MARKET COMMENTARY JULY 17, 2009

• Log Jam busted, pending sales close
• Loan commitments and closing continue cause delays
• Appraisal process in a new world
• High-end homes back on demand as prices increase

 

City              Pending     Pending do not show     Sold

Menlo Park   12             15                                   19

Portola Valley 1              3                                      6

Woodside         4                6                                      1

Atherton          5                 8                                     7

Palo Alto         13              22                                   39

 

On June 23^rd the report below was sent.  The concern I had was the closing of the pending sales.  Palo Alto can be a divergence from the figures.  While many look at Palo Alto as a city with expensive high –end homes that can be deceiving.  Confidence in our economic recovery can only be seen by high-end buyers willing to make commitments with all cash offers.  We can see from the above report above and below the log jam has broken and the homes sold in the past 23 days have dramatically improved.  The sold homes on June 23^rd were 41.  The homes sold as of today are 72! 

City          Pending     Pending/Do not show      Sold

Palo Alto    21              43                                    39     

Portola Valley 4  5                                               0

Woodside   5             3                                              0

Atherton    4           10                                              0

Menlo Park   17      19                                              2

What does this tell us? 

New appraisal rules are creating delays in closings, is one answer.  Short sales, depressed areas and foreclosures have had an impact on the appraisal process.  Inexperienced and out of the area appraisers have had an impact on valuations.  Fannie Mae and Freddie Mac have created new rules nationwide.  Along with the new rules are lower fees, sometimes; 50% lower than prior standards.  To complicate matters further, the Fannie-Freddie system known as the “Home Valuation Code of Conduct” has been complicated by a settlement with Fannie-Freddie and the New York State Attorney General’s office.  Under the code, appraisers are assigned by an appraisal management company who keeps 40-50% of the fee.  The result is frustration, complaints and new appraisals paid for by the buyer, increased deposits, greater verification of documents.  It appears the deal gets done but the time factor to close a transaction has lengthened appreciably!

Securing Jumbo Loans is no small task.  It is like a barbell, easy to get at each end of the barbell and little in between.  In high cost areas, such as our area; the cost of getting a jumbo is dear.  High compensating balances at banks are required, greater down payments of 25-30% are a norm.  The rates are 1. 5% higher; were as, the past difference was less than 1% between a jumbo and a conventional loan.  Of course then there are origination fees or points. 

To add to the delays, a new law will come into effect on July 30, 2009: Home Ownership and Economic Recovery Act and the Housing and Economic Recovery Act.  The changes are all made to make the deceptive acts of past lending institutions disappear.  New time frames for disclosures will be in force.  Consumer review of documents will change and re-disclosure of the Truth in Lending laws will occur.   These changes will impact closing dates. 

What should it mean to buyers and sellers?  It means “Financing Contingencies” are a must.  If not the 3% down payment is at risk due to the failure to close.  Buyer beware is back. 

WHAT TO DO?

1. Obtain credit pre-approval commitments before making an offer and do not accept an offer without source of funds and ability to close
2. Review Timelines and impacts with agents and lenders
3. Review the appraisal process; whether you are a buyer or a seller.
4. Understand the interest rate on your loan, it changes and impact on APR.  Determine when rates are locked.
5. Understand the charges and fees by third parties and obtain a closing statement before close and at the time of the offer.

To close off the new world and not to give you ill thoughts, the prices of homes per the San Mateo County Assessor have increased in Atherton and Woodside.  Both rose more than 6% and 7% respectively.  Portola Valley rose 4%, and Menlo Park rose 3.5%.  Other cities such as Belmont and San Carlos rose about 2%.  Redwood City increased 1.5% and Burlingame +3%.  When one considers cities like Burlingame, San Carlos and Redwood City were impacted by dramatically lower home prices in certain parts of their cities due to short sale and foreclosures; it give heart to know that high-end homes preserved their values.