We have a housing supply problem.  Our supply problem is not unique to California, has multiple root causes and no signs of improving.  Recently I participated in a Western States housing supply webinar that discussed both the existing and new home supply in Metro areas from California to Colorado.  Whether it is Los Angeles, Los Vegas, Phoenix, Denver or Salt Lake City metro areas the studies show that the current housing shortage is severe, and the shortages are projected to worsen over the next couple of years.

Future home building projects of both attached and detached homes for sale product do not “pencil”.  Projected future costs outstrip the future home buyer purchase capacity.  The projected cost increases are greater than 100% and are a result of price increases from cost of materials, cost of subcontractors, cost of insurance, cost of regulation:

• In 2008 the skilled construction work force was decimated and has not come back to meet demand. Experienced and skilled contractors are in high demand and the cost to employ a skilled worker continues to rise.
• Construction material costs continue to increase.
• Increasing government land development requirements. Soft building costs, incurred before a shovel is put into the ground, have ballooned to 25% of the cost of a new home.  Developers hire consultants to help sort through the 300 item Federal, State, County and City development checklists.
• Regulation increases the building complexity; requiring a greater use of specialty designers, architects and engineers (soils engineer, civil engineer, structural engineer, geologist).

Are you or someone you care about looking for a new home?  Whether you are looking for your first home, move up home, or, move down home; here are some actions you can take that may alleviate some of the house hunting challenges:

• Pay cash. Immediately refinance to reimburse yourself.  A refinance within 90 days of a cash purchase is priced and treated very similar to a purchase.
• Get Pre-Qualified. Mortgage pre-qualification letter is required with all home purchase offers.  When sitting down with your loan officer you will become familiar with the purchase finance process and have an opportunity to explore with your loan officer all finance options.  The more familiar you are with your finance option the greater the probability your purchase offer will be accepted.
• Know the monthly cost of a higher offer. Most transactions are multiple offers and you may be asked to increase your offer.  When negotiating, it helps to know that a $10,000 increase in sales price when putting twenty percent down results in only a $41 increase in monthly mortgage payment at today’s rates.

My hope is that you successfully purchase your next home.  Your friends and family will tell you that you were lucky to secure a home in this tight real estate market.  I say that luck is a combination of preparation and execution.  And, I look forward to helping you prepare for your next home purchase financing so together we execute a successful home purchase finance plan.

Has dramatically increasing home real estate prices affected your ability or your motivation to purchase a home recently?  Are we experiencing another real estate bubble?  Good questions.  I hear these concerns every day.  Rising home prices and continued competitive home purchase market has affected most of my real estate clients.  This article will attempt to answer this question so to better prepare you and people you care about for a home purchase in this current real estate market.

Some of us have experienced two real estate bubbles in the last thirty years – once in 1992 and then again in 2008.  Many reasons can be given for the 1992 real estate bubble.  But one common contributing factor to both the 1992 and the 2008 real estate bubbles are flawed real estate values.  Stated income loans were birthed by World Savings and Loan back in 1987.  Unfortunately, rampant falsely stated income resulted in a pandemic of unaffordable home mortgages.  Every incremental 1% of false income skewed the appraised values by 1%.  False incomes created false real estate market values.

Yes, this is ancient history – almost ten years ago.  What does the false market place of the great recession have to do with our real estate market today?  Homebuyers today must financially qualify for their real estate purchase.  Our real estate market today is supported by buyers who can afford the sales prices.  Then why are real estate asking prices dramatically increasing annually?  Are homebuyer incomes rising at the same pace as home prices?  No, wages are not increasing at the same explosive rate of home price increases of the past several years.  What is causing today’s rapid home price increases is lack of supply.  We have a home supply problem – a housing shortage.  Burdensome regulations and a public “I have mine and do not want you to have yours” sentiment have contributed to a housing shortage that shows no signs of abating.  Yes, potential home buyers who make enough money to qualify for today’s home prices are few. Unfortunately, the numbers of homes available for sale are even fewer than the number of two income families who can afford these sales prices.

