Bay Area home buyers, sellers and real estate agents better get familiar with a few acronyms – MID, QRM and GSE – because they’re likely to hear a lot about them in the months ahead. These are the equivalent of WMD to the housing market. And what happens to them could have a very real impact on local home values and the health of our market.
As a Director at NAR, I represent Coldwell Banker in a committee consisting of leaders of large brokerage firms across the country, assembled to give guidance and feedback to the NAR executive team. The NAR legislative meetings held last week in Washington DC, also offers the opportunity each year for Realtors to meet with Congressional leaders on Capitol Hill. Along with hundreds of other NAR committee members from all 50 states, including some of our very own Bay Area CB Realtors, we called upon our respective elected officials to discuss our fragile housing recovery. Congressional leaders are looking at anything and everything during this time of historic national debt, and they need to understand the devastating impact that some proposed changes in housing policy could have on our local market.
Lawmakers are considering a variety of policy revisions, including reducing or even eliminating the mortgage interest deduction (MID); tightening Qualified Residential Mortgage (QRM) rules for borrowers, and eliminating Government Sponsored Enterprises (GSE) Fannie Mae and Freddie Mac, which are critical to keeping mortgage money readily available.
We met with Senator Diane Feinstein, and Representatives Speier, Honda, and Eshoo about the importance of maintaining the mortgage interest deduction, especially here in the Bay Area. The deduction is something all of us take for granted as we file our annual tax returns. It’s one of the foundations of homeownership in this country and helps bring housing within reach of millions of Americans.
If lawmakers lower the maximum loan amount to $500,000 – one of the plans under consideration – it may not have a big impact in places like the Midwest or South, where homes typically sell for $200,000 to $300,000. But it would have a huge impact for high-priced markets like ours in the Bay Area.
Members of Congress don’t consider the high cost of living in areas like ours when they propose changes like this. Most assume $800,000 will buy a mansion for the wealthy. But those of us who live here understand that it may just get you a modest starter home. I doubt that first-time buyers in many Bay Area cities who are using both of the couple’s income to qualify for a $750,000 to $800,000 home feel very wealthy.
“Tax incentives for home ownership have been a part of our tax system for decades and are deeply woven into our economic fabric,” a local Realtor Association president told lawmakers. “Reducing or eliminating the MID is a de facto tax increase on home owners, who already pay 80 to 90 percent of U.S. federal income tax.”
Changes to QRM rules would require significantly higher down payments for both homebuyers as well as those trying to refinance their mortgage. Buyers would face a minimum of 20 percent down, while those refinancing mortgages would be required to have 25-30 percent equity in their properties in order to get a loan.
We understand Congress’ interest in trying to reduce the default rate among borrowers, but this isn’t the answer. As the Mortgage Bankers Association pointed out in a white paper, high down payment and equity requirements will not have a meaningful impact on default rates. But they will require millions of consumers, who are at low risk of default, to either put off buying a home or pay unnecessarily higher interest rates.
Finally, a number of bills making their way through Congress have provisions that would significantly reduce or eliminate Freddie Mac and Fannie Mae within the next few years. Since both GSEs purchase mortgage loans and repackage pooled loans that are sold on the secondary market, this could have a significant impact on the availability of home loan financing.
Realtors urged lawmakers to tread very carefully in reforming Fannie and Freddie. Without a secondary market, mortgage interest rates would be unnecessarily higher and outright unaffordable for many Bay Area buyers. While GSE reform is necessary, the federal government must have a continued key role in the secondary mortgage market to ensure capital and liquidity in the market.
This is not the time for Congress to consider radical housing policy changes. Just as we are seeing a gradual recovery in the housing market, any one of these legislative changes could halt the progress we’ve made. All three could be catastrophic. I urge you to join me in contacting your local representatives in Congress to urge them to take these facts into consideration as they look at any changes to our nation’s housing policy.
And now here’s a market-by-market report of recent sales activity from our local offices:
North Bay – Our Greenbrae manager says the local market has been schizophrenic: slow, then a surge and crazy busy, and then slow again. The spring selling season started off early and with a bang, with one of our biggest open sales months in March. However, we are seeing a lot of deals fall through and the new opens – at least for this week – have slowed. However, we are expecting several $2 to $4 million plus closings in the next month or so. As the weather improves, so does the interest in open houses, according to our Northern Marin manager. Attendance at open houses has actually picked up quite a bit. Agents report getting interested buyers from open houses and are showing potential clients properties in a wide range of prices. Leases are increasing, both listing and leasing. Our “walk-in” traffic has increased and the floor agents are reporting a significant increase in phone inquiries, many of which result in a property showing. Our Petaluma office reports that market activity is strongest under $300,000 range, with multiple offers on 90% of the transactions. On the other end of the spectrum, listing inventory in the million plus range is coming on strong – including over $3 million in the town of Sonoma. New sales and closings are picking up in Santa Rosa. Open houses are well attended and overall the mood is upbeat. The Previews market in Southern Marin continues to roll along, but sellers are often having to come down substantially on their “seller assisted pricing” to get the property sold. That said, if a property is perceived as a good value, it is not out of the question to see multiple offers.
