It feels great to be blogging again, and I am sorry I have not posted for over a week! I do have an excuse: the spring home sale season is well underway! I can’t remember being this busy in a long time – not since the early 2000s; it has been incredible! If you are wondering what is going on out there in the North San Diego real estate market here is an overview:

Slight rise in inventory. Although we still do not have a surge in inventory there have been increases, enough so that local agents are able to show several properties to buyers in most cases, rather than just one! According to Housing Tracker, inventory has increased on a national level 13.5% so far this year. In San Diego county there were about 7540 homes listed on the MLS as of the start of this week, which is about 100 more homes listed than the same time last month. The lowest inventory level we hit here in San Diego county was in February of 2013, and the last time we had inventory levels higher than right now was in December 2012…so although inventory is still low from a historical perspective, there is some comfort in knowing that it is rising slightly.

Multiple offers/quick market times still dominate. Yes, we are still seeing many new sales with multiple offers, and usually within days of listing. Buyers have to present their strongest offers in order to stand out from the rest of the crowd. Cash buyers are still in the game and often outbid those requiring lender approval. It can be frustrating, but there are always things that can be done to present the strongest offer possible, even in multiple offer situations (for more on this click here)

Prices are still rising, especially in some areas or neighborhoods. Prices continue to rise in most areas, and San Diego is no exception. The challenge with area appraisers to find higher values in pending property sales finally seems to be getting easier, as many appraisers are now applying the faster growing values into their analyses. For those who are afraid we are approaching another bubble, you can rest assured that will not happen so long as prices stop rising drastically at some point and level out. My guess is that this will happen by the end of the year. For more of my perspectives on the bubble possibility, click here.

Distressed inventory declines. According to market research firm Core Logic, the number of seriously delinquent mortgages has fallen about 33% since the peak (3.7 million) in January 2010. This is good news for buyers who are not finding as many short sales out there. But I must say that they are still out there, and that they are as painful as ever. I am personally awaiting for lender approval on two short sales that have been contingent for a long time – one since December of 2012. Lenders’ promises that short sales were going to get quicker never came to fruition and I don’t believe they ever will (but that is the subject for another blog…stay tuned!) More good news: foreclosure filings also fell to a 74 month low in April, according to RealtyTrac.

Loans may be a tad easier to obtain. There is growing demand for home loans, and application levels continue to rise. In order for banks to improve mortgage assets they will need to address the demands. Also, the Federal Reserve recently discovered that 8% of banks loosened mortgage credit conditions in the past 3 months (ending in April) – now you may laugh and say that 8% is not a big number, but it is a start. Also, according to Realty Times “27 percent of banks plan to up residential mortgage assets over the next year and know they can’t do that without taking on a little more risk.” Good news for borrowers.

All in all the market seems to be shaping up and we are well on the road to recovery. Luckily spring time came along right when the market started climbing out of the doldrums, and it seems we will have a strong spring and summer sales season.

There are many people who feel we are headed toward another real estate bubble. With scare inventory, increasing prices, bidding wars, multiple offer situations, governmental programs falsely inflating prices, and buyers willing to pay over appraised value to purchase a home, it is easy to see why many feel this way.

Today’s market is very different from that of the early 2000s. Let’s look at the differences to determine if a crash is likely:

1. Scarce inventory. The lack of inventory is problematic, and it is the biggest issue amongst buyers’ agents. It has led to some desperate measures on behalf of many borrowers in order to get their offers accepted in multiple offer situations, which are common (see below). Back in the early 2000s we did not have inventory issues. People were selling homes right and left, moving up. The ease at getting loans made it simple for almost anyone with a job to jump into the game and purchase a home. Today’s scarce inventory is definitely driving demand, but there are other factors that prevent the frenzy we witnessed years ago.

