Manhattan Beach CA/ e-PRO..... Kaye Thomas...

Manhattan Confidential, our local consumer blog, posted an article today about the decline in sales in Manhattan Beach and the Beach Cities. The post points out two things... the number of sales began to decline in 2002- 2003 ( higher prices mean fewer sales) and 2006 was when buyers started saying no and the market started cooling. Fast forward to 2009 and we have a real estate market that is trying to recover from a lousy economy and a tough lending market. Yet with all the chaos of the last few years prices, with a few exceptions, are still on the high side.

The issue for many Beach Cities' buyers is that while prices have fallen a lot in Manhattan, Hermosa and Redondo; they don't seem to be down as much as many believe they should be. Every news source is telling potential buyers that California has the largest number of foreclosures in the nation and prices are dropping like crazy. The media posts a new statistic every day on how much real estate prices have dropped in California. There are a glut of articles about buying foreclosures and short sales. So why are prices still so high in the Beach Cities?

Last Sunday the LA Times had a terrific front page article that addressed the issue... why some markets are not acting in the way buyers expect. The main thrust of the article is that while prices are down overall, they may not be down as much in the more desirable areas.... i.e. The Beach Cities as say in Riverside. This scenario is very frustrating for buyers and for sellers. Buyers believe that sellers should accept lower prices for homes that have been on the market for long periods of time. Sellers/Banks, on the other hand, want to sell for as much as they can, especially when facing a loss.


While not everyone thinks this is the time to buy... there are a lot of folks who are willing to take a chance and buy now. Most of these buyers don't think we have reached bottom but believe lower prices along with some very good long term interest rates mean it might make sense to buy. The problem is that there is still a big disconnect between where buyers believe prices should be and the prices that many home owners or in some cases banks are willing to accept. Many of my clients are especially frustrated with the prices that banks are setting for short sales.

While we don't have a huge inventory of REO's... there are a number of short sales in all the Beach Cities. Many of these are new construction that didn't find buyers. A number of builders have received NOD's. Logic would seem to say that as these homes have been on the market for a year or more that Banks would be wise to be fairly aggressive about accepting offers from well qualified buyers...but that isn't what seems to be happening.

We have seen an uptick in sales in the last month. This may be a seasonal reaction... spring is historically our buying season. It could be low interest rates. It could be that buyers are seeing a little light at the end of the tunnel in the economy and the housing market. Personally, I think prices still have a way to go before we see the bottom... but the bottom might not be as low as was predicted a few months ago. The kicker for our market will be foreclosures. If we see a spike in the number of foreclosures over the next 6 months then you can expect to see prices drop quite a bit. If we continue to have relatively few foreclosures prices will continue to be soft but will more likely be flat.

Wouldn't you know it.. just as the California real estate market starts to show a few signs of stabilizing... the Feds throw a wrench in the works. Fannie and Freddie, in their infinite wisdom, have made some major Mortgage loan changes for townhome/condominium buyers who are looking at properties with loans under $729,750.

In the South Bay- Beach Cities that means entry level properties in Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo. It will hit buyers of 55+ units in Redondo, Torrance and Palos Verdes who are looking for a loan. It will affect people buying entry level ( $725,750 or less) townhomes/condominiums in all the South Bay. Want to buy a small unit as a vacation property along the Esplanade... it will cost you more. How much more depends on a number of factors.

So just what have the powers that be been doing.... The basics are that you will need higher FICO scores, you will probably need a larger down payment then you did last month unless you are looking at FHA financing. Your appraisal fee will be higher and must be paid upfront and you will be paying higher upfront fees from .75% to as much as 3% to get that government backed loan. However if you are looking for a jumbo loan on a higher priced property... say one of those spiffy townhomes with great views in Manhattan or Hermosa... then it's business as usual.

I understand the idea behind these changes is because of the numerous problems with large condo projects in other states that went down the drain. However in most of California, townhomes/condominiums are our form of affordable housing. I'm not sure how these changes will affect buyers in the South Bay as we don't have a lot of large developments.... but I expect we will soon find out. It wouldn't surprise me to see an easing of some of the new rules once the administration realizes that this may not be the best move in a housing crisis.

While the media argues about where the California real estate market is headed and rumors of massive foreclosures are whispered about on blogs; there are actually a few folks who are buying homes. Over the last few weeks in all the South Bay-Beach Cities escrows have been opened and sales have closed.

Two factors are fueling the slight rise in sales... price and interest rates. In 2006 a lot of folks dropped out of the Beach Cities housing market and have been quietly sitting on the sidelines waiting for the market to turn. Others sold homes a year or two years ago and have been renting. Some are tired of renting and want a home of their own. Others got married, divorced or had a new addition to the family. Contrary to popular opinion they have excellent credit and they didn't lose a lot of money in the stock market crash.

So just who are these intrepid souls who are venturing forth in Manhattan, Hermosa, Redondo and El Segundo? They are not flashy speculators or risky flippers. They are conservative buyers. They are looking in all price ranges. They have cash for a large down payment. They are looking for a home not a retirement account. They are planning to live in the home for at least 10 years or more. They are buying below what they can afford. A few are willing to buy cosmetic fixers at the right price. They understand that the market values may decline more but believe the safety of a long term fixed rate loan will work in their favor.

They are careful and patient. They will wait for the right house. They have determined upfront how much they will pay for a property. They will pay more for a home that meets their exact needs... but they won't overpay. They will bargain and are not afraid to negotiate. They will walk away and find another house if the price isn't right. They aren't interested in "old inventory" at "old prices". They don't necessarily believe that an REO or short sale is a bargain... unless it is. They are pre-approved and have shopped lenders for the best rate and terms.

