Is it too hard to get a loan nowadays?

Mortgage lenders are easing up on credit, but not much…. 

“Credit is expanding very, very slightly from absurdly tight levels”  said Laurie Goodman, Ph.D., Director of Housing Policy at the Urban Institute.  (see CAR's magazine - Nov/Dec 2015).

The Institute’s Housing Credit Availability Index (HCAI) measures the probability of a loan ever going 90 days delinquent.  Based on the Index, the fourth-quarter 2015 default rate was 5.6%.  As a comparison, the average default rate for the whole mortgage market in the years 2001 to 2003 was 12.5%, and considered standard. 

Lenders are taking much less risks nowadays, and it shows in the current process that buyers have to go through right now in order to get their loan.  Underwriters have to show that they have been super careful.  As loose criteria lead to abuses - as we have seen too well 6-8 years ago, this is a good thing. But current criteria are too tight for some, who would like to see more "willing and able" buyers have access to home ownership.  Indeed the renting alternative can be brutal and in some cases more costly, actually. 

"Current criteria" also include the lack of bridge loans, which were so prevalent up until the financial crisis.  In my opinion, this is one of the main reasons why the market is currently so tight: most people who would like to move up, or down, do not have the means to qualify for both houses, which is what lenders currently demand.   Before the crisis, banks would only ask the buyers to qualify for their new purchase, not both the new purchase and the currently owned home.  All they wanted to see was some proof that the currently owned home was going to be sold (i.e. a listing agreement with a Realtor).  But this is not the case any more.
The reason why bridge loans are not available is a mystery to me: there is no risk at all for the banks in the Bay Area (and many other appreciating areas, see my last blog on underwater properties), to lend money on a move-up or down purchase. The demand for housing is so strong that the previous home will sell very fast.  More houses sold means more loans made by the banks, doesn't it?
These new tight lending rules certainly contribute to the lack of inventory, which also make it harder for buyers to make a purchase.  I have several clients would have moved by now if real bridge loans were available.

As is often the case, the pendulum swung too far the other way in my opinion.

Thanks for reading,
Francis

Silicon Valley real estate specialist
Detailed, local trends etc...
Current mortgage rates
A worthy local non-profit to remember: Community Services Agency in Mountain View - our last event there.

Average prices in the SF Bay local Counties - evolution.

To piggy back on an earlier blog of mine, dating back to January of this year, here is an update to the graphs showing the increase in average prices in both the counties of Santa Clara and San Mateo; the figures include both the houses and the condominiums/townhouses.

As always, one has to be careful with statistics: a few very high priced homes can skew the average to a high number, even though nothing much else has happened in the market place.

A few things to note:
- In general, average prices go down at the end of the year and until January.  Last year was shielded in large part from this phenomenon: prices went down, but not much.  We will see if this year acts more "normal".
- The total number of homes (houses and condos) for sale last year at the end of August was 1,852 in the Cnty of Santa Clara, and it is now 1,778  - a little lower.  Still a lack of inventory ...
- Prices were an average of $715.7K in the County of Santa Clara in Jan of 2013, and they are now $992.5K, a 38.7% increase !
- From the graphs below, it seems that averages move faster up and down in the County of San Mateo than in the County of Santa Clara.  I believe it reflects the fact that a lot more properties went into the averages in SCC than in SM Cnty: 25,705 listings for Santa Clara County, vs 10,619 for San Mateo County.  The more properties you have, and the more the averages are going to be representative of the real market, instead of the specifics of the homes.  To say it simply, if you have a few very high properties, they will have less of an effect on the average of 25,000 sales vs the average of 10,000 sales.

One final note: the inventory of homes for sale in January of 2014 was around 900, about half of what it is now.  So it is a better time to look for a home!  Also, many trades linked to real estate, like property inspection services, termite companies, stagers, report being extremely busy right now (beg. of Sept.).  This could mean that inventory may increase soon...

County of Santa Clara:

County of San Mateo:

 

 

Thank you for reading,

Francis

Silicon Valley real estate specialist
Detailed, local trends etc...
Current mortgage rates

non-profit organization worth noting: Partners for New Generations - now called:
Mentor Tutor Connection.

Positive Equity Rises in 2013 - local market place update

A new analysis by CoreLogic shows that 4 million homes returned to positive equity in 2013, bringing the total number of mortgaged residential properties with equity to 42.7 million. 

However, it is important to note that the CoreLogic analysis indicates that nearly 6.5 million homes, or 13.3 percent of all residential properties with a mortgage, were still in negative equity at the end of 2013.

In our local area, the Bay Area of San Francisco, it is difficult sometimes to keep some perspective on the local market, which has been on fire since the beginning of January 2012.  This study by CoreLogic gives perspective at the national level: things have for sure improved enormously, but all is not over from the 2008-2009 crisis.

In the Bay Area, let's note that the inventory of homes (SFR + condos) for sale was about 1,700 after the first week of July, as compared to 1,872 a year ago.  There are fewer homes for sale.  It explains why property values have gone up so much in the past 12 months.  Inventory was at 7,500 in May of 2008!
For the area that includes only Los Altos, Los Altos Hills, Mountain View, Palo Alto and Menlo Park, inventory stands right now at:
150 homes total for sale (both houses and condominiums and townhomes, called PUD's), vs
184 last year at the same period.

We still have a very low inventory.

Dealing in the local market place day in and day out, I can however note here that, overall in the County, the activity seems to slow down: I have noticed fewer multiple offers in general, and a slower price increase in many areas. Except for Palo Alto and all areas with the best schools, I can sense that it is a slower activity now, during July.  This slow down can be the normal cycle, which slows down during the summer vacations (see my last graph-blog on the subject), or it could be a more general trend tied to the market in general.  We'll see in September! 

Thanks for reading!

Francis

Silicon Valley real estate

Trends: Local prices and graphs.
A noteworthy local non-profit event:  Coalition on Homelessness, SF