Black Friday for mortgages ?

Happy Thanksgiving LA Land readers !

     Looks like mortgage rates are coming down thanks to the latest Fed action. Brokers say 5.25% 30-year-fixed loans are no sweat for those with strong FICOs and 25% down payment. I have a piece on this in the Times today, and have since gotten a couple of e-mails from brokers saying even Jumbos can be obtained at 6% rates or even a bit below for vey well qualified borrowers.

       While the big banks aren't offering these deals, some boutique lenders are, the brokers say. Again, the "catch" is these would be for bullet-proof, high-income, high FICO, financially sound, documented borrowers. In other words, the kind of people a rational market might determine are worthy of borrowing more than $729,000.

--Peter Y. Hong

Comments

[jaleh]

I have a question for anyone out there...

I am trying to buy a multi-unit property in LA...I don't see prices going down at all, they are actually going up...with no money out there, why is this happenning?

I just got information on a property that was sold on 3/29/2007 for $1.4million and they are now asking $1.7million...this does not make sense to me at all...why would an owner think the property has appreciated in little over one year by 20%? in this market?

[Nelcisco]

jaleh asks.." why would an owner think the property has appreciated in little over a yr. by 20% in this market?
Answer: Denial. My inlaws in Burbank cannot believe that their 1800 sq ft 2 bd 1.5 bth 1940 built house in the rancho area that needs work, lots of work which grew 25% a yr from '04 to '06 to 900k at the peak of the market cannot stomach the fact that its worth about 640k now(according to Zillow) its most likely even lower than that.

Griffiths make a good point despite the lower fed rate for months to come and its because of a couple of reasons and one of them is people still need a down payment. 25% down on a lets say $300k house is $75k.FORGET IT!!! In a country that has a record negative savings rate and in a state that the unemployment rate is now 7.5% and climbing, go figure.

jaleh, this LA investor has been watching flip this house from 3 yrs. ago and thinks he's still in this bubble.

[Laker]

jaleh ,
the owner does not think the property appreciated by 20%. All he does is trying to get out of his Option ARM loan..that now he owes 10% more on his 100% financed property.

If you really like that place, i suggest you wait and follow foreclosure site such as realtytrac. I can guarantee that you'll see a NOD pretty soon if it is not already there. Within 12-18 months it would be REO and available for sale for $800,000 or less

[westside]

rents are up. multi-unit (5+) loans aren't hard to come by, I just refinanced one a under 6%. it is a different market than the single-family.

[Tokyo Renter - Ex LA Renter]

Happy Turkey Day.

Jaleh, the owner is an idio? Where is the property?

It will be interesting to see who will actually qualify (have well paying job, down payment, FICO, etc...) to qualify in places like LA and WANT to overpay for some of the crappy houses in LA.

Tokyo's own housing bubble is starting to crack, deep deep discounts are being offered on condos, houses here. 70% of the new housing stock built in the last few years is empty!

[Michael Snyder]

Anyone who can qualify for a loan in this environment probably has more sense than to apply.

[Ellen Hilburn]

Drought, wild fires, highway shooting sprees, mudslides and people still want to live in L.A. Hmmm...

[E]

I'd rather have an affordable home than affordable debt.

[TrojanDLA]

I'm assuming the multi-unit property is an income rental property. This means that its value is based on the rents and ultimate cap rate. So this seller thinks he can sell it by lowering the cap rate and raising the price? That's absolutely asinine.

[dclogang]

Because the property HAS NOT appreciated. That is just his ASKING price. He won't be able to sell it. The owner is in total denial.

I would wait... you'll find a much better deal in the next year or two when all the ALT-A loans reset.

I'm waiting to buy myself. It will be worth the wait.

[tew]

The problem, if you will, is that most of the people who qualify either
a) already own, having purchased before the bubble
b) are smart enough not to overpay for things or buy things they can't afford

Just because they can doesn't mean they will.

[Yolanda]

Good to read positive news

[RM]

Jaleh,
First of all the asking price is just that. The seller may be willing to sell for less. Have you even tried making an offer? Something to also take into consideration is if the present owner has made substantial improvements to the property that may equate the increase in price. Keep in mind that income property also sells on the basis of how much income it produces and what the return on investment will be, among other factors.

