Below, Billy shares with us his latest assessment of the mortgage market and how it is impacting real estate sales:

As a real estate professional with more than 25 years experience I often get this question:

“When will the real estate market be coming back?”

Well, I don’t think the real estate market ever left us; it was the financing that left us!

There are many people looking to buy or sell real estate. The phones are still ringing and open house traffic is growing. I receive calls everyday inquiring about loans and real estate available.

It is NOT Consumer demand that is missing; it’s the financing programs available to fulfill those sales transactions that is missing.

Overnight after August 10th 2007 the real estate loan liquidity simply dried up. The secondary market on Wall Street stopped buying Jumbo loans,(those over $417,000), and has yet to come back into the market.

Jumbo loans, which had been 60% of the loan market in California prior to last summer of 2007, are now about 10% of the market. Congress’ loan liquidity solution of raising the Fannie Mae and Freddie Mac loan limits to $697,000 in San Diego, for example, has NOT been the solution many had hoped it would have been. This is mostly because the interest rates delivered were NOT conforming rates as suggested they would be. Rather, they more like a half percentage point higher–and with new restrictions that made them nearly impossible to be approved.

This new jumbo loan category is called Agency Conforming and is nothing more than an old Jumbo loan, but with stricter guidelines and higher pricing. Jumbo pricing above $697,000 to $5,000,000 is even higher in pricing and also faces difficulty in getting approved.

The lifeblood to any market is liquidity and a real estate market would die without financing. In Mexico real estate loans are rare and generally require 50% or more as a down payment. Unfortunately that is why most of the population in Mexico doesn’t own real estate. So a lack of liquidity for real estate loans in the United States, and particularly jumbo loans, has restricted home ownership this past year.

We in the U.S. have had liberal financing available for real estate which has allowed millions to own homes. And therefore an abundance of real estate liquidity has allowed millions to own homes and enjoy a higher standard of living for themselves and their families.

But the lenders have all found underwriting religion and their financial gravy train has derailed. Programs that once fueled the 20% annual growth rates in Southern California real estate have been deleted. Stated income loans, which were probably the most abused offering of the market, is quickly disappearing as lawmaker’s line up to kill it completely. Second trust deeds which allowed lower down payments are rarely offered, and if they are, the pricing is prohibitive. In a word the lending guidelines are “TIGHT”

So where does this leave us and where am I going with this editorial?

Although my commentary is a bit dire I want to make the comment that all is NOT lost. There are still many banks willing to make loans. But it must be said the path to closing the deal is narrower!

Everyone would love to know when the bottom of this market will be reached. Which was the original premise for me writing this commentary?

I have the belief that TIME has nothing to do with when a bottom in a real estate market is reached. I believe the bottom will be reached when the INCOMES of buyers support the ASSETS FINANCED. And unfortunately this was not the case for many of the loans funded in the past five years.

That being said, I believe the real estate owner and investor has to be working with the best and most informed bankers, real estate brokers and real estate agents if they are to be successful in this market. The days of every loan being approved and every transaction closing is over. Sellers, Buyer’s and Agents should be partnering with their banker before a transaction goes into escrow–NOT AFTER. Success in real estate takes more planning and upfront work than in previous markets.

If there is any way I can assist you in your mortgage placement, please feel free to give me a call at 619-665-8006.

–Billy Taylor
Villa Sotheby’s International Realty
Del Mar, CA 92014

© roberta for Luxury Home Digest, 2008. | Permalink | 8 comments | Add to del.icio.us
Post tags: CA, del mar, jumbo loans, luxury homes, market, mortgage, real estate, realty, san diego, sothebys

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I attended the Inman Connect event in San Francisco last year and met lots of people I knew only from the real estate blogging world–and others who would become good friends.

Could I resist missing this event, where we can peer over the bloody edge of the envelope and see what’s in store not only for the real estate market, but in the technologies that serve and propel this economic sector?

Not a chance!

I am already calling real estate blogging buddies around the country to see if we can connect at the Connect this summer. The event will be held at the Palace Hotel–where we will be able to peer over the bloody edge of the real estate technology envelope, go to beer blogging events, and take lots of photos.
This may have little to do with Luxury Real Estate, but I hope you enjoy this rare hippie footage with Scott McKenzie singing that classic “If You Come to San Francisco.”

Click here to view the embedded video.

© roberta for Luxury Home Digest, 2008. | Permalink | One comment | Add to del.icio.us
Post tags: blogger, blogging, connect, inman, luxury, market, real estate, san diego, san francisco, technologies

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