So am I telling you that we will eventually run out of buyers who can afford current rising home prices which will lead to home price decreases?  No.  The housing shortage is severe.   It took decades of regulation and bad real estate market cycles to get to our current housing shortage.  It will take decades to build our way out of our current housing shortage.  I believe we will see a series of rising prices, plateauing home prices, muddling through the plateaus and then a new rising home price cycle.

Two good reasons why you would want to purchase a home in today’s market: 1) Rent Inflation, and 2) Home Price Inflation.  The inflation dragon is not dead – just in a deep sleep.  While sleeping, the inflation dragon has been fed a monster $19,000,000,000,000 government debt diet (just in case you were wondering where all those 2008 toxic assets disappeared).  Who or what is going to wake the sleeping dragon in our future?  When this creature awakes you want to be prepared.  If you are renting, your monthly rent will start rising – perhaps at rate of increases substantially larger than the recent tech Bay Area rent increases of the last few years.  However, if you buy a house today on a thirty year fixed mortgage your housing expense (rent) will remain fixed while your home value will rise with the awoken inflation dragon.  Real estate is an excellent inflation hedge.

Will we continue to experience sharply increasing home real estate prices?  Yes and no.  All markets are man-made fictions subject to rise and fall.  The real estate market is no exception and can fall – but not in our near term future.  In our near term future real estate prices will experience a few plateaus and muddles cycles.  Today it is the middle of summer 2017 and I feel a slight breeze of change – an approaching, maybe short lived, real estate price plateau.  Prices will muddle along for a time until the “continuing to worsen” home shortages will stoke home prices upward to another plateau.  Home real estate in California has always taken a higher percentage of our incomes. And for a while, as we muddle at least into the next decade, California home prices will require an even higher percentage of our incomes.

Know someone who recently has purchased or refinanced a home?  The words “brutal” and “torture” where probably mentioned more than once in the conversation.  Possibly some of the torture could have been mitigated.  Unfortunately, most of the underwriting brutality is necessary.  Brutality is in your best interest.

Is brutality in your best interest?  Am I kidding you? Why is this underwriting brutality necessary and why is it in your best interest?  More than likely you or someone you care about survived the purchase mortgage process and have moved in.  This home went through a market analysis appraisal process – value of your new home was based on both your agreed purchase contract and on the comparable value of other recently purchased homes in the area.  These comparable homes were purchased by buyers like you who had to qualify for their purchase mortgage.  Yes, these homebuyers may have been mortgage process tortured.  And, no, my point is not “misery loves company”.  Your home was purchased by a qualified buyer (you) and the value of your home was based on the home values of other qualified buyers – establishing a real market.

We are disappointed that the mortgage process is brutal.  However, knowing that the value of your home is based on the solid value of other “qualified borrower” homes is priceless.

Our current federal administration promises to decrease government regulatory burdens on businesses.  About seven years ago my mortgage lending industry was hit hard by the just created thousand plus page Dodd-Frank laws.  Recently my clients have asked me how the promises of decreased regulation will affect my mortgage lending industry and I thought it would be helpful if I shared my response with all of you.  Yes my industry is heavily regulated and you would benefit by a sensible weeding out of useless regulation.  At the same time, I am convicted and strongly support most of my industry regulations.

Have you recently applied for a loan?  The initial disclosure process went from 9 pages to 85 pages when Dodd-Frank was enacted.  A burdensome insanity at best and I am certain the effects of so much paperwork have not provided the results that our law makers intended.  We are over disclosed.  Did you know there are single page disclosures that their sole purpose is 1) Acknowledge the right to receive a copy of the appraisal, or, 2) Confirm your intent to proceed with the loan, or 3) Acknowledge that you are aware of the Patriot Act (like you have not been to an airport lately?), or 4) Acknowledging that you have received a copy of your credit score… Individually, each one of these acknowledgements has merit.  However, put together 80 pages of these silly acknowledgements and the intentions become muted into a blur of “sign and date here” paperwork.  Sorry, but my industry confuses when its true intent is to disclose.

Some of the recently employed Closing Disclosure, CD, and Loan Estimate, LE,  Dodd-Frank forms where very well done.  The CD replaced the HUD Settlement statement that one gets at the closing of a real estate finance transaction.  These forms are laid out and provide a clear breakdown of the finance transaction costs.  Most importantly, the LE, which is provided at the beginning of the finance transaction, is laid out so that line item by line item it compares directly with the CD – refreshing and helpful change for your next mortgage.

