" workers are good buyers but government-funded paychecks are the best buyers.

 

If presented with a VA offer, from a Staff Sergeant at MCAS Miramar, take it. If presented with a VA offer, from a Navy veteran working for a start up, scrutinize it.

 

If presented an FHA offer from a Law Enforcement Officer, take it. If presented an FHA offer from a security officer for an office building, scrutinize it.

 

If presented a 40% down conventional offer from a business owner, scrutinize it. If presented a 20% down conventional offer from a public school teacher, take it.

 

The old saw "money cures all problems" isnt applicable anymore if there is a loan involved.

Each acceptance should have an addendum and/or counter which states that the buyers lock their interest rate within 24 hours and order the appraisal within 48 hours of acceptance.

 

Unless you have a cash offer, there is ALWAYS going to some risk that the loan is declined. Most lenders are looking for a 680 minimum credit score for conventional loans and a 640 minimum credit score for VA/FHA loans. Downpayment matters only inasmuch it can mitigate a low appraisal. Ability to repay a loan, especially in a time when forebearances are handed out without much scrutiny, has underwrters worried about the continuity of the income and employment.

 

It's a whole new world in mortgage lending...AGAIN. As always, Debra and I can help you

 

Call or text Brian at 858-699-4590. Call or text Debra at 858-228-0617

San Diego REALTORS: Please pick up your phone !

I hate being stuck at home during this COVID crisis. I hate it but I see an incredible opportunity for me and for you, the professional REALTOR.

 

My friend Leigh Brown is a real estate broker/owner in North Carolina-- I have known her for close to 14 years now. Leigh was interviewed by Housing Wire about what she is doing during the COVID crisis. While you would benefit by reading the full interview, please look at this:

 

The other thing that I’m doing to encourage my team is I’m just reminding them who we have to call and that we all have to be making phone calls. It’s not just the sales staff. It’s the admin team, too, and there’s different things that they can say, but they can still be touching their neighbors and checking on their neighbors because a lot of what we’re doing right now, of course, has zero to do with sellers and buyers, and everything to do with neighbors and humans. How can we help? Who needs help? What could we be doing? And that’s where we’re finding our positivity, is finding things you can take action on.

 

Russell Shaw, one of Phoenix's top real estate brokers has always said that lead generation is a REALTOR's most important job .

 

Your most important job...

 

Now is not the time to cold call for listings nor is it the time to push showings on potential buyers . You have probably heard the old saw, " People don't care how much you know until they know how much you care ".

 

Show everyone you know that you care about them during this crisis; pick up the phone and call them.

 

By the way, if you see my number come through on your caller ID, please pick up the phone and talk to me. I care about you and I care about your customers. Debra and I are here to help.

Realtors losing listings to iBuyers

Guess what?  Zillow is entering the San Diego residential real estate market and Realtors should take it seriously:

Zillow Offers is continuing its expansion, announcing Monday it will be buying and selling homes in San Diego.  Through its iBuying service, Zillow seeks to provide a solution by enabling sellers to forget about the hassle of cleaning their home, forgoing home repairs, open houses, and the like. They can even choose the date they want to sell and move by. (For more on what, exactly, is an iBuyer, read this.)

I know.  I know.  Zillow is no competition for a professional, local expert...or is it?  What San Diego Realtors often miss is that, while iBuyers may "low-ball" sellers, looking for homes with cosmetic repairs needed, the simple fact is that the iBuyers end up negotiating with sellers long before an agent has a chance to prsent his/her services.  Here is my friend, Phoenix real estate broker Greg Swann:

As for iBuyers being nothing to worry about: Ahem.

If they’re in your town, they’re in your potential-seller’s head – and maybe in his email in-box, too. They’re in everyone’s net.world, on billboards, radio, TV. If your prospect hasn’t solicited an offer yet, you need to get out in front of that eventuality.

