Banking regulators are pushing for mortgage-lending rules that require homeowners to make minimum 20% down payments on loans classified as lower-risk, according to people familiar with the matter.
The proposal is being floated as a way to rewrite the rules for mortgage lending to prevent a rerun of the housing bubble and financial crisis that resulted from years of easy credit. The Dodd-Frank financial overhaul law enacted last year enabled regulators to define a so-called gold-standard residential mortgage that would be exempt from costly new rules.
At least three agencies—the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency—back a proposal to require home buyers to put down at least 20% of the sales price in order to obtain one of these “qualified residential mortgages.” One proposal would also require borrowers to maintain a 75% loan-to-value ratio for refinances, and a 70% loan-to-value for cash-out refinances in which the borrower refinances into a larger loan, according to people familiar with the matter.
Mortgage-finance giants Fannie Mae and Freddie Mac would also be exempt from the rules while they remain in conservatorship, according to these people. The U.S. took over the firms in 2008, and the Obama administration has proposed eventually winding them down.
The behind-the-scenes debate over the proposal could have far-reaching implications for how Americans finance loans, because it addresses how much equity new borrowers should have in their homes.
Cash talks. And it’s speaking loudly in California real estate these days, even in the nicest parts of town.
All-cash buyers grabbed a record 30.9% share of the Golden State’s houses and condos in January as low prices lured investors and others, according to San Diego research firm DataQuick Information Systems.
Cash activity has been brisk for months in foreclosure-ridden areas such as Riverside and San Bernardino. But now, the cash buyer has become a major player in Southern California’s most expensive communities, where cash deals account for as much as two-thirds of home sales.
The trend is being driven by several factors, analysts say, including the difficulty of getting a “jumbo” loan from lenders still stinging from the mortgage meltdown. It also reflects speculation by wealthy investors who believe home prices are at or near a bottom.
“A lot of people think housing will outperform other financial investments,” said Andrew LePage, a DataQuick analyst. “This is just a place to park their money.”
In the Southland’s $1-million-and-up market, 29.2% of buyers paid cash last year — the highest percentage since 1994, DataQuick statistics show. For homes selling for $5 million and up, 62.2% paid cash. Overall, cash deals constituted 27.8% of Southern California home sales in 2010, the most since DataQuick began tracking the market in 1988. It’s also more than double the 13% average for cash sales over the last decade.
The shift toward cash purchases started when foreclosures became a significant factor in the market, said Gary Painter, director of research at the USC Lusk Center for Real Estate. That’s because investors buying properties on the courthouse steps don’t go looking for mortgages.
“There have always been all-cash investors who think they can go in and flip a home,” he said.
There’s just more of them now. Cash buying has reached fever pitch in parts of Orange County, where the Balboa community of Newport Beach saw the highest percentage of sales going to cash buyers last year of any $1-million-plus Southland community — 66.7%.
Chris Crocker, a Coldwell Banker broker in Corona del Mar, said well-heeled buyers are using cash to acquire investment properties and second homes or to better their portfolios.
“Buyers are looking out 10 years, and buying a trophy property for 40% off its price” before the housing downturn, Crocker said.
Within a five-mile radius, his office closed 24 all-cash deals in the $5-million-and-up price range in the last six months.
“The smart money is ahead of the game and buying before the summer selling season when they will have competition,” he added.
From theWSJvia Calculated Risk – an excerpt on cash buyers:
Residential real estate has been slower to bounce back than stocks, but the presence of apparent bargains is luring in newly confident buyers.
Richard Stoker, a retired sales executive, recently plunked down cash for two condominiums in Miami Beach, and plans to close on one more in coming days. He loves the complex’s ocean views, four swimming pools and activities such as yoga and Pilates.
But what also motivated the purchase, said the 73-year-old, was that “the prices were just irresistible. Florida’s been hit pretty hard.” To pay the $1.8 million, $1.2 million and $1 million prices on the condos, Mr. Stoker and his wife, Jane, cashed out of some financial investments and sold a Roy Lichtenstein painting and an Alexander Calder mobile.
Mr. Stoker could have taken out mortgages, but decided to pay cash. “It was a good time to lighten up in the art market and take on real estate at a favorable price,” he said.
The Stokers have a home in Potomac, Md., but spend most of the year in Florida. Mr. Stoker doesn’t plan to rent out any of his new properties, saying he and his wife will live in one with two dogs, his son might live in another and the third will house an older dog and guests.
The harder a market has been hit, say economists, the higher the percentage of cash deals. Last summer, piano teacher Virginia Hall-Busch told a real-estate agent she met through the Rotary Club to keep her posted on deals on historic houses in Stone Mountain, Ga.
A few days later, Ms. Hall-Busch, 62, got a call about a 1918 bungalow with three bedrooms and one bathroom listed for “short sale,” which in the real-estate world means at a price lower than what’s owed on it. The home had been on the market for $159,000, then dropped to $129,000 and then to $79,900.
“I offered them 50,” she said. “I figured, it wasn’t like I needed a place to live. I can afford to be a little cocky here.”
