Thursday, October 30, 2008

Manhattan Beach Hill Section: 511 N Dianthus Open Sat. November 1, 2008 1-4

Open House Saturday November 1, 2008 1-4 p.m.

Last week we fielded an offer that didn't come together. The buyers really like the house and the sellers want to sell but we were unable to make everyone happy. I really appreciate people taking the time to write offers because everyone learns a lot from offers that are presented even if they don't get accepted.

One of the things to come from this offer was that my sellers were able to evaluate the possibility of carrying back a second trust deed as part of the transaction. We covered all aspects of the sellers taking back a loan and decided that it made sense for both buyer and seller.

As most buyers are aware lenders are now overly strict about how much and to who they will lend money. After practically giving money away to anyone who could fog a mirror, lenders are now leery of even super qualified buyers if they are looking at loans over the *conforming limit.

The weapon of choice for lenders today is to decrease the LTV (loan to value) for loans by increasing the amount down. If you are looking for a loan over the current $729,795 limit most lenders want to see 25% down or a 75% LTV. On a loan over $1,000,000 they want to see 30% or a 70% LTV and the higher the loan amount bigger the down and the smaller the LTV.

That means that on a property in the price range of 511 N. Dianthus ( $1, 2,659,000) a buyer would likely have to have at least 25% to 30% down to be sure they would get a loan. As the sellers are willing to help with the financing a buyer can purchase with 20% down, a seller carry back of 10% for a LTV of 70%. This means there should not be any surprises at the close of escrow by a jumpy lender who said they would make a loan with 20% down but then changed their minds at the last minute and want more down.

There are buyers who do have enough money for a larger down so they might not need the sellers to help with financing. On the other hand if you are a buyer thinking about doing some remodeling then it might make sense to have the seller carry back a note to free up cash for a few stylish improvements.

511 Dianthus in the Manhattan Beach Hill Section offers a good choice for buyers who are deciding to follow a more conservative path. This lovely home has over 1900 sq ft, 3 bedrooms, 2 baths, large dining area, delightful family area and a great entertainment room with space to spare for the big TV and a view that doesn't stop. The serene rear garden and soothing sounds of the waterfall bring a sense of calm after a busy day. A new price makes this home worthy of consideration.... $1.269,000.

If you are not quite ready to make a formal appointment but would like to see this house why not visit me Saturday 1-4 p.m. to view this Manhattan Beach Hill section home.

Remember....Great views....nice home... good price! See you Saturday!

*Chryste Fisher of Milestone Mortgage in her morning update said that lenders will soon stop funding the Jumbo hybrid of $729,750. You must be in escrow by 11/15/08 and close by 12/15/08 to get this loan amount. As of January 1, 2009 the limit drops to $625,000.


bondinvestor said...

there's nothing abnormal about banks demanding 30% down payments for $1m mortgages. that was considered prudent underwriting until 2003.

to that end, i've said it here and at multiple times:

if a buyer doesn't have $3m in liquid net worth and verified annual income > $500,000 per annum, they have no business buying a $2.5m house west of sepulveda in MB.

if the marginal buyer in these areas (1.2m "starter" homes excluded) doesn't fit this profile, then homes in the south bay are going to decline in value by 50% or more.

god forbid the median income of the marginal buyer in MB is merely $200k. if it is, then starter homes are heading to $600k and the 3000 sqft / 4500sqft newer constructions in the trees are headed to $1.5m.

i feel sorry for those folks who 'took advantage' of the 4-5% mortgage rates in the 03-07 time frame. most of them are going to get the head handed to them. home prices in LA county likely won't reach the 2006/2007 peak until sometime in the decade of 2020.

Kaye Thomas said...

I agree nothing wrong with 30% down on higher priced homes along with the income needed to sustain the purchase.

I suspect there are more residents in MB with enough money to satisfy your requirements then you think. I expect to see a difference in the demographics after the next census.

As for those with low interest rate loans. People who buy homes as shelter rather then as a major part of their portfolios may wind up having the last laugh... especially if they have a 30 year 5% fixed rate loan and bought prior to 2004.

mookie said...

Bondinvestor is dead on, although he liquid net worth number is a little high, in my opinion. Regardless, the point is that we are witnessing a complete 180 from the lax lending standards of a few years ago. Think about it, two years ago the buyer could have put 5-10% down and bought the home you're listing all day long. Now, not even close. How many potential buyers does this price out of the market. The savings rate in the US is down to levels that are unprecedented and you'll see that increase over time as people become much more conservative in their purchases.
As for people who buy homes as a shelter... sounds good, but not as likely as you think. Just another way to justify a purchase that has gone down in value. "Yeah, I'm down 20% off my purchase price, but I get a great tax deduction." I know, we aren't there yet for those that bought in MB, but I expect we will get there. Getting a tax deduction for taxes and mortgage interest is not much of a consolation for watching your equity decline by 25% on a 2mm+ purchase.

Kaye Thomas said...


Until the last few years buying a home as shelter was exactly the way most buyers viewed a home purchase. It's only been fairly recently that consumers began to view buying a home as an investment that was supposed to double or triple in value in 3 years or less.

Back in the dark ages... people bought a home as a place to live along with the hope that over time it would appreciate in value. People didn't buy with the intention of doubling the value of the home in 2-3 years.

Few of my clients, over the last 29 years, have been home hoppers. Most bought a starter home... held it for a number of years... then bought another where they continue to live. There are not a lot who have owned more then 3 homes in that time span. In fact many of them are still living in the first home they bought.

Most people who have lived in the Beach Cities over the years know that values go up and down but so far up wins over down in the long run. Nor is there any reason to believe things will change much in the future. I suspect if the past is indicative of the future there will come a time when you will think how cheap homes were in 2008.

People have always had a hard time getting a down payment together. House prices in the past might have been less expensive but incomes were also lower and interest rates were a lot higher.

Potential buyers used to come in to see what they had to do to buy a home. We would talk about finances, paying down debt, saving and they would show up a few years later ready to buy. Seller financing was a common way to help buyers purchase a home.

Contrary to popular opinion people are not stupid nor is everyone a reckless fool when it comes to saving. I believe you would be surprised at just how many buyers have been quietly saving their money. Those who are buying now know that prices may continue to fall over the next 6 - 12 months. They are not short term buyers. I think there are more buyers looking at the long term then you realize. The tax deduction is an added bonus.

Owning a home is not a necessity...whether or not you choose to buy a home is a personal decision. There is nothing wrong with renting if you feel it is a better choice for you.

Anonymous said...

You've always maintained that Southbay RE will fair well as long as the local economy doesn't crash. Osama just got elected. Do you finally admit we're screwed?

Kaye Thomas said...

anonymous 8:45,
Sure hope we are not going to be in serious trouble in the South Bay. Guess we'll just have to wait and see ...