2. Tighter lending standards Back in the early 2000s, lenders were heavy players in handing out loans to anyone, even those who were not really qualified. Inventory was not scarce like it is today, and loans were very easy to obtain, with no-doc loans that bypassed employment and income verification – types of loans that are pretty much impossible to get today (unless one wants to go through a private lender and pay a very high interest rate). Today it is not easy to get a loan; even with strong employment history and good credit would-be borrowers  have to jump through hoops.

3. Stricter appraisal standards. In the early 2000s appraisal standards were very loose – we saw drive by appraisals, and basically many appraisers were just gold stamping contract prices without deep scrutiny. Today appraisers will not do so, and must adhere to strict guidelines. Prices have increased in most areas, and appraisers do take this into consideration, but it is no longer a free for all when it comes to appraisals. The appraisers with whom I have spoken say they are not 100% caught up with what is happening in the market, and guidelines prohibit them from looking at only the last sale, which may be tens of thousands of dollars higher than other sales in the neighborhood in the last 6 months…thus they have to look at both in order to assess value.

For example, let’s say in your neighborhood 4 similar homes sold in the last 6 months at close to $450,000. A fifth home, also similar to the other four, then closes escrow at $500,000 (there could be many reasons for this – bidding wars, cash buyers, buyers paid over appraisal value, or a government agency could have falsely inflated the price – click here for more information on this.) You decide to list  your home now, based on the $500,000 sale, and you do so. A buyer comes along who offers that price, but the home appraises lower. This is because the appraiser will look at all five sold properties, not just the last sale.

4. Buyers paying over appraised value. Many buyers don’t care what the appraised value is, and they are willing to pay the cash difference between it and their loan amount. This has been common in many areas, and is a factor in increasing comparable value. This tactic puts those buyers in the most expensive homes in their neighborhoods (which is never a goal, but what many feel they have to do to get their contracts accepted today). Back in the heyday of the early 2000s we didn’t really see this issue because we didn’t have appraisal issues. So this time around it is the buyers who are driving the prices higher due to the lack of inventory and the high demand.

I believe that we will not see another housing crash, based on the above factors. What I think will happen is that we will see the higher prices and lower inventory for a while, possibly until the end of this year, and then at some point things will level off. Many homeowners who have been underwater (their home is worth less than their mortgage balances) will find themselves no longer so due to rising prices. This will allow them to sell their homes, creating more inventory and less distressed property. At that point prices will simmer and stop escalating, and we will finally see a return to “normal” market trends.

Sellers rejoice: it is finally a sellers’ market in many areas. For those homeowners who need or want to sell, this news has been a long time coming, after the last few years of the housing market collapse and bad news. There are some very positive market conditions that accompany this changeover:

Home price increases: If you follow the housing market in your area you may have noticed that prices are increasing in most areas (of course, you should check with your local real estate professional, as every area is different). The median national home price has increased 12.3% in San Diego county from this time last year, according to the National Association of Realtors (NAR).

The great news is that this will move many homeowners from being underwater, to being able to finally sell and move on. Many of these people were “stuck” in their homes because they owed more than their homes were worth. Zillow reported that over 2 million homeowners came out of the negative equity doldrums on their homes in 2012, and that is expected to continue this year. Over the next year we will see many of these underwater homeowners get out of negative equity situations, which will then increase the inventory levels and bring the market back into “normal,” aka healthy, status.

Increase in buyer demand: Also, according to NAR, buyer traffic has increased 40% from a year ago. There are many buyers out there ready to buy, and less inventory for them to see. This keeps prices climbing and leads to…

Multiple offers: Many listings are obtaining multiple offers, and many are also selling not only over comparable market value, but over appraised value. Lots of buyers are willing to pay cash out of pocket for homes where their appraisal has come in too low (they pay the difference between the appraisal and the sales price), thus driving neighborhood comparables upwards.