The iBuyers are the elephant in the room at your listing appointment. If the seller doesn’t bring them up, you had better. It could be that iBuyer offers are already in play, so you may already be smoked. Or the seller may want your help going that way, in which case you just made the easiest money in your real estate career – although the party to whom you owe fiduciary duty may have just pissed away half or more of his accrued equity in the home. Or, god help you, he may want to be sold on the value of listing traditionally.

But to go in to a listing appointment assuming the listing is your to lose is a mistake, I think. In the iBuyer world, the listing is theirs to lose, yours to win. You got the appointment because the seller wants your advice, not because he wants your sign in his yard for six months.

Greg has done extensive research on just how poorly iBuyers perform and you should follow what he's doing.  More importantly, read the emboldened statement Greg made. I'll parse it for you here:

You got the appointment because the seller wants your advice, not because he wants your sign in his yard for six months

Realtors need a strategy to position themselves as a trusted advisor so that their clients contact them before the iBuyers do.  Gary Keller said, some 15 years ago, that Realtors are either going to be fiduciaries enabled by technology or functionaries working for technology.  Thus, San Diego Realtors are going to have to examine the way they charge clients for the knowledge, advice, and expertise.  For too long, Realtors have relied on the commission model ad the only way to charge for their services.  Developing a "menu of services", which includes pre-MLS solicitation of iBuyer offers seems like the only way to get ahead of the curve.

HIgher Loan Limits in Southern California for 2019

The 2019 San Diego County loan limit is $690.000, up from $649.750 in 2018.  

In Orange & Los Angeles counties, it's $726.525 and in Riverside, San Bernardino, and Imperial counties, it's $484,000.

 

The higher loan limit affects FNMA, Freddie Mac, and FHA loans. For VA loans, the county limit is for zero down payment loans ONLY.   VA loans have no loan "limit"  but may require a down payment for prices over the county limit. Read about how to calculate the VA downpayment for purchases over $690,000 here

This year, the FHFA published this interactive loan limit map, showing the loan limit for every county in the US.

For fun, compare the 2016 Presidential election map (by county) with the FHFA interactive loan limit map.  If you click both links, the maps will open side-by-side

I can't think of a better time to be a San Diego County listing agent...

...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.

WTH Just Happened to the FHA Mortgage Insurance Premium? Politics At HUD

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.

 

2017 San Diego County Real Estate Market Outlook

It's been a great run.  Back in late 2011, we were pounding the table for investors to buy a single-family home in San Diego County, especially in what we called  "Blue Collar Beach Towns".  Then, you could purchase a single-family detached property for $250,000.  We were nervous so we advised investors to put at least 25% down and only buy a property where the rent could cover the pre-tax housing expenses (mortgage, taxes, insurance, estimated maintenance).  If you were one of our investors, you are probably sitting on over $100,000 of profit today.  That means you will have almost tripled your investment in a period of about 5 years or earned an internal rate of return in excess of 27%.

It's been a great run but it looks like the party is over.  We think the first half of 2017 is going to be a good time for investors to take some money off of the table, especially if they have a plan for that money in the next 3-4 years.  This doesn't mean we think the market is going to crash, like it did in 2008-2012 but we think the prices are going to soften and perhaps decline 10-15%.

The three reasons we loved San Diego single-family homes, as an investment in 2012, are the same reasons we don't love them today:  median price and median income, price-to-rent-ratio, and mortgage rates direction.  We still like single-family homes for owner occupants but we just don't love them as investments.

The 2016 median income in San Diego County is $73, 500 for a family of five.  This translates to a maximum monthly mortgage of approximately $2050 (PITI) or a $344,000 mortgage.  Add a 20% down payment and the family of five, earning the median income in San Diego county, can afford to purchase a home for $430,000.  A median-priced home, in San Diego county, was $495,000 this past summer.  That's a 15% premium.

Keep in mind that. back in late 2011/early 2012, a veteran could purchase a single-family home, in Oceanside CA, for zero down payment and her mortgage payment would be cheaper than rent.  Today, if that same veteran purchased a median priced home in San Diego County, the mortgage payment would be $2800.  There are tax benefits to owning versus renting so let's make the after-tax costs of owning a home $2500.  That same home can be rented for $2200; this is after a rental shortage in San Diego County spiked rents these past few years.

