The Great Recession’s Legacy on our Current Real Estate Market
- Although housing prices are back to pre-Recession levels, the bubble will not dramatically burst— history will not repeat itself.
- Why? Studies have shown that rising home prices were not the sole cause of the 2008 Great Recession.
- Today, increases in home prices are driven by steady job growth, an expanding economy, and a limited inventory of available homes
By: Shoshana R. Cohen | Business Development Manager, CenTek Capital Group
A decade of research shows that the setting for the historical housing bubble burst of 2007 was prompted by a combination of wild house flipping by middle credit score real estate investors, over-construction, inadequate financial verification by lenders, and the consequences of subprime mortgages. Today, not only has construction dwindled due to mounting material and labor costs, but the amount of serious mortgage delinquencies and foreclosures is at a decade low too.
In short, many of the factors that fueled the housing crash are simply not applicable to today’s housing market.
As we enter 2018, California’s severe housing shortage will continue to intensify as inventory declines across the state. California’s housing deficit, limited land, the increasing cost of construction and labor and increasing competition from the international market will fuel dramatic increases in home prices across CA. On a wider national scope, only 0.7 new households are built for each household formed. Simultaneously, the American population continues to expand as the largest, most diverse, and most educated generation in history- Millennials- joins the workforce. Ultimately, competition for a thin supply of housing is fueling today’s housing prices, a very different driver than the housing price increases of the pre-bubble burst era.
Today, many aspiring home-owners are encountering an affordability challenge. In addition to rising home prices, student debt is also hindering Millennials’ ability to pull together a down payment. Thus, innovative financing options are key. Over the course of the last decade, our team has holistically examined the Great Recession, its impact, and its legacy on the current housing market. While there are most certainly many examples of flipping homes today, these investment properties are more heavily regulated and financing plans are not as wild as before. Financial policies and regulations like The Dodd-Frank Act reshaped the lending arenas, creating a form of stability. However, despite the tightening standards over the course of the last decade, there has been an easing of lending policies. Essentially, relatively high market confidence has made access to mortgage credit available and attainable to homebuyers.
Our top 3 insights on today’s market
Insight #1- Response Time and Teamwork are Crucial
The clock is ticking. Prompt response time throughout the home-buying process is crucial! We take pride in always picking up the phone M-F 7 AM- 7 PM and responding after hours on email. In this competitive market, our latest strategy is to work with our clients even before they find a dream house. We will always take time to correspond with your team of financial professionals to strengthen your financials and tax returns to their fullest potential.
Insight #2- Multiple offers are the norm
In this aggressive market, buyers compete against multiple bids. CenTek’s newest strategy is to preemptively work with clients, even before they find their dream house. If necessary, our team will work with your client to maximize your tax returns, credit scores, and other financials to their fullest potential. Once we are familiar with their information, our in-house underwriters can write detailed pre-approval and approval letters customized towards both their financial profile and their desired property’s specifications.
Insight #3: Sellers prioritize offers that are seamless, close fast, and waive contingencies
As we move into 2018, pre-approval and approval letters have shifted into a new dimension. Their weight is gaining more traction and our highly-regarded letters oftentimes compete against multiple bids and/or all-cash buyers. In some cases, this means that we can go into the offer and waive appraisal and loan contingencies, making the offer look bulletproof.
CenTek’s Take on the California Housing Market
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.
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
Approach #2: Encourage research on any comparables
Approach #3: Utilize private money when appropriate
Approach #4: Issue up-front detailed pre-approval and approval letters
Approach #5- Expand your search zone
Wow! Another summer has come and gone. Here are a few updates from our team at CenTek Capital. As you have probably noticed, it’s a seller’s market. There is a housing shortage where increasing land values and the decreasing amount of new residential construction completions are contributing to higher price tags. In order to prevail in today’s competitive market, it is imperative that both first-time and experienced homebuyers are prepared to present an offer with minimal contingencies with as short of a time period as possible.
The overall U.S. population is expected to expand from 2014’s reported 319M to approximately 360M by 2030. There is a higher demand for homes as more seniors are living longer. Also, there is an increasing amount of young adults seeking higher education. Many Millennials who were once hesitant to buy homes because of student loan debt or who wanted career location flexibility are now entering the market in their late twenties and early thirties and as a result are more financially established than traditional first-time homebuyers.
Despite stricter lending regulation since the housing bubble burst, there is an easing of policies with more flexible guidelines, especially regarding down payment and credit score. Even though almost a decade has passed since the Great Recession, many first time and experienced homebuyers still hold these preconceived notions about the immediate Post-Recession lending standards as truth.
