Peninsula Real Estate Guru

Much has been written about how the new loan underwriting standards make it more difficult for buyers to qualify for mortgages.

I have two different buyer clients who are currently being impacted by these new standards.

Both are single professional woman who are looking to buy their first homes.

The first has a sales position where her compensation is both salary and commission based on sales. She has been at her current company for about one and a half years. The lender wants a 2 year history of her commission income before it will count any of it. So this buyer can only use her salary income to qualify. Her commission income is about 50% of her salary income. Clearly the lender’s decision to NOT count her commission income limits her current purchasing power. A year ago, stated income loans were available. This buyer could have just stated her income (salary plus commission) accurately based on a 2 year average and the lender would have used that income amount to qualify.

The second client recently changed companies and the lender will not count the bonus income obtained at the prior company eventhough this buyer will get bonuses at her new company. Her bonuses usually amounted to 10% of her base salary. Again the lender’s decision to NOT count this income limits this buyers purchasing power. A stated income loan would have allowed this buyer to qualify for more.

Understand neither of these buyers were going to lie about their income. They were going to accurately state what their income was for the past 2 years and use that figure on their loan application. No deception would have been contemplated. Both were secure in their ability to earn commission and bonus income as they had in the past in determining what they could afford to pay.

This is a case where fraud and deception on the part of OTHER borrowers and mortgage brokers is limiting these two buyers purchasing power.

Linda Lunsman of Princeton Capital writes:

“I NEVER WORRY ABOUT ACTION, BUT ONLY ABOUT INACTION.” ~ Winston Churchill. These words proved especially true last week, as the big story was the Fed’s lack of action following their recent meeting, or decision to leave the Fed Funds Rate unchanged - but is the Fed’s decision a cause for worry? The financial markets seem to think so. The Fed is in a tough spot with the economy performing sluggishly, the housing market still struggling to stabilize, consumer confidence being low, and food and energy costs going up seemingly every day. They made the decision to hold rates steady for now, but looking forward, what does all this mean for Bonds and home loan rates?

While the Fed made a smart move to cut its benchmark rate back in September to stimulate the economy, the continued string of cuts has considerably weakened the US Dollar against the Euro. And since oil is priced in Dollars, the decline of the Dollar has pushed oil prices to rise, even though consumption in the US is down. Prior to the Fed starting their recent string of cuts in mid-September, oil was trading at a then staggeringly high $73/barrel, and it took $1.35 to buy 1 Euro. And after nine months of Fed rate cuts, the Dollar has weakened to where it takes $1.57 to buy 1 Euro…which has greatly influenced oil prices to top $140/barrel. And because oil is involved in so much of what we purchase, prices have gone up on everything.

The bottom line: A stronger stance against inflation by the Fed - which would mean rate hikes ahead - could help strengthen the Dollar, combat high oil prices, and cause Bonds and home loan rates to improve in turn, as inflation is the arch enemy of both. It will be important to see what the Fed decides to do about the Fed Funds Rate at their next meeting in August, so stay tuned!

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CNN reports that the Federal Reserve Board leaves its key short-term interest rate unchanged. By a vote of 9-1, the Fed decided to leave the rate at 2%. The sole dissenting vote was from the Dallas Federal Reserve Bank President, Richard Fischer, who voted for an increase.

It is unclear what this decision means for real estate mortgage rates but my sense is that it may signal mortgage rates are as low as they are going to be in the near future. I believe at this point in time there is a far greater chance mortgage rates will go up rather than down.

The days od inventory for single family homes has increased since 2004 (20 days of inventory) to 56 days of inventory currently but is lower than it was in 2007 (60 days of inventory).

The number of single family home sales has decreased from about 400 per year in years 2003 and 2004 to about 300 yer year in 2007 and 2008.

The sales to list price ratio for single family homes in San Carlos reached a peak of 106% in 2005 but still is at a heathly 102% for the current year.

You may research similar data in other Santa Clara and San Mateo Counties on my site. This information is also broken down by mls neighborhood communities.

916 Timothy Lane Menlo Park priced at $988,000 is new on the market. Charming wood shingle home on large 7,085sf private parcel.

This property will be open Sunday June 22, 2008 1:30PM to 4:30PM.

Virtual tour

Linda Lunsman of Princeton Capital writes:

“INFLATION IS AS VIOLENT AS A MUGGER, AS FRIGHTENING AS AN ARMED ROBBER, AND AS DEADLY AS A HIT MAN.” ~ Ronald Reagan. And although you might not describe the effects of inflation in such strong terms yourself…rest assured that the effects of inflation have crept into your home, your gas tank and your wallet. And inflation is also the nemesis of Bonds and therefore home loan rates, because just like inflation erodes the value of the dollars you spend, inflation erodes the value of the fixed return a Bond provides. And last week, Bond pricing worsened on news of inflation, causing home loan rates to move higher by about .25% across the board and reaching the highest levels seen in weeks.

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I have just listed 125 Tynan Way, Portola Valley.

List price is $1,700,000.

 This 3 bedroom 2 bath home is located on 2 acres at the top of Woodsaide Highlands.

 Virtual tour

Here is the a chart showing national annual home sales.

Sales have decreased each year since 2005.

Calculated Risk which has lots of cool data on its site prepared the above chart.

The charts speak for themselves - inventory is increasing. Will sales increase to absorb the increasing inventory?