Upper Limits on FHA Loans Reduced for 2014

California's high cost market has allowed for the upper FHA loan limits for a single unit (i.e., single family home or a condo) to be set at $729,750.  For certain buyers who otherwise qualified for a higher monthly loan payment, but for other reasons qualified for an FHA loan instead of a conventional loan, this was a great advantage.

But as of Friday, December 6th, that is changing.  The high cost areas in the country with those upper limits are now having new purchase loan limits reduced to $625,500 when the higher loan limit expires as of December 31, 2013.  Nationally, about 650 counties will be affected by this change. In California, there will be 16 "high-cost" counties affected, including Los Angeles and Orange Counties.  Two, three, and four-unit properties will still have respectively higher loan limits. If your loan is currently in process before December 31 and an FHA case number if obtained before then, the 2013 limits will apply.

Although most FHA borrowers fall in the lower loan "conforming" loan limit of $417,000, as the California market rises, these cutoff points may create issues for certain borrowers. FHA loans in California, per the California Association of REALTORS® 2012 Annual Housing Market Survey, constituted about 24 percent of the total loans in the state, a significantly higher number than in 2007 when it was about 2% of the total.

Prospective borrowers contemplating entering the market should take steps to improve their credit scores, as some people may qualify for a conventional loan if they have higher scores.  Consult with a credit repair advisor before taking any drastic steps, such as cancelling a credit card, as that can lower your score.  Reducing debt may also help qualify for a conventional loan.  FHA, however, is always a good resource for many first time buyers, and may be the best option for many people, especially if a short sale was completed over 2 years ago. 

Please contact me for information about what is needed to obtain loan pre-approval, as it is far better to find a good referral rather than attempt a first mortgage purchase on the internet with someone whose area of expertise is unknown to you.

Proposition 90 Update: California Property Tax Transfer

Proposition 90 was passed in 1988 so that a California county could "opt-in" to allow transfer of property tax base of anyone over the age of 55.  Actually, only a minority of counties have participated, but recently the County of Riverside, which had opted out a number of years ago, has recently opted back in as of September 19, 2013.

Now, if anyone over the age of 55 sells in one of the participating counties and relocates to another participating county, they are allowed to keep their original tax base. 

The counties currently participating in this program are:  Los Angeles, Orange, San Diego, San Mateo, Alameda, El Dorado, Santa Clara, Ventura and Riverside Counties.

The replacement property must be a principal residence, and must be of equal or lesser value; for Los Angeles County, see these guidelines for both Proposition 60 and 90.  Proposition 60 is a state law which allows such tax base transfers within all California counties.  Proposition 90 concerns moves from one eligible county to another and was designed to encourage moves by the 55+ population, thus helping housing turnover in general.   See the link for all California counties' information sites for more information.

Note:  The homeowner should study the "equal or lesser value" guidelines carefully, or consult a tax advisor for complete information.  Partial information here includes:

• "If the replacement dwelling is purchased or built prior to the sale of the original property, then "equal or lesser value" means the full cash value (i.e., sales price) of the replacement dwelling cannot exceed the full cash value (sales price) of the original property.
• "If the replacement property is purchased or constructed during the first year after the sale of the original property, then "equal or lesser value" means that the full cash value of the replacement property cannot exceed 105 percent of the full cash value of the original property.
• "If the replacement property is purchased or constructed during the second year after the sale of the original property, then "equal or lesser value" means that the full cash value of the replacement property cannot exceed 110 percent of the full cash value of the original property." Courtesy of California Association of Realtors.

What Are October Selling Prices in Long Beach/Cerritos/Lakewood Areas?

The average selling price for a single family home (based on MLS sales prices) for October 2013:

Long Beach - $541,985.

Cerritos -  $628,750.

Lakewood - $441,549.

Los Alamitos (including Rossmoor) -  $713,804.

Seal Beach - $910,563.

Cypress - $551,328.

San Pedro - $525,594.

Huntington Beach - $885,767.

The overall October snapshot of the local Long Beach metro area market (south LA and north Orange Counties) is that total sales are down compared to one year ago by about 18%, median sales price (the midpoint of all sales) is up by 20%, and listing inventory is down by almost 25% overall.

Build your own auto e-mail, and find and search properties in all cities in the area, and go to http://www.juliahuntsman.com/market-trends-report.html for more market information.