Ms. Hall-Busch closed in October for $52,500 and began renovations within weeks.
“When you have a bad economy, it’s hard on lots of people,” she said. “But right now if you’ve got the money to put down on a house, long term it’s going to be good thing.”
It gets mentioned regularly how the demographics don’t support the housing prices around here. It makes you wonder, how can so many expensive homes keep selling when the San Diego median income is around $60,000 – doesn’t something have to give?
We’ve seen it consistently over the last year or two – buyers are utilizing bigger down payments to keep the monthly payments down.
Here’s how the SFRs that sold in October were financed in three mid-range areas of the North SD County Coastal region – from the tax rolls:
Area or Town
8 of 31
12 of 41
10 of 29
30 of 101
Sixty percent of the buyers used at least a 30% down payment, and only 6 FHA deals. It lends more credence to the haves vs. havenots theory – those with ample firepower are buying, with many paying quite a bit more than those who may qualify, but are more frugal.
The three low-down sales in Carmel Valley (2 FHA, one 100% fin) were all at Manzanita Trail. Not surprised to hear that the new-tract lender is finding every available opportunity to assist with sales.
More review of the 101 SFR sales between June 1st and August 17, 2010, in 92130.
These are from the tax rolls, and include new-home sales, FSBOs, and deals not on the MLS:
1. There were 28 of the 101 that sold for less than they paid, at an average drop of 12%.
2. Five of the 28 sold for a loss of at least 20% or greater. (73 sold for more than they paid)
3. There were nine new Pardee homes sold, between $764,000 and $805,000 (only one on MLS).
4. There were 92 sales on the MLS, plus the one dirty deal on Winstanley.
5. There were 8 short sales, 2 REO listings sold, and one flipper – Adam!
Here’s how the buyers financed their purchases:
1 (this was a no-down doctor loan)
Over 90% invested at least 20% down, and 58% used a down payment of at least 30%.
For those homebuyers looking to purchase in an area that has a lower threat of foreclosures in the future, Carmel Valley is about as safe as it gets – at least on the surface. These buyers must have felt pretty comfortable with their personal financial situation to invest as much as they did, and it’s been the trend that we have seen lately in the CV!
The Spring Kick statistics for North SD County’s Coastal region are likely to be tepid, at best, over the next few months, just because of the low inventory – the quality buys are hard to come by.
But if there was an area that could continue to beat the odds, it’s 92130.
# of Sales
I think most of us figured that Carmel Valley would be at $300/sf by now, but all four of these stats are holding up – why? The strength of the buyer pool is phenomenal, and the amount of cash is mind-boggling. Here are the down payments of the Carmel Valley SFRs closed this year (1/1-2/22):
It’s been like this for months, 77.5% of the buyers have at least 25% down, and 35% used more than 50% down payments. Two thoughts: We’re probably not going to see cascading defaults of recent buyers in the future, when they have invested so much down-payment. Their payments are lower (though not low), and they must feel comfortable with their finances to invest so much up front – they must intend to stay a while. Secondly, we should grapple with the likelihood that real estate in the area has turned into a rich-man’s game….only. We know that homeownership isn’t for everyone, but if these trends continue, buying a house will just be for the elite, at least in 92130.
Are the sellers having to take big hits to sell? From the tax rolls, here are the same-house-sales data; the amount of price change between the last sale and the most recent (between Jan.1 – Feb. 22):
Will there be enough peak-buyers that either can’t afford their payments, or bail out due to being underwater that we’ll see a significant change in the trend? I think it would have happened by now, but if it’s still coming, we should see more signs in the next few months.
An indicator to watch is the amount of new listings coming on the market. This month isn’t over, but here are the number of February detached listings from 2001 to 2010:
85,70,81,63,70,79,75,73,73,and 69 so far this month.
Levitating, or just beating the odds – either way, it;’s been impressive in Carmel Valley!
The type and method of financing should indicate something about the buyers’ intentions – if they are putting down a boatload of money, they’re probably planning to stay a while. As we’ve seen all year, the big down payments are the preference in North SD County Coastal.
Here’s a check of the last 100 SFR sales in Carlsbad, Encinitas, Cardiff, Solana Beach, Del Mar, and Carmel Valley (omitting RSF and LJ) that occured between November 12th and December 1st:
DOWN PAYMENT AMOUNTS:
Eighty-two percent of the buyers used at least a 20% down, and nearly half (49%) used a down payment of 30% or more.
You can’t say the govies are carrying the SD North County Coastal market.
OWNER-OCCUPIED vs. NON-OWNER
N/O/O – local: 18
N/O/O – out of state: 7
Based on their mailing address on the tax rolls.
SELLERS SOLD FOR MORE OR LESS THAN THEY PAID
The average drop in price for the 30 who sold for less was $144,000, after throwing out the high and low number.
OF THE 30 THAT LOST, YEAR PURCHASED:
You can’t really say we’re back to 2003 prices currently.
TYPE OF SALE
It’ll be interesting to see how these split this time next year!
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