Since April 1, 2009 they have opened escrow on 9 homes and townhomes in El Segundo, 30 in Manhattan Beach, 15 in Hermosa, 26 in North Redondo and 22 in South Redondo. Most of these escrows will close on time.

While the South Bay-Beach Cities have managed to stay above water better then other parts of the state there are a number of homeowners who are finding themselves in trouble and need some help with their home loan. Not all of us paid cash for an ocean view home in Manhattan, Hermosa or South Redondo. Many folks looking at the troubled California housing market feel as if they are jumping from the frying pan into the fire when considering their options. However there may just be a little help from the FEDS.

There are a number of homeowners who bought with 10%-15% down in Redondo, El Segundo, Torrance and other South Bay communities who now find themselves owing more then the value of the property as prices have declined over the last 3 years. Job losses along with the normal problems folks face from time to time...death, illness, and divorce... have caused some real issues for many residents.

If you have a conforming loan ( $729,750 or less) and need to either refinance or modify the loan then you may find some help from the government. Today the Federal Government finally got its helpline on line at MakingHomeAffordable.gov. The phone number is (888) 995-4673.

The truth is that not many homeowners in the South Bay will not qualify for help as your loan amount can't be more then 105% of the market value. Also the loan must be a conforming loan... that is when it was originated it was a loan guaranteed by Fannie Mae or Freddie Mac. You don't have to be behind in your payments to receive help. If you aren't sure about whether your loan qualifies, click this link to see if it is owned by Fannie or Freddie.

If you haven't contacted your lender you should do so immediately. If they are not helpful then use the links to the above sites. These are legitimate sites that will offer help. Be wary of anyone sending you an e-mail, regular mail or calling your home with offers of help and wanting money upfront. There are some good sites that can offer you help but most are scams and will just take your money and leave you in deeper trouble.

About 3%-5% of people in trouble with their mortgages have equity(the difference between what you owe and the value of the property) in their homes. These people often give up and wind up losing their homes to foreclosure because they are not sure what to do. If you have equity in your home you need to talk with someone who can help. Don't be embarrassed.. call your attorney or someone you trust. Even in today's declining market you may be able to refinance or if necessary sell and come out with cash.

If you are thinking of buying a property or refinancing your South Bay-Beach Cities home there are 6 things you should know about the current financial market.

While almost everyone knows that lenders have tightened their rules about making loans; most people really don't quite understand what that means when they are shopping a loan for a purchase or a refinance. If the only real estate loans you have obtained have been within the last 7 years... you may be in for a shock.

The rules have changed drastically from a few years ago. The Beach Cities have seen conforming loan limits raised to $729,750 but these loans, known as conforming Jumbo loans, have a higher rate then loans under $417,000. If you want a jumbo loan (over $729,750) you will need a big down payment along with excellent FICO scores. You will also need to be patient as a number of lenders are not offering jumbo loans because they have to keep them as part of their in-house portfolio rather then sell them to Fannie and Freddie.

6 things you need to know if you want to refinance your current loan or would like to buy a property....

1. I have great credit.... maybe... maybe not... a lot has changed in the last year. So what is a good credit score today? Two years ago a good FICO was 700 or better. In today's world a 700 FICO will cost you money. I stole the chart below from Dan Green at The Mortgage Reports. If you check out the chart (Fannie & Freddie rate fees) you can see that a credit score under 740 is going to cost you upfront fees in addition to the points the lender wants. These fees are for conforming loans. If you are looking for a non-conforming loan (jumbo) the best rates are for those with FICOs of 780 or higher.

2. I have 20% down so no problem... on a conforming loan ( $729,750-) 20%-25% down and good credit (720 FICO+)will work ...usually. If you want to utilize an FHA loan then you can have as little as 3% down and a slightly lower FICO score but you will get a higher rate and pay some upfront fees. If you are looking for a loan over $729,750 then 20% and good credit isn't enough. You may find lenders wanting 30%-40% down with great credit (750+ FICO)and a good chunk of cash in reserve. The guys who 2 years ago would have tripped over themselves to throw money at you will now barely acknowledge you exist.

3. My income is 1099 based not W2 but I make lots of money... There has been a lot of talk about stated income loans... those loans were made for people who were not traditional W-2 employees. Today many lenders turn a blind eye and a deaf ear to 1099 employees. There are a few lenders making stated income loans with a large down, verification of assets and 2 years in the business. For the most part 1099 employees are out of the loop unless they have very large bank accounts.

4. But Interest rates have dropped... Rates have indeed dropped but the "great rates" are only for those with high FICO scores and large down payments. Conforming loans with 10% down or FHA's are not to be found for 5%. The big boys with large accounts can find some sweet deals on jumbo loans but most borrowers are going to need high FICO's and pay points to see those lower rates.

5. I can always get an adjustable...buyers got used to having a number of choices in the types/terms of adjustable loans. There are more choices for conforming loans but if you are seeking a jumbo loan you may find your choices limited to a 1/1 or a 5/1 term . A number of lenders are not making 7/1 or 10/1 loans as they are not sure where rates will go in the future. If you are thinking of interest only add at least another .25% or more to the rate.

6. I have 20% equity, so a refi should be a snap... Don't count on it. There are not many lenders who will even consider a loan-to-value even if you use the same lender . Some lenders are looking for 30%-40% equity on a refinance in markets they feel are trending downward. On a similar note lenders are not real crazy about cash out refinancing. There are some who have those programs but they are likely to cost more money.

In today's market the best way to ensure you get a loan is to do your homework. Don't assume that because you got a loan a few years ago without any issues that you can do the same today. If you are buying a home you need to be fully approved before making an offer and be ready to throw in additional cash if necessary. If you are refinancing, don't expect the process to be easy. Remember, banks are more apt to give loans to people with substantial resources... and cash in the bank can buy a lot of goodwill.