According to the latest Elle Mae survey, 45% of renters believe that they have not saved enough money for the down payment. The National Association of Realtors (NAR) polled Millennials between the ages of 18-34. Only13% of this group know that it is possible to buy a home with 5% down or less. Researchers at Fannie Mae and Cal State Fullerton conclude that it is more efficient strategy to correct consumer misconceptions by engaging households who are qualified to own homes but do not realize that they are qualify. Call us to find out more about how you can put 3.5% down for a loan amount up to $636,100, 10% down for a loan amount up to $1.4M, or 15% for a loan amount up to $1.7M to buy your dream home.
Our team at CenTek knows and lives the real estate market, both within the context of the US as a whole and also within our microcosm of Southern California. We follow trends and policy changes in the lending arenas to help our clients prevail with their offer. Unlike direct lenders who only represent the bank, we work with a variety of wholesale banks and specialized lending institutions to package the loan to highlight strengths and minimize any issues.
CenTek Millennial Solutions is our newest program that specializes in helping first-time homebuyers succeed. Although some Millennials may not have the funds necessary for a full down payment by themselves, there are many other creative options for friends or family to help their millennial prevail with their offer. New credit formulas, such as the concept of the Non Occupant Co-Borrower and higher DTI Ratios, are helping some. In July, Fannie Mae relaxed the DTI Ratio from 45% to 50%, making it easier for those with college loan debt to obtain loans. Relatives can also gift portions of the down payment to buyers. We follow changes in underwriting guidelines and how to utilize these concepts to help young people become first-time homeowners.
By combining our decades worth of technical expertise with our knowledge of lenders’ current policies, we prepare our clients to compete with multiple bid properties, including all cash offers. Pre-approval and approval letters are taking on a new dimension and gaining importance because they indicate that the buyer does not have an issue in obtaining a loan. Contact us today to strategize a game plan for you or your clients. We can issue a detailed up-front loan approval so the buyer is prepared to waive loan contingencies with an offer, when appropriate, to make your offer look as attractive as possible.
Gloria Shulman, Curtis Cohen, and the rest of us at CenTek
We blinked and poof… Another summer is coming to an end. Luckily, living in Southern California means that we get to enjoy summer much longer compared to the rest of the Country. We’ve had a busy summer here at CenTek developing two new programs CenTek Keys to Closing Deals and CenTek Millennial Solutions. As you know, you can count on us at CenTek to run “what-if” scenarios with you or your clients Monday- Friday from 7 AM- 7 PM. We are also available to return calls over the weekend.
Contact us today and we will work with you and your client to fine-tune a game plan. CenTek works together with you and your client as a team throughout the financial process, providing input when requested. We have many strategies where we can help you and your clients strengthen an offer to its fullest potential.
Our team maintains long standing relationships with a vast network of funding sources to gain unparalleled access to the most aggressive real estate financing options and solutions on the market. We utilize our technical knowledge and our decades worth of professional connections to help you and your clients prevail with an offer and close the deal.
Careful preparation and presentation of documentation are some of our CenTek Keys to Closing Deals. In this program, we can issue a detailed up-front loan approval so your clients are prepared to waive loan contingencies with their offer, when appropriate. If needed, we will also work closely with your client to help them raise their credit score. We have a very sophisticated computer modeling program that is very effective.
Another important aspect of this program is regarding the appraisal contingency addressed in your client’s offer. As we all know, appraisal contingencies can sometimes be unrealistically subjective based on the appraiser inspecting the property. 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, especially if they could impact the appraised value of your client’s purchase.
CenTek Millennial Solutions is our newest program that specializes in helping first-time homebuyers succeed. Because of the high demand for homes, multiple bids on a single home are becoming the norm. Despite the fact that some Millennials may not be able to make a down payment by themselves, there are many other creative options for parents, grandparents, or other relatives to help their millennial prevail with their offer. We encourage you to follow us on LinkedIn for CenTek Millennial Solutions weekly blog post updates.
Feel free to pass any of this information along. Stay Tuned for more!
Gloria Shulman, Curtis Cohen, and all of us at CenTek
Hard to imagine, but summer is starting to wind down. We are hopeful that everyone is enjoying the warm summer days and cool summer nights that Los Angeles provides all of us. Might we add, Los Angeles is perhaps the best overall city in the world!! Speaking of the world, pretty scary place right now. The on-going rhetoric battle between the United States and North Korea is needless to say a little unnerving. Hopeful that cooler heads prevail and a dialogue that leads to a more muted outcome occurs. Needless to say, the alternative is not a good one…..Difficult to fathom that humanity hasn’t evolved from this type of behavior..This geopolitical tension has kept rates at very attractive levels.
