REAL ESTATE: At a pressure point on price

Two new details from the DataQuick report on March home sales shows that Southern California’s inland region may be tip-toeing toward a pressure point on that age-old question: Is it time to buy or rent?

Here’s why:

The new March median on home prices for all of Southern California — $400,000 — hasn’t been this high since February 2008. The rocket ride on price began its descent at that time from a median of $408,000.

Prices have been on the rise for much of 2013, helping homeowners regain equity or come up for air on mortgages that took a deep underwater swim on assessed valuation.

This burst in pricing has put the typical monthly mortgage payment in Inland Southern California at $1,591. In March 2013, the monthly mortgage payment was $1,252.

Adjusted for inflation, last month’s typical payment, according to Irvine-based DataQuick, was still nearly 34 percent below the typical payment homeowners made in the spring of 1989, the peak of the prior real estate cycle. It’s also 45.9 percent below the current cycle’s peak set in July 2007.

With home prices and mortgages back on the rise, rent is going up, as well.

In Southern California, renters are sensing a tightening in their discretionary spending as apartment vacancy rates drop and the economy gains footing.

A shortage in real estate property for homebuyers to latch onto is driving up price and bringing a wave of new rental stock into the marketplace: Luxury or “resort-styled” multifamily developments with mortgage-sized leasing rates.

This Sunday, we will showcase one such an apartment complex — Homecoming at The Preserve — in an Inland region where Chino, Eastvale and Norco come together. This mid-spot in Inland Southern California is a pulse point for commuters to Los Angeles, San Bernardino, Riverside and Orange counties and has long been a melting pot for people of all ages and walks of life.

The Homecoming dwellings — from a 1-bedroom loft unit to a 4-bedroom home — are being introduced by Upland-based Lewis Apartment Communities at prices from $1,475 to $2,730.

The Lewis Group says the units play well to “renters-by-choice” and others in transition or down-size mode: They may have lost a home to foreclosure or are gravitating from single-family homes they rented in the downturn. Others may be suddenly single or got a job in a new locale.

The luxury rentals, though catering to a vital component of the marketplace, is bound to heat prices up.

Capital Economics predicted rents could rise 4 percent this year, nearly twice the rate of 2013. At that rate the National Low Income Housing Coalition of Washington, D.C., says many rental units will be out of reach for the typical renter.

The typical California renter earns $18.50 an hour, less than the $26.04 hourly wage needed to afford a modest unit at Fair Market Rent, which is a government-established measurement. With California ranking as the second “most expensive” rental state in the U.S., state Sen. Mark DeSaulnier said middle ground needs to be found.


Bruce Norris, president of The Norris Group, concurs the rental market is a hot topic.

Norris, an active investor, hard money lender and real estate watcher, will share his thoughts on single-family rental market dynamics April 22 at a Mortgage Bankers Association’s summit in Arlington, Va.

He will join Rick Sharga, of, and Paul Sveen, of Pantelan Real Estate Services, for a panel discussion on financing options, government policies and future of institutional participation in the market.

Among proposed remedies are public-private partnerships to build affordable single-family homes and apartments each year for Californians in need.

For more information, visit

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Can’t increase prices ‘fast enough’: Mohawk CEO

Applications for U.S. home mortgages rose last week as interest rates declined, an industry group said on Wednesday.

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Why baby boomers are turning to reverse mortgages

Brokers and bankers say the 77 million retiring baby boomers will likely help fuel further growth in the loans in the coming years, making the business a growth spot in a home loan market where volumes have recently been declining.

But at this stage, most bigger lenders are uncomfortable with the loans—for example, in 2011, Wells Fargo Co and Bank of America backed out of the business. Wells has cited factors including unpredictable home values and the level of delinquencies as reasons for it to stay away from reverse mortgages.

The government agency that guarantees these loans, the U.S. Federal Housing Administration, found them to be risky, too. Losses on reverse mortgages were a big reason for the agency’s $1.7 billion taxpayer bailout last year – and some experts worry it could end up in similar trouble again.

“The FHA is at risk from these loans, and the taxpayers are at risk too,” said James Bothwell, a consultant and former chief operating officer of the Federal Home Loan Bank system.

(Read more: Foreclosures fall to lowest in 7 years: Report)

The agency has made changes to its reverse mortgage program in the last year to try to make the loans safer.

“As with any mortgage product, there is risk to financing a loan, but we have made, and continue to make, significant efforts to mitigate that risk,” both when making loans and when recovering money at the end of the loan, said Melanie Roussell, a spokeswoman for U.S. Department of Housing and Urban Development. The FHA is part of the department.

What makes these loans potentially toxic for lenders and the government also makes them attractive for borrowers: a homeowner who is at least 62 years old gets a lump sum of money, a line of credit, or monthly income from their reverse mortgage, and potentially does not have to repay the loan for decades.

During those years, the loan accumulates interest, which is currently just above 5 percent for a fixed-rate loan. When it is time to pay off the loan, the home may not be worth enough to cover the debt, potentially leaving the FHA with losses.