One more thing to consider, with the stock market now having dropped some 40 to 50 percent, many investors have lost a lot of money and in some cases most of it. People who were relying on their stocks for retirement have been given a painful reminder: that a stock price can become as worthless as the paper it is printed on. With banks paying very low returns, more investors will be looking for good quality income property as a safer investment than stocks and a better return than banks. Even if property values were to drop further in the short term, rents will usually hold up and even continue to rise.

As for the rates, my first mortgage was 11.5% and I'm sure some others can attest to having paid even more than that. Rates in the 5% fixed for 30 years are a real bargain, not only terms of being at historic lows but in relation to where inflation is. Were it not for government intervention they would probably be much higher, so who knows how much longer they can be kept so low. I too currently have 5.25% fixed 30 year mortgage and I feel very fortunate.

[jake d.]

tew and Michael Snyder:
True. We have 20% and 790 score + recession proof jobs, but I'll be damn if I'm going to throw money away to people like Nelcisco's in laws. We still have until September 2010 when the oldest kid starts first grade. I bet there is a lot of people like us. Plus all the news every day says:"Don't buy!" (No matter what the bumpkins in the media blah, blah blah...)

[srla]

Rents were up a bit, but vacancies are starting to rise as they always do in a recession (notice a lot of for rent signs up lately?) Many people purchased multi-family units at the peak of the bubble despite a negative cash flow, assuming they would make a killing in a year of two by flipping the building for a profit.

When the single family market all but froze up in the months preceding the onset of this recession, the rental market did see an initial bump in demand from would-be buyers renting instead of purchasing. But as the rental market softens in this recession, vacancy rates will likely exceed those of the mid-90's, and that was a rather grim period for owners of multi-unit properties.

I took over a perfectly wonderful set of buildings in the mid-90's that was half empty despite rents under $650 for a one bedroom. It took a lot of work to fill those units and keep them anywhere near capacity, and the owners were only able to turn a profit because they had purchased in the '70s for far less.

This time around, all the people that snapped up buildings in negative cash flow scenarios will be scrambling to make their mortgages as they find it harder to keep buildings full. This will lead to a large number of defaults that simply weren't seen in the mid-90's downturn because the majority of owners back then had bought not at market peak but instead years back when the market was low.

So if you really want a multi unit, do keep an eye on the foreclosures and be patient - the seeds are sewn for a massive number of defaults as tenants begin doubling and tripling up in apartments to save money and thus vacancies rise.

[Steve]

When do the morons in Washington realize this is the core issue. the govt should bypass the corrupt worthless banks and lend direct at 5% and below and this problem is solved in days. Instead Paulson enriches his Wall Street friends with lies and changes the pogram daily.

[Kevin Schmidtchen]

This is all good news for the near future. The big issue is who will be getting these loans. I tend to think banks would be crazy to give out such loans unless the consumer is uberqualified. We need to go back to when 20% down was just a start...from there you needed good income stream(s), good credit etc.

[Danny]

25% down payments...LOL. Might as well close for business. No one has 25% of these prices - and that's why prices will continue to fall.

Oh, and having just this past month found a new place to rent (in one of the nicer areas in L.A.) - I can assure you that rents have very much gone DOWN since the last time I was looking (2006).

[Brad Neal]

Sria, are you talking about LA in the 90's? Because vacancy rates on multi-units after 1/17/94 were cut in half and remained stabilized ever since. And please let's not base vacancy rates on the number of vacancy signs. That would be ludicrous. Ultimately, it depends upon the location and type of rental that you own. Class A on the westside is gold and will continue to be gold. These rents have spiked 20% over the past 18 months.

[Nelcisco]

jade d, this is exactly what I told them this weekend when I went to Burbank for thanksgiving. Their next door neighbor sold their house 3yrs ago for $1.2 mil and now its $898k according to Zillow so chop off about 15-20%. my sister in-law is a post production producer and there is something about show biz people that make off the scale income that think everyone does too and don't realize real people in the real world still make $15/hr, but over thanksgiving I shared some data with them(unempoyment, income), had them read Michael Snyder's & tew's comments and they're getting it, finally!!! Thank God for this blog. although I miss Pete V.

Keep it go'in strong Peter H, we need you!!!

[PeteViles]

Really sad news Sunday night -- Calculated Risk's Tanta died today. There is a good obituary at nytimes.com and of course at CR: www.calculatedrisk.blogspot.com. Her name was Doris Dungey, she was 47.

She was a terrific writer with great insight and wit.

[KT]

Yep the tricky part is actually qualifying for the loan.