2015: The Real Estate Year in Review

Overall, 2015 was a good year for real estate. Home sales in inland Mendocino County were up 6.5 percent from 248 in 2014 to 264 in 2015. Home prices rose 10.5 percent and the time houses remained on the market decreased by 14.5 percent from 103 days in 2014 to 88 days in 2015. Interest rates increased slightly (by about a half-percent), raising the monthly payment on a typical Ukiah home mortgage by about 10 percent. The number of houses on the market in Ukiah remained about the same.

In early 2015, the Dodd-Frank Act had its fifth birthday and certain provisions went into effect that required lenders to be more selective about who qualified for loans (among other restrictions). So during the first part of the year, lenders were doing their best to comply with more restrictive lending requirements with their existing offerings, but as the year wore on, they were able to create new products (types of loans) that followed the new rules but opened the door for more homebuyers. For example, at the beginning of 2015, if you wanted a low down-payment loan, you had to get a government loan. By the end of the year, many banks offered their own low down-payment loans. While I don’t have hard facts to support this, my impression is that lenders were also willing to offer loans on properties that would not have qualified before—they seem a little less picky.

Lenders have also relaxed the criteria in other ways. I saw an advertisement recently that offered loans to people who had just experienced a short sale or foreclosure. By the end of 2015, short sales and foreclosures dropped to an 8-year low in Ukiah, so there weren’t too many people interested in this type of offer, but it still indicates a loosening of restrictive loan practices. Along those lines, I also saw ads for loans to people with low credit scores, as low as 580, which would not have been the case in recent years.

As restrictions loosened (came back into balance after the knee-jerk reaction to crazy lending practices that led to the real estate bubble and its subsequent bursting in 2006), Ukiah saw more first-time homebuyers than it has for quite some time. I attribute this to consumer confidence. For several years, people in their 20s and 30s have preferred to keep their money free and available rather than tying it up in real estate via home ownership. This changed in 2015 with people feeling more comfortable and confident that their jobs would remain steady and the economy would continue to support them.

That same age group began entering the real estate profession in greater numbers in 2015. While the average age of realtors was 57 at the beginning of the year, at Realty World Selzer Realty we added nine agents and a third of them were in their 20s and 30s.

As I look toward the future, I’m not typically one to make predictions, but I do expect interest rates to increase. In 2016, more residential lots will be available in Ukiah with two potential subdivisions being developed: one with about 200 lots south of town and one with 38 lots in Vichy Springs. There may be a couple other small subdivisions of 20-30 lots being developed, too. Costco is likely to clear its final legal hurdle to coming to Ukiah and Chipotle should begin serving fresh Mexican food.

Overall, I’m optimistic about 2016. I think it will be another good year for real estate and for our community.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

 

 

 

 

 

What’s It All Mean? Real Estate Definitions

Real estate, like many industries, has a whole language of terms and definitions that make sense to those of us who live and breathe real estate, but that can leave homeowners in the dark. So I thought I’d shed a little light on the subject.

Licensed Real Estate Agent – someone licensed by the California Bureau of Real Estate to transact otherwise restricted business transactions, including the listing and selling of real estate, under the supervision of a broker

Realtor– licensed real estate professional who is a member of the National Association of Realtors, which requires adherence to a strict code of ethics

Licensed Real Estate Broker – someone licensed by the California Bureau of Real Estate to transact otherwise restricted business transactions, including the listing and selling of real estate and the brokering of real estate loans.

Single Family 1-4 – this is how we refer to the category of real estate that includes single-family homes, duplexes (2 living units), triplexes (3 living units), and four-plexes (you guessed it—4 living units)

Financial Institution – in this context, an organization in the business of making loans secured by real estate

Underwriting – process of determining whether to make a loan whereby a lender or his representative reviews a property and all of the borrower’s qualifications to purchase it

Conventional Loan an institutional loan usually secured by a single family 1-4

Conforming Loan usually a loan that meets specific underwriting requirements and includes a minimum of 20 percent down and (in this area) a maximum value of $417,000

Owner-Occupied – a single family 1-4 owner will occupy one of the units or anticipates occupying it within 12 months. This is a requirement for most loans.