Some New 2014 Laws for California

It's that time of year again, and there are new laws taking effect that will affect a lot of us.  Here are a some of the new California laws that are wise to know about and which are taking effect January 1, 2014:

1.  Public dog parks are not liable for injuries caused by dogs. Assembly Bill 265

2.  Adjoining owners are equally responsible for shared fences and boundaries. "Adjoining landowners are presumed to share an equal benefit from any fence dividing their properties, and unless otherwise agreed in writing, are presumed to be equally responsible for the reasonable costs of construction, maintenance, or necessary replacement of the fence." Read more about the longer particulars on this new law:  Assembly Bill 1404

3.  A seller's Transfer Disclosure Statement to now include awareness of construction defect claims.  This will affect owners in some areas more than others. The "TDS" is a standard form provided in residential property transactions by REALTORS in California, and contains legally required disclosures.    SB 800; Senate Bill 652

4. The Used Mattress Recovery and Recycling Act is to reduce illegal dumping of mattresses to reduce blight and increase recycling.  A recycling program must be set up to handle them. Senate Bill 254

5.  New smoke detector specifications:  "Starting July 1, 2014, the State Fire Marshall will not approve a battery-operated smoke alarm unless it contains a non-replaceable, non-removable battery capable of powering the smoke alarm for at least 10 years." See the new requirements at  Senate Bill 745

6.  Brokers can be suspended or lose their real estate licenses for knowingly tampering with real estate documents in connection with their licensed activities.  This includes directors, employees,  and officers of a corporation.  Senate Bill 676

7.  Brokers who charge a fee for providing rental listings must be appropriately licensed for that pre-paid rental listing service.  Read here for more information, Senate Bill 269

These are just a few of the upcoming laws taking effect in 2014, of which there are approximately 100 new laws in many categories.  Laws that affect real estate transactions are reflected in updated REALTOR forms so that buyers and sellers can be assured that all pertinent disclosures, advisories, and information is provided during the transaction.

Tips for Wise Property Investment

So you would like to buy investment property in 2014?  So if you are picturing future income, future security, or retirement plans, then these are things you might like to think about in order to make wise choices:

1.  Looking for a opportunity market.  This is where the current demand is low, but likely to get stronger in the future when the value of your investment will go up.  By taking a look at certain types of neighborhoods that were not identified as "desirable" but have now grown into more stable residential zones, you may be making a good risk.  One of the challenges many first-time property investors need to keep in mind is to take themselves out of the picture--this may not be an area you would personally live in, but one that is "home" to others who might become your renters and provide the income you're looking for.

2. Considering different types of property.  You may need to look at a range of properties, and assuming you're considering residential investments, you will need to know the difference, for your purposes, between investing in a duplex vs. a 10-unit apartment building. 

3.  Look for the best yield you can get.  What sort of revenue will you obtain from your rents, and what will your overall return on investment be?  This will vary by the property, the area and type of neighborhood.  One thing some owners forget to consider is that changes in the equity in their property, which changes with the market, may actually be affecting their return on their investment. 

4.  Keeping up with the market.  Political and economic affairs do impact local market values.  Local city/county improvements, or new attractions to the area, may bring (or lose) buyers and sellers, causing an increase in prices.  It pays to keep up with the trends.

5. Be as diverse as possible.  Buying several different types properties may protect you more against market forces beyond your control.  This may mean buying in different cities, regions or even countries. For instance, Riverside County took a very steep drop in values, more so than many areas along the coast.  Those areas, however, have also been recognized as "opportunity" when the prices started to shift upward.

For an analysis of your investment property, at no obligation, just contact me!  Learn about current market rents, current cap rates, and other important facts to consider.

If you would like to try your own property analysis, download the form here:  http://www.juliahuntsman.com/Long-Beach-investment-income-property.html

Julia Huntsman
562-896-2609

National Association of Realtors® 2014 Housing Prediction

 The annual National Association of Realtors® announced the annual housing prediction at its conference this November in San Francisco. Housing price is predicted to increase by 6 percent in 2014, banks are criticized for being too restrictive on mortgages, there is still too low of a housing inventory, and with rising mortgage rates refinancings will drop significantly.

