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Bidding wars are part of the deal in many purchases

Competition for homes increases and prompts more bidding wars. Also, fewer foreign home buyers, AG Becerra warns mortgage servicers, more homeowners are equity rich, Fannie and Freddie fee boosts the cost of refis, and affordability dips with higher prices.

If you’re looking to buy, better roll-up your sleeves and empty your pockets, bidding wars are back with a vengeance.

Bidding wars, where buyers compete for specific homes, are part of the home buying experience in the four largest housing markets in California, including two of every three home sales in San Francisco during July, according to Redfin. 

San Francisco, almost always the highest-priced and most competitive market in the state, had the second-largest percentage of bidding-war deals in the nation, behind only Salt Lake City, where three of every four transactions had multiple offers. Salt Lake City has become one of the hottest housing markets nationwide, especially as more Californians — including those who can now work from home — look for lower-priced markets.

‘We may see bidding wars gain more traction in suburban areas and small towns’

Bidding wars occurred with 65% of deals in San Diego, the third-highest percentage in the U.S. Multiple offers took place with 58% of sales in Los Angeles and 47% in Sacramento, according to Redfin.

Nationwide, 54% of Redfin sales had multiple offers, down from 56% in June — and the third straight month above 50%.

Record-low mortgage rates and more companies embracing work-from-home practices — such as Apple, Alphabet (Google) and Facebook — are likely causing the competition for homes. And, of course, there is a critical shortage of homes on the market.

“Bidding wars may slow down if interest rates tick up again, which could happen if we get good news about a coronavirus vaccine or more clarity around the outcome of the upcoming U.S. presidential elections,” says Redfin chief economist Daryl Fairweather. But “if coronavirus cases continue to climb, more employers will likely make flexible remote work policies standard procedure, which will drive further migration out of large, expensive cities. As a result, we may see bidding wars gain more traction in suburban areas and small towns.”

Daryl Fairweather, chief economist for Redfin

U.S., California less appealing for foreign buyers

Fewer foreigners are buying homes nationwide and in California, likely because of anti-immigration and cross-border issues — and a shortage of available homes.

Foreigners bought $74 billion worth of homes in the U.S. from April 2019 through March 2020, a 5% decline from the previous 12-month period. The 154,000 homes bought by foreigners was off 16% from the previous year, according to the National Association of Realtors. It’s the second consecutive year of fewer homes bought by foreigners.

California was the second-most popular destination for foreign buyers, with 15% of sales. Florida accounted for 22% of foreign-buyer sales, the 12th consecutive year the Sunshine State was at the top of the list.

“Foreign buyers and recent immigrants have become less of a force in the U.S. housing market over the last couple of years,” says NAR chief economist Lawrence Yun. “A lack of housing inventory, the primary factor hindering domestic buyers, is also holding back some foreign buyers. Additionally, less cross-border travel, falling international trade and fewer foreign students attending American universities are impacting foreign homebuyers.” 

Lawrence Yun, chief economist for the National Association of Realtors

Chinese buyers accounted for about 15% of foreign home sales, followed by Canadians at 13%. Almost two of every five foreign buyers paid all cash for their homes.

Mortgage servicers get a warning from AG Becerra 

California’s top cop is keeping a close eye on mortgage servicers, reminding them about the state’s Homeowner Bill of Rights.

State Attorney General Xavier Becerra has sent a letter to 33 mortgage servicers — the companies that collect monthly payments for lenders — saying the state will take enforcement actions if they fail to “commit adequate resources to meet their legal obligations during and in the wake of the coronavirus crisis.”

Becerra, a Democrat, has requested mortgage servicers provide information on a designated person that is handling their coronavirus-related issues by Aug. 31. However, the letter did not include evidence that the services were hurting homeowners affected by the pandemic.

Mortgage servicers must provide owners ‘a meaningful opportunity to avoid losing their home’

Many mortgage servicers — including the big banks like Bank of America, Chase and Wells Fargo — have worked closely with homeowners affected by COVID and the coronavirus-prompted recession since late March. The banks have announced forbearance help, allowing homeowners to hold off on monthly mortgage payments for up to one year. Of course, homeowners must pay back the missed payments down the road, such as when they’re refinancing or selling the house.

Becarra’s letter detailed the California Homeowner Bill of Rights and how mortgage servicers must handle pre-foreclosure and foreclosure processes. Mortgage servicers must provide homeowners “a meaningful opportunity to avoid losing their home.” State law also protects tenants in homes that are sold in foreclosure, including at least 90 days written notice of any eviction.

“As the dual economic and public health crises continue, many California homeowners may fall behind on their mortgage payments,” Becerra says. “During times like these, we must rely on laws, such as the California Homeowner Bill of Rights, to provide a safeguard for families who are one payment away from losing their homes. We take the rights of homeowners very seriously and expect all mortgage servicers to comply with the law.”

California Attorney General Xavier Becerra

Foreclosures are not a concern at the moment, but with millions of Californians jobless, missed mortgage payments could become a reality. California had about 1.2 million homes enter foreclosure during the Great Recession.

Feeling (equity) rich? Almost half of California owners have more equity than mortgage debt

Go ahead, boast a little. Maybe even dream a bit.

More than two of every five (43%) California homeowners with a mortgage are considered equity rich — the amount of loans owned on the property is 50% or less of the estimated market value.

Fast-rising home prices, which reached another record in July, and homeowners staying longer in their houses are the primary reasons for the increased percentage of equity-rich owners in the state during the second quarter, according to ATTOM Data Solutions.

California had the largest percentage of equity-rich homeowners at 43%, followed by Vermont (39.1%), Hawaii (38.6%), Washington (38.1%) and Idaho (35.4%). Nationwide, 27.5% of homeowners were equity rich, up from 26.5% in second-quarter 2019.