Primary Residence – the owner-occupied unit where the owner spends 50 percent plus one day each year. Single-family, owner-occupied, primary residences typically secure the best loan terms

USDA, FHA, VA, CalVet – these are large government loan programs. The United States Department of Agriculture offers loans to families in rural areas who don’t make too much money; the Federal Housing Authority offers limited loans to those with good credit; the Veteran’s Administration offers loans to U.S. veterans, and CalVet offers loans to vets who want to purchase a home in California.

GSEs – Government-Sponsored Entities are institutions that buy loans from loan originators on the secondary market with the goal of providing lower housing costs and better access to financing. The big players are referred to as Fannie Mae, Freddie Mac and Ginnie Mae. They are actually the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Association (FHLMA), and the Government National Mortgage Association (GNMA)—which is actually part of the US Department of Housing and Urban Development.

Pre-qualified a loan representative has given you the likelihood of loan approval based on information you’ve supplied.

Pre-approved – a loan representative has reviewed documentation, verified income and employment, confirmed the source of funds for the down payment and closing costs, reviewed credit, and made all determinations to arrive at a monthly payment for which you qualify; leaving only the property and its value in question.

Debt-to-Income Ratio – compares overall debt to income. Front-end ratio: the ultimate loan payment divided by net income. Back-end ratio: all debt expense (car loans, credit cards, any other recurring debt) divided by income. A lender will use both to determine the loan amount you qualify for.

Escrow – neutral, third-party depository where the buyer, seller and lender place money and/or appropriate executed documents. When all escrow conditions are met, the escrow holder (usually the title company) will record the documents and distribute them and the funds to the appropriate parties.

Funded – usually means the lender has deposited net loan proceeds into the escrow account.

If you have questions about real estate or property management, feel free to contact me at rselzer@selzerrealty.com or visit our website at www.realtyworldselzer.com.  If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.

 

Interest Rates and the New Dodd-Frank and Federal Consumer Finance Protection Bureau Regulations

Most people in real estate don’t expect interest rates to stay down much longer. As unemployment drops and the economic recovery gains momentum and therefore demand for business borrowing, the pressure to raise interest rates increases. In addition the federal government has spent $17,000,000,000,000 more than they had. They therefore borrowed the money. This results in a requirement to pay it back. It will be paid back with increased taxes or with inflation. I don’t think they have political will to do it with taxes and that leaves inflation. With inflation comes higher interest rates.

A one percent increase in interest rates results in about a 12.5 percent increase in your monthly mortgage payment. Let’s say you have a $100,000 loan and the rates go from four percent to five percent. Your monthly payment will increase from $477 to $536 per month. This happens because each payment is made up of principle and interest. The vast majority of most mortgage payments are made up of interest in the early years, and they equal out over the life of the loan. If your payment were all interest and no principle, your monthly payment would increase by 25 percent.

As of January 10, 2014 home loans will be more difficult to get. The new Dodd-Frank and Federal Consumer Finance Protection Bureau regulations go into effect, requiring lenders to become far more restrictive. The biggest change will be in the debt-to-income ratio. Currently, you can borrow up to about 50 percent of your gross income, but that will drop to about 43 percent in 2014.

If you make $60,000 a year and pay $500 a month for your car payment and $100 a month toward your credit card debt, right now you’d qualify for a mortgage of about $285,000. However, when the new regulations take effect in January, you’ll only qualify for about $215,000 (if you qualify at all). In addition, there are new requirements to prove you make the $60,000 per year. If you’d like more details (and by more I mean MORE) about the new regulations, go to www.consumerfinance.gov/regulatory-implementation.

Depending on whether this significantly impacts the number and size of loans, the increased cost of dealing with the regulations will be passed on to consumers. In other words, with fewer loans of smaller sizes and increased regulations the cost of getting a loan will go up.

The bottom line is this: if you are thinking of buying or refinancing, sooner is better than later. Financing never justifies making a bad real estate or bad investment decision, but if the decision is already made, consider the current state of financing and act before the end of the year.

For the past couple weeks, I’ve encouraged people to consider donating to the Ukiah Valley Christmas Effort (www.facebook.com/ukiahchristmas). Many wonderful local charities care for local people during the holidays and year-round. Tax-deductible donations make good financial sense, and more importantly, help us strengthen our community. The Greater Ukiah Chamber of Commerce has a list of non-profit members listed at www.ukiahchamber.com/members/cw_1349.htm. If you have more time than money, you can always volunteer to help out.

Next time I’ll write about investing in real estate. If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at rselzer@selzerrealty.com or visit our website at www.realtyworldselzer.com. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.

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