Regulatory enforcements have changed for the better the way my industry does business.  Underwriters now underwrite loans.  This was not the case prior to 2008 and all of us suffered.  The current mortgage process is “hard work” for both borrowers and underwriters.  This “hard work” assures real, not fraudulent, borrower incomes.  Underwriting based on real incomes produce a real, not fraudulent, housing market.  My hope is that we continue the “hard work” to insure a better housing market for all of us.

The enactment of Dodd-Frank was voluminous and systemic – becoming a large part of everyday mortgage lending process.  Can or should the Dodd-Frank law be repealed?  The wholesale repeal of Dodd-Frank in the mortgage industry would be disruptive.  A viable alternative is to look at, over time, modifications of the Dodd-Frank law that could produce “make sense” simplifications of this behemoth regulatory law.  Whatever the future changes, I would like to see consistent and continued enforcement of mortgage regulations – thus insuring the stabilization of your home values.

One hundred eighty day interest rate locks and new conforming loan limits are a couple of recent mortgage industry changes that will benefit you or someone you care about.

Just in the last couple of weeks mortgage interest rates have dramatically increased. Interest rates were falling the first half of 2016. However, since the first week of July interest rates have increased a significant 0.75%.  Yikes!  Could this be the beginning of an upward trend and are rates going even higher?  Perhaps.  Suppose you would like to refinance now but you have an expensive prepayment penalty on your current mortgage that prevents you from refinancing until this penalty is over in five months.  Or, suppose you just put a deposit on a brand new home that will not be ready for six months?  How can you take advantage of current rates?

Fortunately there are some new mortgage programs that will allow you to lock your mortgage interest rate for 180 days (yes, six months).  This is fantastic news if rates continue to rise.  But, what happens if rates decline?   Simple, if rates decline then take advantage of our one time float down to current interest rates.* If this 180 day interest rate lock is something that can work for you or someone you care about, please, give us a call.

Everyone knows that mortgage loan amounts within the conforming and jumbo conforming loan limits offer the most competitive mortgage interest rates. In the last week we just received news that for 2017 these loan limits will be increasing!  What this means to you is lower interest rates for your higher mortgage loan amounts.  The conforming loan amount limit increased to $424,100 and the jumbo conforming loan amount limit increased to $636,150. These loan limits apply to most areas, however, these limits do vary with the county where the property is located.  Do you have to wait until January 2^nd to apply for these new loan limits?  No, you can apply for these new loan limits today!

If you have specific questions regarding the new loan limits please give us a call.  In general, if you have questions regarding real estate or real estate finance there is a good chance that we can be of service to you.

Thank you for employing me.  Loan officers who work for a “direct lender” are employed by their bank, mortgage company or credit union.  Products offered by these loan officers are dictated by their employer.  Corporate guidelines and policies are dictated by their employer.  Unlike these “direct lender” loan officers, I am not employed by a specific bank, mortgage company or credit union.  I am employed by you.  Like you, your mortgage needs are unique and special.  Understanding your finance needs, my team at Amerifund lending group provides the tools and resources necessary to care for and fulfill your mortgage needs.  I and my fellow four dozen plus successful loan originating colleagues at Amerifund Lending Group attract the best fifty plus nationwide lending sources.  Working for you these fifty plus lending sources provide the mortgage products, pricing and guideline variations that complement your mortgage finance requirements.

The best reason why we like working for you?  The reason why my team likes working for you over the past two plus dozen years is the opportunity you have given us to work with you, your children and yes, your children’s children.  Thank you all for trusting and employing my team.

Bill wanted to rid himself of his 40 plus years of eyeglasses.  Wealthy, Bill could afford any laser eye surgeon. Shopping for the best deal, hard work and good timing is how Bill made his fortune.  Shopping for the best deal became a habit. So, months before Bill’s busy schedule would permit time necessary for the eye surgery, Bill started shopping for the cheapest eye surgeon. Working one eye surgery practice fees against the other, Bill chose the surgery practice that agreed to an $800 per eye fee.  Gifted eye surgeons charged up to twice as much.