San Francisco – The good activity from April is continuing through May, according to our Lombard office. But the market seems hard to pin down or predict with one deal bringing multiple offers way over the price and other slightly less attractive properties lingering and getting stale. The market remains lender-driven. Meanwhile our Market Street manager says 60% of their ratified contracts over this period saw multiple bids. Well-priced listings are moving within a week, and the opportunity to connect with buyers via open houses is tough because the deals are happening so quickly. Those working with buyers really have to educate people as to the pace the market is moving, and to come in strong, as multiple bids are increasingly common. Another interesting observation in a recent sales meeting was that a few agents had seen properties that sold in the last 18 months, been fixed up minimally and listed for sale again, with a nice increase over the previous sale price, illustrating that buyers will pay for turn-key property. The market has been steady, according to our Sunset office. Open houses are well attended, especially in the under-$1 million market. The move-up market is still slow ($1 mil to $1.5 mil). The most popular comments from the agents: “The demand is here, but we need more well priced inventory to sell.” And lastly, our Van Ness office reports that the market remains at a strong pace, especially at the high end.
SF Peninsula — Our Burlingame office report that activity and buyer interest is strong at all price points. Well-priced properties are selling quickly and often with multiple offers. Hillsborough currently has 68 active listings and 29 pending sales. A large number of sales continue to be all cash transactions and in every price range. On a multiple offer in Burlingame, six of seven offers were over list price and five of seven were all cash. There has been very attractive pricing in Hillsborough, some homes under $2 million. Across the hills in Half Moon Bay, our local office is seeing brisk activity on the Coast, even seeing some multiple offers – all based on perceived value in the list price. Our Menlo Park office reports that the market is good on the mid-peninsula just about everywhere, but still a little inconsistent. There are flashes of craziness (18 offers on one property) and days of calm as some properties sit with no action. Both sales activity and listing activity continue to increase in Palo Alto, where multiple offers are becoming the norm in many cases. In Portola Valley, sales are strong under the “big ticket” house price ranges. Big Buyers are looking but are very, very picky and motivation is low if they already live locally. Big prices have taken big drops from the excesses of the late 1990s tech bubble and buyers are cautious. Our Redwood City-San Carlos manager reports that there seems to be an ample amount of buyers, particularly in San Carlos, but there is still a lack of inventory. The San Mateo office reports a very active local market with a fair amount of inventory.
East Bay – Sales activity has been steady in Berkley. Our local manager says even deals that fell through are being resold quickly, with several back up offers moving up. Listings have been uncommonly slow this May, so far. REO listings have been coming in again, after a short dry spell. Berkeley’s previews market remains constant with more properties priced under $1.5 million than above. Most properties remain on the market for up to 90 days. Both sales and inventory are on the rise in Castro Valley. Meanwhile in Fremont, our local manager says the market has slowed in the past couple of weeks with no new sales or listings. In Livermore, listings that are priced well are selling quickly, and many times with multiple offers. In looking at the past six weeks, total pending sales in Livermore have remained stable at 260, while active listings have increased by 8% to 257. The Oakland-Piedmont market has been steady. Open house activity was brisk on Mother’s Day with several of our open homes seeing over 40+ groups. Agents found themselves this week in multiple offer situations on properties that have been on the market for quite a while without any action only to have several offers come in now. There’s a slight uptick in activity all the way around. Sales activity in the Lamorinda area is increasing, yet buyers are still cautious, wanting to be sure they are getting the best price.
Silicon Valley – The Cupertino market is very hot for sharp, well-priced inventory in the good school areas. Multiple offers abound, according to our local manager. Similarly, Los Altos homes are selling quickly if priced right. Lack of inventory continues to be a problem for buyers in Los Gatos who are ready to buy now. It is a great time for agents to go out and take some listings to add to our inventory. Our San Jose-Almaden manager says there seemed to hit a lull in April when compared to a very robust March. Neighborhoods that were selling within days on the market in March are sitting there in April. But agents are looking forward to a robust May. Meanwhile, our Willow Glen manager reports that sales activity is on the rise in the local area. Open houses are swarming with people and multiple offers are becoming more frequent now. In Saratoga, home sales are still happening at a fast pace and agents are performing ahead of their expected pace.
Monterey Peninsula – For all the news we hear about this poor time in the real estate market, our Monterey area offices are certainly busy. It’s a challenging market, yes, with all the tricky nuances of the short sales, particularly when we sometimes just can’t understand why the lender/investor will not sell a property at the true market value and the escrow cancels. Nevertheless, we are getting about half of the short sales to close, albeit after many months of dealing with the lender, and we are putting many “regular”—non-troubled—properties into escrow, too. Along the Monterey Peninsula, agents are seeing buyers coming in from other areas who have wanted to own here for years thinking that they can now buy here, what with the lower prices and reasonable mortgage rates.
That’s it for now. Have a good week!