Given that reverse mortgage lending volume is still small relative to the $9.4 trillion U.S. mortgage market, the risk to the financial system is manageable, analysts said.

Smaller Lenders

It is smaller lenders that see an opportunity in reverse mortgages, and are still convinced there is a real opportunity for growth.

“The market is huge. It’s underpenetrated,” said Denmar Dixon, chief investment officer at independent mortgage company Walter Investment Management Co at a conference in December.

Every day, 10,000 baby boomers turn 65, the traditional retirement age in the United States. And 48 percent of them report they are not on track to cover the basics in retirement, according to financial services company Fidelity.

Sixty percent have less than $100,000 in retirement savings, estimates brokerage Charles Schwab.

Walter’s larger rival, Ocwen Financial, estimates the potential size of the reverse mortgage market at $1.9 trillion, leaving a lot of room for growth from the $90 billion of these loans outstanding at the end of September.

Lenders charge high fees for making these mortgages, and then bundle them into U.S. government-guaranteed bonds that are sold to investors. The margins on selling these loans can be three to five times the margins on regular mortgages, said Don Currie, president of lender High Tech Lending. Banks can also collect fees for performing tasks like sending out account statements to borrowers.

(Read more: What happens to prices when Wall St is the landlord)

To tout the benefits of the product, reverse mortgage lenders have turned to Hollywood pitchmen. Liberty Home Equity Solutions, which Ocwen purchased in April 2013, uses Robert Wagner, star of the “Hart to Hart” television series, in its advertisements.

Commercials for Quicken Loans’ One Reverse Mortgage featured “Happy Days” star Henry Winkler. Fred Thompson, a former U.S. Senator and star on television’s Law Order series, promotes loans for American Advisors Group.

While volume for these loans is rising, traditional mortgage lending is expected to fall 37 percent in 2014 as higher rates choke off refinancing activity, according to forecasts from the Mortgage Bankers Association.

“There are lots of mortgage lenders who see declining volumes and may view (reverse mortgages) as an opportunity to increase revenues,” said David Stevens, president of the MBA and a former commissioner of the FHA.

Broadly Hurt

Loans that the FHA guaranteed were broadly hurt after the financial crisis as home prices dropped more than 30 percent nationally. But the agency suffered disproportionately big losses on reverse mortgages—these loans made up just 7 percent of the portfolio of loans the agency guaranteed, but contributed to 17 percent of the losses.

Reverse mortgages can sting lenders and guarantors because they depend so heavily on home prices for repayment.

During stable times, regular mortgages are made based on the borrower’s ability to repay, with foreclosure and sale of the home available as a backstop in case the borrower defaults.

For reverse mortgages, the collateral, namely the home, is just about all the lender can rely on. Home prices, which are still below their 2006 peaks, have been rising in the past couple of years, and economists do not see much risk of a significant drop in the near term.

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More momentum in housing than stocks, Shiller says

Applications for U.S. home mortgages rose last week as interest rates declined, an industry group said on Wednesday.

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Video: Existing-Home Sales Spike in July

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Infographic: Seller Tenure in Home, by Age Group

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HOME SALES: Spring sales hit a 6-year-low

Home sales across Southern California fell to a six-year low as median prices rose to its highest point since 2008, a new report from the real estate aggregator DataQuick said.

There were a total of 17,638 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in March. The six-county sales count was up 25.7 percent from last month’s 14,027 sales, but fell14.3 percent from the 20,581 sales logged in Southern California in March 2013.

“Southland home buying got off to a very slow start this year, with last month’s sales coming in at the second-lowest level for a March in nearly two decades,” DataQuick analyst Andrew LePage said in a Tuesday, April 15 statement.

The median sale price for all of Southern California rose 4.4 percent, from $383,000 in February to $400,000 — the highest since February 2008 — and nearly 16 percent from March 2013. One year earlier, Southern California’s median sale price was $345,500

In March Riverside County’s 3,066 sales were 13.2 percent fewer than the year earlier and San Bernardino County’s sale of 2,048 homes were down 14.9 percent from the 2,406 sales recorded in March 2013.

The median home price rose 17.8 percent in Riverside County to $288,500 in March from $245,000 a year earlier. In San Bernardino County prices were up 21.1 percent, jumping to $230,000 from $190,000 in March 2013.

Four reasons were given by DataQuick for the slow spring sales numbers:

Sales inventory remains thin in key markets.

Investor purchases have declined.

The jump in home prices and mortgage rates through 2013 and the first part of the year has priced some people out of the market, as other would-be buyers struggle with credit hurdles.

Potential move-up buyers are holding back as they weigh whether to abandon a low interest rate on their current mortgage to buy a different home.

Freda England, of Century 21 Lois Lauer Realty, said prices are going up really high, really fast and that’s making buyers and sellers think twice. “There’s still a little hesitancy because of the economy,” she said, pointing out that the market seems to be in somewhat of a watch-mode.