 

After the surgery Bill was back at work without eyeglasses and made it known to everyone how proud he was that he paid only $800 per eye.  All was good for the first eight months after the surgery. Minor irritations in his right eye began nine months after the surgery.  Over time the irritations worsened and Bill eventually lost 90% of sight in his right eye.

 

Eye surgery could be a lot less painful than complying with the overwhelming government regulations of the current mortgage loan process.  Do not lose sight of the reasons why you decide to purchase or refinance.  The opportunity to refinance or purchase does not happen often.  The mortgage process can be monstrous and unforgiving if processed by a less skilled lowest bidder.  At Amerifund Lending Group we have decades experienced teams who take on the mortgage process as an advocate of your best interests.  Our team smooths out the process so you can enjoy the reasons why you decided to finance – lower rate, new home, or, no monthly payments reverse mortgage.  Like two eyes you were born with, finance opportunities are rare and therefore priceless.  With over 50 nationwide funding sources available to our origination teams, we provide some of the best interest rates and loan origination pricing available.

Services Provided but Not Limited To

The following “services provided” bullet points were extracted from our commercial loan engagement letter.  Thought this might be an appropriate follow-up to my just previous posted blog titled “What Makes You Different”:

 

• Gathering all appropriate loan application, information and documentation;
• Analyzing income and debt to determine the ability to qualify according guidelines set forth by the lenders/investors who would consider such an application.
• Providing analysis, disclosures, estimates and proposals
• Providing information regarding programs, rates, fees, timelines and other material information.
• Assisting in understanding barriers to qualifying, including debt, credit, income or property type.
• Verifying deposits, leases, third party disclosures, mortgages, and other information deemed necessary by the lender/investor.
• Assembling and submitting a complete loan package according to lender/investor guidelines.
• Providing the necessary support to satisfy all conditions set for the by the lender/investor.
• Communicate in a timely and efficient manner to help preserve the nature of the transaction at hand.

Sometime into a Brent’s Deli conversation the financial planner sitting across the breakfast table from me asked the proverbial question, “So, what makes you different from other mortgage brokers?”  Excellent question that I enjoyed answering.  So what did I tell him?

What makes me different is:

1. Diverse Real Estate Experiences
2. Community Involvement
3. World Experience
4. Problem solving abilities
5. Moral fabric woven during childhood

Let’s not get bored with the details of each of the five points above.  Instead let’s discuss my diverse real estate experiences.  In addition to the origination of tens of thousands of mortgage loans, my diverse Real Estate Experiences include the following personal experiences:

1. Builder
2. Developer
3. Investor
4. Home Owner
5. Consultant
6. Financial Engineer

As a finance engineer, I cannot successfully consult home buyers, home builders and investors without the years of learning the finance engineering trade through hands on personal experience.  We built our first spec home when I was 22 years old and have since developed several other properties from raw dirt.  We purchased and sold our personal residences, commercial investment property and residential investment property.  We are landlords for several residential units.  I have successfully consulted owners of $15,000,000 residential estates.  And, have successfully consulted a partner’s ownership bifurcation of multi-million dollar commercial properties. Whether you are a future homebuyer, current home owner or investor; our hope is that sharing our years of experience with you contributes to your financial success.

Yesterday I attended a live training presentation on the new TILA/RESPA regulatory changes that will be taking effect August 1^st, 2015.  Although these changes affect only three mortgage process and closing regulatory forms, the impact on your real estate business is substantial.  These changes are necessary and definitely a step in the right direction.  The result of these changes will be an informed mortgage borrower.  Unfortunately, the regulatory paperwork and newly required disclosure periods may mean a longer escrow.  This blog is the first of several that I will be writing on this subject over the next couple of weeks.  Included in this blog is a link to the NAR Video – a five minute presentation by Ken Trepeta with NAR Government Affairs division.  On this video, Ken perceives that the biggest impact of these new regulatory changes to NAR members will be changes to the closing process. Ken recommends to NAR members that transactions after August 1^st, 2015 should consider adding fifteen days to the closing process.

 

My goal is to keep you informed of these new regulatory changes early so  clients will be prepared and the impact mitigated.