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On Tuesday, S&P Dow Jones Indices released the S&P CoreLogic Case-Shiller Home Price Index. This index is an unbiased benchmark that calculates the average difference in single-family home prices in specific geographic market each month for 20 Metropolitan Statistical Areas (MSAs). This index is relevant because it shows the distinctions between our SoCal submarket, ranging from Ventura to San Diego, and the national real estate market.
For instance, throughout the last five years, the increases in home prices (y/y%) in the LA/OC region has typically been greater than the growth of home prices nationally. Specifically, between July 2016- July 2017, in Los Angeles and Orange County, prices grew by 6.1% and 7.1% respectively. This is a larger jump than the 5.9% annual increase in national home prices in this same year to year period (Graph 1).

Graph 1: S&P CoreLogic Case-Shiller Home Price NSA Index (S&P Dow Jones Indices 2017). Los Angeles Home Price NSA Index vs 20 City-Composite Home Price NSA Index

Moreover, the median home price increased to $565,330 in CA in August 2017, a 7.2% increase from August 2016 (CAR 2017). It is also noteworthy that according to the California Association of Realtors August 2017 Update, sales are continuing to grow year over year.

In today’s competive market, if a property is realistically priced based on hard-core comparables, which clearly define the property’s square footage, location, and condition, the property tends to receive multiple bids. Gloria, Curtis, and their staff will work with you and your team to strengthen your offer to its maximum potential.

Yet, despite the growing amount of sales, inventory is steadily declining. Many local markets in CA are mismatched. Compared to 2016, sales have improved in both middle and high price points but they have significantly declined at lower priced markets (Graph 2). Thus, home-buyers are priced out and consequently expanding their search zone to include neighborhoods that they might not have considered it before.

Graph 2: Sales Improve in Mid and High Priced Markets But Decline in Lower Priced Segments (CAR 2017)

Our present CA real estate market presents a new set of variables. As always, Gloria, Curtis, and the rest of our team follow new trends and policy changes in both real estate and underwriting guidelines to structure out of the box transactions. In the next half of this newsletter, we’ll share our 5 approaches that we use to help individuals prepare to make an offer. 

Approach # 1: Assist you or your client with credit scores

Despite stricter lending regulation since the housing bubble burst, there is an easing of policies with more flexible guidelines, especially regarding credit score. With a release, the CenTek team can instantly run the Three Bureau Credit Report for clients who are seeking to obtain a loan or refinance their property. Considering the recent Equifax data breach, it is very important for individuals who are interested in various financing options to un-freeze their credit, if necessary.
Additionally, if needed, we will holistically analyze the credit profile with you or your client. It is imperative that everyone monitor their credit periodically to decrease the impact of potential issues. CenTek subscribes to a sophisticated computer modeling program that will evaluate how to strategically pay down liabilities and credit cards to increase the scores.

Approach #2:  Encourage research on any comparables

As we all know, an appraisal can sometimes be unrealistically subjective based on the appraiser inspecting the property. We only select appraisers within the appropriate submarket, in terms of region, price point, and overall design.
As you all know, both selling and listing agents should be aware of any comparables the appraiser would have access to. We have noticed that it is very important to be familiar with comparables, particularly if they could impact the appraised value of your client’s purchase.
Especially when a property has turned hands in less than a year, it is imperative to document the improvements as to why the cost is X% more.  If it’s a minimal increase its not an issue. However, to avoid fraud, if the price increased by 40-50% in a year, the lender and appraiser want documentation.

Approach #3: Utilize private money when appropriate

For some clients, private money makes a great deal of economic sense and is an excellent tool for acquisition. Do not overlook the value of closing with private money within 5 days of opening an escrow— As this equates to cash and is an opportunity for some investor types.
For this scenario, the property must be labeled as an investment property, non-owner-occupied. Yes, this is a costlier loan concept. However, sophisticated buyers include this as the cost of buying. As they say, the end result must justify the means.

Approach #4: Issue up-front detailed pre-approval and approval letters

Today, pre-approval and approval letters have taken on new dimensions. Therefore, the individual seeking to obtain a loan must be totally wired with a competent mortgage broker before making his or her offer. We underwrite as one of the leading wholesalers of loans in the country and are experts in delivering packages that meet our clients’ needs.
Our in-house staff can customize and these letters to fit both your financial profile and your offer. In this competitive market, our team approves letters that waive appraisal and loan contingencies to strengthen the offer. However, we suggest that our clients keep the inspections contingency.

Approach #5- Expand your search zone

The mantra of buying in SoCal has historically been “Location, Location, Location”.  Whether it be Pasadena, south of Ventura Blvd, acreage in the 805, the view from Russian Hill in SF, or water rights in Cambria, our team at CenTek Capital Group has closed over 100,000 loans almost every neighborhood in California. 
Due to availability, pricing, lack of or thin inventory, prospective buyers are being priced out. One current example is with Pasadena as many buyers have been out priced in the middle market. and now are looking to buy East in Altadena and Monrovia.  Today, there is a lack of inventory that matches most home-buyers’ needs, causing homebuyers to expand their search zone and parameters.

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