In a presentation about the housing market on a nation-wide basis, on November 8, Lawrence Yun, chief economist of the National Association of Realtors® said:

• Existing-home sales are expected to retain the healthy gains seen this year, while prices will stay on an uptrend in 2014,
• Existing-home sales have shown a 20 percent cumulative increase over the past two years, while prices have gained 18 percent, but incomes have risen only 2 to 4 percent in the same timeframe.
• Yun said. “While the median-income family in many areas will still be well positioned to buy a home in 2014, income is barely budging given growth in consumer prices.” 
• Yun said the other headwinds moving forward include limited inventory conditions in many areas and mortgage lending standards that are still unnecessarily stringent. “Although home sales have recovered over the past two years, mortgage purchase applications have been flat for the past four years, even with rising sales,” he said.
• With higher mortgage interest rates, he expects refinancings to collapse in 2014 to the lowest level in at least 15 years, and hopes purchase applications will begin to rise. “This is an incentive for banks to increase mortgage origination, especially considering the low default rates in recent years. But even with cheap mortgages for the past four years, all-cash buyers stayed high, accounting for over 30 percent of sales,” Yun noted. 
• Yun said banks are holding onto funds for potential Department of Justice lawsuits, rather than making them available to mortgage borrowers.
• Existing-home sales this year are forecast to rise 10 percent to nearly 5.13 million, but should hold fairly even at about 5.12 million in 2014. 
• The national median existing-home price for all of 2013 will be up just over 11 percent, to about $197,000; then increase nearly 6 percent next year.
• Yun expects the inventory shortages to be felt again next spring. “Housing starts are the only way to alleviate inventory shortages,” he said. “Housing starts need to rise 50 percent to meet underlying demand.”
•  Mortgage interest rates are expected to trend upward and reach 5.4 by the end of next year.
• “If not for the housing recovery, we could be on the verge of a recession,” Yun noted. “The rent component of inflation is rising, so the only way to tame price growth is new home inventory.” 
  
•  John Krainer, senior economist at the Federal Reserve Bank of San Francisco, who said near-term economic momentum is weakening, but improvement in growth is expected going forward. “Inflation has been subdued, and is expected to remain below the Fed’s 2 percent target over the next few years,” he said. “Despite improvement in the labor market, the unemployment rate remains elevated but will be falling slowly.” 
• Krainer notes improved household net worth, aided by rising home values, is supporting consumption spending, but home sales and inventories are not growing as expected. “New-home sales are significantly underperforming, and have been bouncing around World War II lows,” he said.
• “There is a big disconnect between rising home prices and inventory slowing down,” Krainer said. Normally, higher levels of new construction would be expected in a rising sales environment.
• Krainer notes there is a relationship between the share of underwater mortgages and the number of homes for sale. “In markets where we saw a high percentage of underwater home owners, we also saw lower inventory levels.”

See full article at Realtor.org

Ability to Repay and Qualified Mortgage Rules May Affect You in 2014

New loan rules were made law last year and will take effect on January 10, 2014.  The Consumer Financial Protection Bureau is a federal agency created in 2011 as part of the  Dodd–Frank Wall Street Reform and Consumer Protection Act in response to the financial crisis that evolved starting in 2007.  As a result, new loan borrowers are going to be subjected to what many think will be onerous and perhaps unnecessary new loan guidelines which may affect the housing market sales volume in the future. And, as of right now, not all future guidelines are yet known and may not be completely settled on until the end of 2013.

The CFPB has jurisdiction over banks, credit unions, mortgage servicing operations, payday lenders, and more.

Buyers who are obtaining financing should start learning what this means for home purchases.  The link goes to a 6-page brochure outlining essential facts about new loan rules established so far.

The lender must now perform an ability to repay (ATR) as part of the loan approval process, by looking at your assets and coming to the determination you have the ability to repay.  Next, the borrower hoping to qualify for a Qualified Mortgage (QM) -- those loans with the best rate and terms -- may not get a loan with interest only feature, negative amortization, generally no balloon payments, or loan terms longer than 30 years.  A thirty-year loan, by the way, was considered radical back during the Great Depression when up until that time it was standard for banks to be able to call their loans after 5 years, or continue them as they saw first for another 5 years.  There can be no excess upfront points or fees.  Yes, a borrower could still obtain a mortgage out of these guidelines, but the lender on those loans, but a lender who makes follows QM guidelines gets certain legal protections if the borrower defaults on the loan.

What's the big deal about these loans?  Well, for a while, governmental agencies wanted only 20% down loans to qualify, but that proposal was defeated.  More recently, there are six governmental agencies backing a new proposal that 30% down loans will be able to obtain a QM.  See Kenneth Harney's article: http://www.latimes.com/business/realestate/la-fi-harney-20131020,0,6931943.story#axzz2j4RPAzgO

One of the results of stricter guidelines already is a much higher percentage of FHA loans in the marketplace compared to past history.  What the future will be is not known, but naysayers believe that requiring 30% down payments for non-FHA loans will definitely impact housing sales. 
The Mortgage Bankers Assn. of America (which strongly opposes the 30% plan) estimates that only 18% of people who purchased homes during 2012 would have been qualified for their mortgages under the alternative proposed by the regulators.