Market times have decreased: Due to all the above factors, market times have decreased and homes are selling more quickly. In San Diego county, average market times decreased for almost every city. The average days on market in North San Diego for detached homes was 36, down from 48 days in December 2012. Market time for attached homes similarly fell in the majority of San Diego county cities, some as much as 84%, with the median attached home market time all across the county at 48.  (Source: HomeDex)

The market is improving and all signs are pointing toward a healthy 2013 for the real estate market. The biggest plus is that we will eliminate the negative equity situation for many homeowners, creating more inventory for buyers, and allowing many current homeowners to sell and purchase properties that are more cost-efficient for them. All this, of course, will create higher home values, which benefit neighborhoods.

All in all, this is a great time to be in the position to sell, so get your home in tip-top shape and enjoy the turn of the market. If you are thinking of selling your home, it is important to consult with an experienced neighborhood real estate agent.

Is Fannie Mae hurting the real estate market? Those following the practices of this government lending giant know that as of late, Fannie has been accused by many in the industry of price fixing and falsely inflating the real estate market. What is going on, and how can this happen at this time, after the housing market is finally on the road to recovery?

The majority of lenders and those who guaranty loans seem to be cooperating recently with foreclosure avoidance, opting for the less painful option of short sales. They claim that not only do they want to ease the homeowners’ pain, but that they do not have a desire to own property, and would rather take a loss sooner than have to go through the foreclosure process – one which has a hefty price tag.

There is one exception to this rule, and real estate agents are baffled. Fannie Mae – a government agency, who along with it’s cousin Freddie Mac guarantees and purchases loans, and owns or controls about 31 million U.S. mortgages  – has been implementing some strategies lately that go against this notion, despite statements of intentions to help:

1. Price Fixing? One of the claims expressed most frequently as of late by real estate professionals is that Fannie is engaging in price fixing. Here’s how it works: instead of opting for short sales, it is choosing to proceed with foreclosures. Then, once the home is ready to list, it’s selected agents list the property for over comparative market value, under Fannie’s Homepath program. No appraisals are needed, as Fannie is the largest provider of mortgage credit. Buyers are jumping in and paying over market value for these properties, and are closing escrows.

Initially this looks like a win-win, as the buyers get their home and do not have to go through the appraisal process, and the area comps are raised with the closing of the property at a value  higher than any other recent sales, thus increasing comps for the next seller. Sounds good, right? Not so fast.

The downside of this tactic is that the buyers are literally moving into their new homes as UNDERWATER homeowners. Their homes have no equity – they own the most expensive property in the neighborhood because Fannie has falsely inflated the home values. Appraisers will not look solely to the most expensive home that sold, but will include it with the other comps…thus leading to the next problem:

As  a result, future sellers will not likely benefit from the most expensive neighborhood sales (for more on this click here.). Appraisers will include the most expensive sale in their analysis, but they will not focus solely on that one sale; thus the next home to sell, even in better condition and with more to offer, will be evaluated by appraisers based on the combination of recent sales. What seller in their right mind, who did not have to sell, would choose to do so in such a situation? This will keep homes off the market, sustaining  low inventory levels.

2. Countering short sale offers at prices higher than comparable sold properties. Another tactic that is being used by Fannie when they DO agree to short sales, is to counter offers received higher than comparable sold properties. Again, this is crazy! These homes will not appraise, but still there are buyers willing – and doing it! – to pay cash over and above appraisal value in order to close escrow. Again, these new homeowners move into their homes in negative equity positions. This tactic also prices many homebuyers out of the market.

I’m not sure how to explain what is going on, but it scares me. Our market is healing right now, and if prices are falsely inflated and comparable sold properties ignored, we will see large market increases in short time periods. If you remember, this is what led to the last market crash. Please share your thoughts.

You have heard the term “shadow inventory.” It was initially coined to refer to the housing inventory that lenders owned, post-foreclosure, but had not yet placed on the market for sale. It has been feared for years and is the subject of much speculation – how much are those lenders really holding back? Since the inception of the term years back, it has been used broadly, as has included inventory that has not yet gone into foreclosure but may. The media has blown the term out of proportion, and the average American thinks it is something to really worry about…but it is NOT.