Look at 3792 Atlas Street as an example.  It is being offered for rent at $2200 and the Zillow Zestimate is for a $528,100 value.  Even if a home buyer had 20% down payment, their after-tax mortgage cost would be about $2300; $100 month more than they could rent the property.  It still makes sense to own that property, if you intend to live in it for 7-10 years but it just isn't a compelling investment when looking at the price-to rent ratio anymore.

Finally, we think the carrying costs for real estate (aka mortgage rates) can only go up from here.  Interest rates may start climbing in a couple of months or it could take as much as a year for mortgage rates to rise.  Eventually, mortgage rates are going to be 1-2% higher than they are today.  More importantly, the threat of higher mortgage rates is starting to affect pricing now.  Back in 2014, people still thought rates could come down so they weren't too particular about paying 5% more than last year's prices; they figured they could refinance into a lower rate soon enough.  Today, the opposite is true.

 What does this all mean to you?

If you are a real estate investor, it might make sense to sell that San Diego County investment property, especially if you plan to use the money in the next 4-5 years.  If you don't plan to use the money, and want to avoid paying capital gain taxes, I have two ideas for you:

1- Consider the Greater Phoenix area.  You will increase your income (the capitalization rates are better) and there is still some upside appreciation to be gotten there (not a ton but better than San Diego County).  We refer our clients to Greg Swann of Bloodhound Realty.

2- Consider placing the proceeds from the investment property sale into a Delaware Statutory Trust.  This is a security so we don't handle these transactions but we refer our clients to investment adviser Tony Krvaric of Krvaric Capital.

What if you just want to buy a home to live in?

There is no greater place to live (in my opinion) than San Diego County.  We have beaches, mountains and deserts.  Our climate is second to none and our business environment is relatively robust.  Unemployment, in San Diego County, is less than the rest of California and the rest of the country.  San Diego County is a great place to own a home.... BUT....

...we think the short-term prospects of higher prices are unlikely.  Even with the Great Recession, if you bought and held a home fir ten years, you made money in San Diego County.  Our advice then is to be judicious when buying an owner-occupied home in 2017.  We suggest that you do three things:

1- Establish your holding period.  If you plan to move in less than 7 years, you could lose money.  If you plan to live in the property for at least ten years, you should make money.

2- Call us to run a rent v. own scenario for you.  This is where we analyze the price-rent-ratio.  For traditional, 20% down payment transactions, it can still make sense to own for the long-term in San Diego County.

3- Negotiate, be patient, and shop around.  You don't have to get a home at 15% under list price to get a good deal but we don't' think you have to pay list price to get a home in 2017.  Sales have slowed in San Diego County, ever so slightly, but they have slowed.

Conclusion:

Inventory is still under three months which suggests that this is a seller's market, That could all change once prices start softening (they are showing signs of that now).  If you are an current investment property owner, the first six months of 2017 will be an excellent time to sell and realize your profits.  If you are a potential home buyer, we think you are going to have more options next year than you do today.

Carmel Valley Real Estate Professionals September 2016 Networking

The next Carmel Valley Monthly Real Estate Pitch Session is….  

Monday September 26th from 4:30-6:30PM at Crust Pizzeria in Torrey Hills  

RESERVE YOUR SEAT NOW

• Pitch your listings
• Learn the 92130 inventory
• Pitch your buyers needs in 92130
• Identify the Carmel Valley properties on tour the next day  

Networking from 4:30-5:15 with Happy Hour Prices. 
Pizza and salad is complimentary to REALTORs (affiliates pay a fee to attend)

RESERVE YOUR SEAT NOW

Meeting Starts Promptly at 5:15PM and will last 60 minutes or less

When

Monday, September 26, 2016 from 4:30 PM to 6:30 PM (PDT) - Add to Calendar

Where

Crust Pizzeria - 4653 Carmel Mountain Road, San Diego, CA 92130 - View MapRESERVE YOUR SEAT NOW