Home ownership in California has reached unprecedented near-term affordability, and homes that were once out of reach are not only affordable, but irresistible, thanks to government incentives.
 
The    biggest    news    for    Californians in   May   was   the   defeat   of   Governor Schwarzenegger’s  plan  to  borrow  money and  raise  taxes  to  overcome  the  $21.3 billion  state  budget  deficit.  Voters said loud and clear that they preferred the state trim fat from its operations.

Among  the  many  reasons  for  the  budget shortfall   are   the   negative   impacts   of the    current    recession,    including    an unemployment rate of 11.2% in March and a precipitous 54%+ drop in median home prices in the last two years, according to the California Budget Project.

Affordable housing seems to be one of the few economic areas in California that is growing. Home ownership in California has reached unprecedented  near-term  affordability,  and homes that were once out of reach are not only  affordable,  but  irresistible,  thanks  to government  incentives.  In many markets home prices and values have rolled back to pre-boom 2003 levels.

But it is still a tale of two markets. Entry- level  to  median-priced  homes  are  selling much  faster  due  to  affordability  and  wide availability   of   affordable   loan   products. Luxury homes are slow, largely due to lender hesitation   to   provide   jumbo   loans   that aren’t government-insured or sellable to the secondary market dominated by Fannie Mae and Freddie Mac.

While interest rates are at 50-year lows, the spread on conforming rates vs. jumbo rates is significant. This  has  caused  many REALTORS®  to complain   that   luxury buyers with very high credit scores are being treated  as  higher  risks  than  conforming loan  buyers  with  lower  credit  scores  and less  money  for  a  down  payment,  says Lawrence  Yun,  chief  economist  for  the National Association of REALTORS®. According to HomeServices   Lending (www.hslca.com), jumbo loans are available up to $1.5MM with an 80% Loan To Value (LTV).  These  loans  are  reserved  for  well- qualified  borrowers  who  carry  profiles  of 740+ FICO scores and have very strong post- closing reserves. HSL’s correspondent lenders still offer loans up to $5MM at 70% LTV (75% under certain parameters) and  allow for a private 2nd TD up to 80%.

Conforming loans are widely available for qualified buyers through banks facilitating government-insured Federal Housing Administration and Veterans Administration loans. Loans intended for sale by banks to Fannie  Mae  and  Freddie  Mac  have  a  few more  strings  attached,  including  stricter appraisal guidelines designed to protect the secondary market from acquiring any more loans  that  could  be  at  risk  of  default  for portfolios or securities.

New purchases in the entry-level to median- price segment and a strong refinance business are significantly impacting the volume of loans being handled by a limited number of loan originators and underwriters. Lenders are now suggesting that borrowers lock in their terms for 45 rather than 30 days, to ensure that their loans will be processed in time. Also causing delays are new Fannie Mae guidelines, which could slow down sales in the conforming loan range under $730,000. Fannie Mae and Freddie Mac are managed by the Federal Housing Finance Agency, which is mandated to protect the secondary market from new home  loans  at  risk  of  default. To that end, the FHFA has created two new guidelines:

– The new Fannie Mae 1004MC-71 appraisal form (MCF), effective April 1, 2009

– The Home Valuation Code of Conduct, effective May 1, 2009

In the short term, the net effect of these two initiatives falls on the appraisal stage of   the   process.  They   institute   stricter requirements   for   appraisers,   including guidelines    on    gathering    comparables and new procedures aimed at preventing undue influence by appraisers. Lenders can no  longer  select  an  individual  appraiser; appraisals  are  submitted  to  a  panel  and assigned randomly.

Long term, home buyers whose loans are approved can feel much more confident in their investment, even if getting there takes a little longer.

Recession end in sight?

In   mid-May,   the   Federal   Reserve   was cautious about predicting economic recovery in  2009,  probably  to  keep  people  from bringing  out  the  bubbly  again.  Ongoing jobless claims are at record highs, but new claims are down, suggesting the worst could be over soon.

Private   research   firm   The   Conference Board, seeing across-the-board strength in its 10-component index for the first time in  18  months,  said  the  intensity  of  the recession is lessening, and there could be growth in the second half of the year.

Also  positive  was  the  UCLA  Anderson Forecast,  released  mid-May.  It  predicted the  official  end  month  for  the  national recession will likely fall early in the second half of 2009.

California  unemployment  may  continue to  rise  short-term,  but  residential  real estate is poised to recover in 2009. In San Diego County, a harbinger for the rest of Southern California, home and foreclosure inventories are declining.

“As long as homeowner distress does not rebound  and  recent  federal  government programs  designed  to  avert  foreclosure have  some  success,  a  more  conventional recovery in the residential sector should be underway this year,” said Mark Schniepp, author of the San Diego forecast report

San Diego

Housing  market  conditions  and  consumer  sentiment  are  improving  for  San  Diego  County  home buyers and sellers.

With a balanced market widely considered to be 6 months of inventory on hand, San Diego County homes, particularly in the affordable ranges, are selling at a blistering pace.

As of May 1, 2009, detached homes priced under $300k had 3.0 months of remaining inventory on hand. What that means is that if no new homes were added to the market, the number of homes available to buy would be reduced to zero in 3.0 months.

The following data refers to two types of homes. Detached homes have no shared walls. Attached homes have at least one shared wall, such as condos, duplexes, and high-rise apartments.

MLS Trend Charts - Entry level to median-priced homes are selling much faster due to affordability and wide availability of affordable loan products. Luxury homes are slow, largely due to lender hesitation to provide jumbo loans.