The New Lending Process

A new set of lending rules have been put into place by the Consumer Financial Protection Bureau as of October 2015. The feds are trying to make it as clear as possible for the general public to read and understand what they are getting, and getting into, when taking out a loan to buy a house or other real estate.

There are now two main things for consumers to read and understand; 1) what the loan conditions are and 2) what it's going to cost you to borrow the money. These are called the Loan Estimate and the Closing Disclosure. These two documents replace the four documents consumers used to have to read and decipher - often having repetitive information that made you wonder if you had read it correctly or if you might be misunderstanding the whole thing. The "loan estimate" gives the consumer a better tool for comparison shopping - and that is an important thing to do before signing on the dotted line. This has to be given to the borrow within three days of receiving their application.

Other tools available are online here. Like the "Know Before You Owe" toolkit as well as the loan estimator and closing disclosure tools.

I always advise buyers to be prequalified for their loan before they step one foot in a potential house to buy. There is nothing worse than thinking you can afford "X" and finding out you really can only afford "X-$50,000."

The new mortgage rules should make things easier - though maybe not at first for lenders getting used to the new rules. Just as consumers are well informed on real estate, so too they should be well informed on lending.

The Santa Cruz County Housing Market Update

Not too much has changed in the last few months regarding our housing market. We have been experiencing a low inventory of single family homes for sale for over three years now. A small change is that fewer homes are selling from year to year. Over 2,000 in 2012 and fewer than 1,900 in 2014.

The median price has climbed, but that is relative to which price range homes are selling in. If you take a look at the graph below you can see that homes in the $200k- $600k price range dominated in 2012, while by 2014 the $600k- $800k homes are the major players. The over $1Mil homes sales has almost doubled in the last 2 years. Either there are no more homes to sell in the lower price ranges, OR those lower priced homes have experienced a push in their prices due to the lack of inventory.  I strongly believe it is the later of these two scenarios.

Santa Cruz County SFR sales

We have been experiencing multiple offer situations for a long time now. It’s almost common place, especially if a home is priced right and prepared well for the market. The buyer pool has been strengthened by the lowering of interest rates and the building economic confidence. Being so close to Silicon Valley does affect our market. The prices and demand “over the hill” has increased to cause an overflow into the Santa Cruz area; this is for buyers looking for their primary residences as well as a second or vacation home.

The “seller’s market” has remained healthy. The most popular homes are those that are prepared well for sale. The single level homes are well loved especially by the aging group of baby boomers. Properties with a second unit are also attracting a lot of attention due to the versatility it offers; extra rental income or living space for family or friends.

All in all, I expect 2015 to be a busy year. It’s a good time to buy a home (lower interest rates and stronger salaries) – but it is also a good time to sell a home (see above.)  That being said we will see what I have to report come mid-summer.

Are You Better Off Renting… Or Not?

There is a time to rent and a time to buy. Figuring out which is best for you and your situation means getting out the calculator and doing some math.

When you first make the move out of your parent’s home and into your own place, the logical decision is to rent a place. A few years later and probably things have changed. Life gets busy and you might forget to re-evaluate that monthly rental payment. It just might not be the best use of your money. 

Realty Trac reports that one-third of Americans currently reside in a housing market where leasing a three bedroom home costs more than 30 percent of the monthly median income, which is normally considered the benchmark for affordability of owning a home.

Half of American renters give up more than 30% of their income on leasing. That’s up from 19 percent a decade ago.  The number of Americans renting has increased in the last 10 years and the median national rent has also increased. 

Here’s where you have to do your homework. Compare your place to other places that are similar and first determine if you are paying market rent. If so, is your rent more than 30% of your income? If you are under the 30% benchmark, but are still feeling squeezed every month (and let’s be honest here), then could it be worth compromising on location or quality in order to own your own home? If you are on the fence it might be worth it for you to run some numbers. 

1. Find two similar homes, one for rent and one for sale. 
2.  Divide the sale price of the one by the annual rent of the other;
3.  Sale Price/ Annual Rent = Price per Rent Ratio
4.   A PRR of 1-15 is a sign that it might be better to buy than rent.
5.    A PRR of 16-20 suggest it might be better to rent than buy
6.    21 or more means renting might be best.

Reasons to buy include:

•     Stable Income
•    Available cash for a down payment and extra for emergencies.
•    Plan to stay in the house for a minimum of three years.
•     Enjoy tax deductions available to homeowners.
•   Expected home value increase.

In addition to the financial reasons outlined above, owning a home gives you security in knowing that you can move when you want to move, and not when your landlord determines it. The ability to remodel or re-decorate on your own terms. Pride of ownership that renting just can’t satisfy.

Shhhh! - Secret Listings

Pocket Listings, Off market listings, Excluded from MLS – these are all different ways of saying “privately held listings” In other words, it’s a secret. You don’t know about these listings unless you belong to “the club” that keeps these listings held close to the chest.

I always ask myself when I hear of these listings “is this helping the client or the agent?” Will it be a more private experience for the seller? Yes. Will it expose the house to as many potential byers as possible? No. Will it bring the highest price? Maybe.

There are definitely two schools of thought in this issue. One is that some sellers do not want the exposure. Privacy concerns such as divorce, a death, many valuables, notoriety, etc. Some agents say that a buyer may be willing to pay more for the privilege of not having to compete. But isn’t it competition that drives the market? Without competition, how do you know what the true market price is? Will homes that never reach the marketplace be excluded from appraisals due to their lack of marketability and therefore not a true sense of value? Hmmm.  Some say it’s the agents that convince the seller it’s the better thing to do so that they can “double end” the deal and make more money for themselves. Ah ha! Here in lies the real issue, dual agency or the same agent representing both the buyer and the seller. 

“Dual Agency” actually means the same brokerage representing both the buyer and the seller, which may still provide fiduciary duties to each client without issue. But in many cases the same agent will represent both parties. Kind of like having the same lawyer represent the plaintiff and the defendant. I can never see how an agent could truly have the best interest of both parties at, but how would I know, I’ve never done this. 

As defined by Wikipedia; “A fiduciary is a legal or ethical relationship of trust between two or more parties. Typically, a fiduciary prudently takes care of money for another person.” An agent representing a seller markets their home in an attempt to sell their house for as much money and with the best terms as possible. An agent representing a buyer helps their client to buy a house for a little money and the best terms as possible. A mucky issue it is when representing both parties. 

I’m certain that as long as it is legal, there will be pocket listings and dual representation. Each real estate transaction is unique and different from the next. The longer I’m in real estate, the more I realize that there is no generalizing. People are unique, real estate is unique, and the combination is endless in providing unique experiences for each and every transaction. Use your best judgment but always consult a professional if you have questions – or two professionals. Doesn’t hurt to get more than one opinion.