The appropriately named Golden State also had the top four cities with the largest percentage of equity-rich owners, with San Jose leading the way at 64%, followed by San Francisco at 56.5%. Los Angeles and Santa Rosa finished in third- and fourth-place at 47.9% and 45.3%, respectively. 

Almost two of every three owners in San Jose had more equity than money owed on their mortgage. Dreamframer/Shutterstock

“Homeowners saw their equity rise far and wide throughout the United States during the second quarter … in yet another sign of the housing market punching back against the coronavirus pandemic,” says Todd Teta, chief product officer with ATTOM Data in Irvine. “The housing market still faces enormous challenges, given that unemployment remains historically high and the broader economy contracted severely in the second quarter. If that continues, owner equity will be seriously threatened. But, for now, homeowners are enjoying the gains when it comes to what, for most, is their most significant asset.”

With a ton of equity and record-low mortgage rates, many owners are refinancing their mortgages in order to cut credit card debt, pay off auto or student loans, or fund a home improvement project like a kitchen remodel or swimming pool.

New Fannie Mae, Freddie Mac fee is not so friendly for homeowners looking to refinance

Many homeowners in California have a ton of equity in their homes, and some are looking to refinance and take advantage of the record-low mortgage rates – and maybe even get some cash to pay off credit-card debt, buy a car or start that dream home-improvement project. 

But a new fee is going to increase the cost of refinancing for many homeowners starting Dec. 1. And maybe put those dreams on hold. (The Federal Housing Finance Agency delayed the original start of the fee from Sept. 1 in late August.)

The delay may do little for homeowners looking to refinance their mortgages, says Jeanne Radsick, president of the California Association of Realtors.

“While delaying the implementation of this fee may be helpful to lenders, it does nothing to mitigate the damage and cost it will have on consumers because lenders have already baked the fee into higher interest rates,” she says. The statewide association “is concerned that because lenders have already begun passing this punitive fee onto consumers, it will hinder the ability of California families to take advantage of the historically low interest rates.”  

Fannie Mae and Freddie Mac’s “adverse market refinance fee” of 0.5% aimed to help reduce the risk from bad loans due to the recession. You know, the pandemic-prompted recession that has caused about 16 million people to lose their jobs and many more worrying about a similar fate. 

Just when homeowners, at least those with jobs, want to tap some equity and get on stronger financial footing, Fannie and Freddie are tripping them up with a fee that will add at least several hundred and more likely a couple of thousand dollars to refinance their mortgages.

Reduce risk, really?

Fannie and Freddie say it’s about the economy and the uncertainty. But mortgage officials argue that loans already take into account risk. And the risk is smaller than before the latest recession, according to Ellie Mae.

More than 90% of borrowers for refis had a credit score of 700 or higher, including 28% above 800 during the second quarter, considered the gold standard of credit scores. So, where is the risk?

Instead, homeowners will need to pay more with no evidence of increased risk. For example, for a homeowner to refinance a $400,000 mortgage, the fee would add another $2,000. Those additional dollars make refinancing a bit trickier – and costly. Sure, it’s not a ton of money and can be rolled into the monthly payments, but with much-tougher lending requirements, a fee can make it rough for some borrowers.

And, for some homeowners, refinancing may not even make financial sense with the new fee from Uncle Sam. They need to consider their current mortgage rate compared to the rate after refinancing, how long they plan to remain in their home, and know their credit score — only the most creditworthy borrowers are getting sub-3% rates.

Roaring refis

  • Almost 1.7 million homeowners refinanced mortgages during the second quarter, a 50% increase from the first quarter — and up 100% from a year ago, according to ATTOM Data Solutions. Refis accounted for 62% of mortgages during the April-June period, compared to 40% for the same three-month period in 2019.

Bottom line – borrowers need to do the math. For many homeowners, refinancing their mortgage can still save them some money. For others, maybe not so much.

Affordability dips lower as record-low mortgage rates meet record-high home prices

Higher home prices and lower incomes created a one-two financial punch for home-shoppers during the second quarter, much like the far-reaching pain from COVID and the pandemic-prompted recession.

California’s affordability index dipped to 33% during the April-through June period, and would have likely dropped more but record-low mortgage rates helped those looking to purchase, according to the California Association of Realtors. The state’s affordability index was 35% during the first quarter, and 30% in second-quarter 2019.

Affordability reached a modern-day record of 56% eight years ago, when home prices plunged amid the Great Recession and the housing collapse.

CAR’s affordability index measures the percentage of households that can purchase the median-priced home of $610,850 in California, and also crunches data and affordability for select regions throughout the state (see the slideshow below).

Annual household income of $115,000 needed to buy

Record-low mortgage rates help affordability but are offset by record-high home prices. The average buyer would need an annual income of at least $115,200 in order to qualify to purchase the median-priced $610,850 home. The monthly payment, including property taxes and insurance on a 30-year, fixed-rate loan, would be $2,880, assuming a 20% down payment (about $122,000).

Of course, some consumers could buy with a smaller down payment, but the monthly payment would be higher and include mortgage insurance, another cost for owners with less equity.

San Francisco and San Mateo counties were the least affordable housing market at 19%, with both having median-home prices of at least $1.7 million. Kings County, think Hanford and Lemoore, was the most affordable at 60%, with an average home price of $260,000 — or about $350,000 less than the state median price. 

Affordability rate by county and household income needed to purchase the median priced home

Ron Trujillo

Longtime business journalist-turned-public relations executive who enjoys reporting on residential real estate in his spare time. He can be reached at ron@calhomenews.com.