A lot is being written about the headwinds consumers are facing. High costs in housing (rent or buy), high interest rates across mortgage, credit cards, auto purchases, student loan payment resuming, record high monthly auto payments and record debt levels.
Some of the narrative about excess money buying real estate is around availability of debt. Borrowers ability or willingness to obtain loans is falling across both business and personal loans.
Are the consumer headwinds showing up in housing distress? Most of the real estate distress has thus far been in commercial real estate.
For residential, there are no signs of widespread distress at this time. Mortgage Bankers Association reports “in October 2023, the share of Fannie Mae and Freddie Mac loans in forbearance remained flat at 0.18%. Ginnie Mae loans in forbearance decreased 5 basis points to 0.52%, and the forbearance share for portfolio loans and private-label securities (PLS) decreased 3 basis points to 0.32%.”
An Axios reporter reached out to me this week to ask if I wanted to comment on the 300% increase in homes in San Diego County that sold at a loss.
I asked him to share absolute numbers. He knew it was around 1% of all sales in the past 90 days. I looked up the sales from the past 90 days, it was just over 5000. So 50 something homes. 99% of Sellers did NOT sell for less than they bought the home for.
Some reasons there is no major distress in housing in San Diego County:
Lack of widespread mass unemployment
Stock market hasn’t crashed
No new greenfield master planned communities are being developed. Construction loans are difficult to obtain and costs make it economically not feasible for many developers. And every day some group of NIMBY San Diegans are blocking new housing development
Almost 40% of homes are owned free & clear
A lot of homeowners are locked into low mortgage rate
Seniors are aging in place longer
Buyer Demand
In San Diego County, there is still Buyer demand as many homes are still getting multiple offers, but that number is significantly lower than the peak of the buying frenzy. Homes that are priced too high, have a number of factors that make it less desirable are sitting on the market longer- this is normal. The past few years was not normal so what you’re currently seeing is closer to normal, but what isn’t normal are the very low number of homes for sale. We are also experiencing seasonality as few Sellers sell during the holiday season.
The low number of homes for sale creates distortion as Buyers are chasing very few homes in any given zip code or neighborhood, price point, housing type, and the number of really desired homes are even fewer. Many Sellers are simply locked in, unable to afford to move, so the non essential move up / down market has all but disappeared.
The number of borrowers qualified to purchase has been falling and reflected in the low number of mortgage applications.
San Diego County continues to have plenty of cash buyers. In the past 90 days, 5139 Detached, Attached, Townhome/Twinhome/Rowhome & Manufactured homes Sold. 1,397 or 27% of those were noted as Cash transactions in SDMLS.
The profile of the average Buyer in the US is older, which is consistent with the wealth being used to purchase homes vs income.
Mortgage rates: Mortgage rates have been falling in the past few weeks as the 10 Yr Treasury yield has been falling.
Rate surveys are quoted differently across every participant, with varying fees, points
Your specific circumstances: LTV, DTI, credit, loan size, type of property, property use are going to change the rate, so you must get quotes for your circumstances
There is no such thing as parity in rates across lenders- whether it be retail banks/depositories, direct lenders or wholesale lenders.
FHFA has announced new conforming loan limits for 2024:
National conforming loan limit (i.e. the “regular conforming loan”) – this includes Imperial, Riverside and San Bernardino Counties as they have no High-Balance loan options available:
$766,550 – 1 unit
$981,500– 2 units
$1,186,350– 3 units
$1,474,400 – 4 units
High balance loan limits for San Diego County:
$1,006,250 – 1 unit
$1,288,200– 2 units
$1,557,150– 3 units
$1,935,150– 4 units
High balance loan limits for Los Angeles, Orange and most Bay Area Counties:
$1,149,825 – 1 unit
$1,472,250– 2 units
$1,779,525 – 3 units
$2,211,600– 4 units