The tides of the real estate market have really turned in the past year. Lenders have created their own programs, along with federal and state programs, that have actually kept the foreclosure numbers down. Lenders are accepting more short sales and moving forward with less foreclosures, precisely because the lenders do not want to sit on inventory that they have to rehabilitate and sell. They are in the business of lending money, not selling homes.

I’ll put it another way: lenders do not want distressed inventory. In fact, Alex Charfen, founder and CEO of the Charfen Institute and regular commentator for MSNBC and Fox News, agrees that shadow inventory does not exist. He points to the actual bank holdings (which he has seen), and bases this assumption on actual communication with those at the highest levels within the lending institutions. He states flat out that “banks are not holding properties off the market.”

The bottom line is that “shadow inventory” is not a concern. In fact, if you want to be afraid of something real estate related, chew on this:

- It is less expensive to purchase a home then to rent. The last time in history that such was the case was in 1973.

- Housing is more affordable than it has ever been…BUT inventory is very low. Statistics say that inventory will take 3-5 years to shift. In that time, it is safe to say that interest rates will likely rise.

- Standards of getting a loan, while offering more protection for buyers than ever before, have shifted and it is now harder to qualify for a loan.

- Meanwhile, due to the lack of inventory and the greater demand in the housing market, prices continue to rise and competition is fierce – cash investors purchased 30% of homes in 2011 (and that number will likely be higher for 2012).

If you have been considering buying a home, now is the time. I don’t say this because I want to sell more homes, but because it is simply the truth. Many people waited back in 2006/2007 to sell – they saw prices rising like crazy and thought they would wait until they got just a tad higher, so they they could sell and reap bigger profits. Many of those people went into foreclosure or had to short sell their homes after the market plummeted. Don’t get left in the cold.

There are some rules in the works that may make it harder to get a loan to buy a home. But wait, you say, it’s already VERY hard – most lenders already demand everything but your first-born. Let’s take a look at one new rule that may make purchasing a home even more difficult in the near future.

Ability to Pay Rule/Qualified Mortgages. This rule forces lenders to make a good-faith decision as to whether lenders will be able to pay back a loan that it is offering.  This is being aided by creation of “qualified mortgages (QM)” – those that conform to the standards of Fannie Mae and Freddie Mac, even if they are not being purchased by Fannie or Freddie.

The rule enables the lenders to feel secure in issuing a loan, and affords borrowers protection against deceptive practices. Lenders also escape liability if the borrower does default – shielding them from lawsuits for originating loans they knew borrowers would not be able to repay.

Not all mortgages are QM mortgages. California is a high cost state, with many jumbo loans, so the goal is to make sure that there is no bias against borrowers in such states, which could restrict underwritten mortgages in these states. The California Association of Realtors will be working closely to make sure this does not happen.

I am all for preventing abuse by lenders, as the consumers will benefit immensely. But are these new rules a price worth paying if it will  make getting loans harder? The fact is that getting a loan could become a more difficult process, which in turn makes it more challenging to sell homes, which leads to the bad news for housing…just when we are on the uphill climb to a stronger market.

The new rules went into effect January 10. If you would like more detailed information on how these rules may affect your ability to get financing, please call your loan officer. If you need a reference to a great person, just shoot me an email.

As expected, Congress has extended the Mortgage Forgiveness Debt Relief Act for one more year. This extension assures that homeowners who short sell their homes, obtain loan modifications or are subject to foreclosures, will not be liable for the taxation on mortgage debt that is forgiven by the lender(s).

Homeowners who currently have a short sale on the market, in escrow, or are considering listing their property as a short sale can breathe a sigh of relief and continue to pursue this path. However, as always, it is important to make sure to consult with your accountant, attorney, and a qualified short sale Realtor before pursuing a short sale or loan modification, in order to assure you are aware of all possible consequences and that it is the right option for you at this time.

The settlement reached by Congress also maintains the current capital gains rates on the sale of principal residences – the first $250,000 for single tax payers and $500,000 for married couples will be excluded.