Our recommendation as it relates to the mortgage arena is to allow Centek to evaluate your existing mortgage profile and analyze if any alternative programs would be better suited for your overall financial strategy – reducing the amortization of your current loan, changing from an adjustable rate mortgage to a fixed rate or conversely changing from a fixed rate mortgage to an adjustable rate program. Mortgage rates have dipped below 4% and if rates continue down this path, our steadfast philosophy is to have your loan package in and ready to go in order to best take advantage of a further rate decline. If we start the process further down the line, we might not be able to catch the window of opportunity. Another segment of the financing arena which we are seeing more and more issue with is the student loan situation. Many of our younger clients are having difficulty with qualifying for their first home loan because of the student debt load. Our suggestion to many clients hast been, if possible, to assist with their children’s home purchase by either co-signing on the loan for them or refinancing their home’s in order to pull out cash to pay off the student loans. These are difficult decisions for all parties on a multitude of fronts, but certainly worth considering.
In regard to the real estate market, we feel the most prevalent issue is with the lack of inventory for sale. The lack of inventory is due to several interrelated factors that we have not recently experienced. The escalation of property prices in our California market (especially our SoCal & Bay areas),the vibrant California economy & the increases in the stock market. The combination of these and other factors including the demand from foreign investors, has limited the number of available properties on the market. The flip side to this equation is where is the seller of the property going to move? This point is a large reason as to why more properties are not for sale. Where does one move when they sell their home? This is a problem and a main reason why with elevated home values more properties are not on the market. The move up buyer is difficulty in selling their existing house and being able to afford the next level up in price….This by no means applies to everyone, but is a major point in the overall real estate market place.
Please feel free to contact us at 310 275 3202 to discuss your financing or overall real estate acquisition or sales needs. We can review and strategize with you. Stay tuned!!
Gloria Shulman & Curtis Cohen
Want to share our latest information that went out to our CPA’s, Attorneys, and our extensive client base. In our complex real estate world it seems to take all of our joint efforts for a successful close. As you know we are experts with the most complex transactions and also welcome your “smallest vanilla type borrower” to the most sophisticated profile.
We know you are focused intensely on your clients’ tax filings and want to reach out and review some compelling trends and opportunities in our current real estate finance market that may be relevant to your clients’ real estate portfolio.
- We are experts with Commercial/SBA/Apartment/Indus
trial/Construction transactions of all sizes and types. We offer complete acquisition and development packages.
- Consider changing a 30 year fixed into a 15 or 20 year program up to $636,150.
- Many equity lines are reaching their 10 year term and will roll into an annual ARM payment based on 15 year amortization. (This comes as a surprise to many clients due to the increased payment even though the terms were clearly stated in the documents).
- Refinance’s combing existing 1st and existing equity lines into a new 1st trust deed. We are then providing an equity line at close for no charge (Which many clients seem to like just sitting if ever needed).
- Review the time horizon for holding a property:
- Why not consider a 5, 7 or 10 year fixed when less than a long term hold: various life circumstances such as family expansion, potential relocation, retirement, extensive remodeling are in the short term time horizon. Obviously the rate differential is a good saving mechanism.
- Student Loans: The rates for financial aid for college loans seem to have a very broad range. Taking cash out of one’s property warrants consideration. $200K-$300K in student loans is no longer unusual.
- Real Estate values are up in every sector and remodeling costs are significantly increasing due to demand. Usually the most economic vehicle is to pull cash out from the property prior to work commencing.
- Investments for long term financial planning are increasingly popular. Initial cash flow is rarely possible but the overall objective is that these properties eventually turn into an excellent asset. Caution, some clients are reaching out too much and are going into rural areas around the country without knowing what they are doing. They’re motivated by cash flow but we all have “war stories”.
- Non Occupant Co-Borrower concept offers great flexibility in helping one buying their first home or buying up etc. This is an excellent opportunity for many at all price points.
These are a few current thoughts we wanted to share. Know how busy you are, but we are always available to run any “What-If” scenarios etc. We are experts with the most complex of tax returns and have a very broad range of real estate and financial expertise at all price points and classes of real estate. Once again we welcome your contact.
Gloria Shulman, Curtis Cohen & all of us at CenTek
- RATES ARE STILL VERY ATTRACTIVE
- FOR YOUR RETIRED CLIENTS: SPECIAL PROGRAMS AVAILABLE!