For some would-be sellers, home equity hasn’t passed the point where becoming a move-up buyer pencils out. Though price gains that have helped mortgage holders regain equity, home values may still be too low to pay the real estate commission or justify rolling what’s left over into a move-up or lateral home purchase.

Limited inventory and competition in the buy-pool has kept other would-be sellers on the fence.

Rich Simonin, broker and co-owner of Wescoe Realtors, offered another view.

“Elvis has left the building,’’ he said. “The last rungs of investors are gone, and I think that’s taken unit sales down.”

Simonin said he thinks the market going forward will be balanced: “We’re back to real buyers and real sellers with equity. It won’t be dominated by banks and repossessions on the sales side, so year-to-year unit sales will be down.”

Brian Bean, broker and co-owner of Dream Big Real Estate, said the market feels like it changes week-to-week.

“It’s been an odd-animal for the past nine months,’’ Bean said, agreeing that price and interest rate fluctuations have been at work to flatten sales and slow Wall Street investor-type buys. Quantitative easing also had hand in the dip in sales, he said.

“A lot of people are still on the sidelines,’’ Bean said.

England is watching the spring sales, saying “the next quarter will be the test as to whether things will heat up.’’

Contact Debra Gruszecki at 951-368-9423 or

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5 spring housing trends: Equity and rates rise



Mortgage » 5 Housing Trends Spring 2014

Temperatures aren’t the only things rising

Temperatures aren't the only things rising © rSnapshotPhotos/

This spring homebuying season looks promising, despite rising interest rates and home prices.

As the weather warms up, more sellers and buyers are expected to hit the market. While homes remain affordable and this is still a good time to buy, the limited inventory of homes for sale will continue to put upward pressure on home prices.

That pressure may steer some buyers away from the traditional 30-year mortgage and lure them into riskier loans with more attractive rates.

Homeowners who have been watching their equity grow with prices will be tempted to cash out some of that equity this spring.

And those who received government-sponsored home loan modifications a few years ago may be hit with an unpleasant surprise.

Here are some of the housing trends you should expect to see this spring.

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Mortgage rates may trend higher in 2014

That being said, increases in mortgage rates typically do affect mortgage applications. In general, mortgage refinancings are affected more than mortgages on new homes, or on sales of existing homes.

To understand how higher mortgage rates may affect housing markets, we need to know why rates have been rising over the past year. The most direct cause of the increase in rates this past year was the Federal Reserve’s decision to “taper” its purchases of long-term treasuries and mortgage-backed securities.

The Fed had been waiting until they were confident that markets (especially housing markets) were robust enough to justify the reduction in purchases. When this decision was finally announced last summer, there was a bit of a panic and rates immediately rose.

This seemed to catch the Fed slightly off-guard, and they then surprised almost everybody and delayed the taper a few months. The signal that they’ve sent, however, is that they expect that the economy has improved enough that higher mortgage rates will not negatively affect housing markets.

Housing is local, as the old saying goes. Which markets appear to have done best in the recent run-up, and why?

According to the Case-Shiller house price indexes, the markets that have had the most price appreciation in the past few years are those that had the biggest crash when the housing bubble burst: Phoenix, San Francisco, Las Vegas, Los Angeles and Miami.

These markets are booming for various reasons. All are coastal or warm climates. Miami and Las Vegas have had an influx of demand from foreign investors. Phoenix and San Francisco have had robust economic recoveries leading to an increased demand for housing. In Los Angeles — and, indeed, in most of these markets — the boom is driven partially by a short supply of housing.

Which markets are lagging, and why?

Prices have been increasing in virtually all major markets. However, some that have not fared as well are New York City, Cleveland, Charlotte and Boston.

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Watch: Finding the perfect mortgage

Look at mortgage shopping the same way you would when shopping for clothes. Take slacks for example. Every pair of pants will fit a bit differently. Some will be tight with little wiggle room, and others will be baggy and perhaps a little more comfortable. The same applies to mortgage loans.

It’s important to look at different combinations of loan offerings. Consider discount points, closing costs, 15- versus 30-year loans and even ARMs. Ask your lender for a matrix of loan possibilities, and weigh all of your options. It is possible to tailor your loan to fit your budget.

The big drivers that will affect your loan choices are: available cash over and above the down payment and how long you plan on staying in the house.

Insider Tip:

Here’s an important tip: Don’t fall into the trap of refinancing from the beginning of a 30-year note. That just extends the overall life of the loan and will have you paying a lot more in the end. Say you have been in your house five years. On a new 30-year mortgage, ask the lender what the payments would be if you paid it off in 25 years, which takes your first five years of payments into account. Then budget that amount into your monthly expenses.

A note about points: Discount points on a mortgage are essentially prepaid interest. The benefit of paying points is better the longer you are in your house. If you feel that you are going to be in your house a long time, it might make sense to pay points upfront. Keep in mind, though, that with really low interest rates, points might only bring the rate down an eighth of a percentage point.

Try to shop for a mortgage that will closely fit your finances. Learn about discount points, closing costs and loan terms. You will find a loan that is tailored to your needs.

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