Murphy & Murphy Southern California Realty
It’s an amazing time to be a salesperson. The average price of a single-family home in Fallbrook has increased by $ 182,500 since January, bringing the average sale price for June to $ 827,500. The median price of a single-family home has increased from
$ 729,283 to $ 858,153, an increase of $ 128,850. Over 2/3 of all home sales are above the list price. These kinds of numbers remind me of 2005 and 2006, but it’s very different then.
A lot of people tell us they are waiting for the market to adjust for a collapse reminiscent of the Big Short of 2008. I don’t have a crystal ball, but economists who are much smarter than me, born
adjustment. Why, you will ask me? The simple answer is another S word, shortage.
Adjustments don’t just happen. Something has to happen that causes an adjustment. Buying real estate is very different this time around. Lenders do not make it easy for a buyer to qualify for a loan. Buyers must have solid incomes, excellent credit, and properties must be appraised. The VA and FHA loan limits are well below the median or average price of a home, so buyers must qualify under conventional guidelines.
Conventional guidelines require a higher credit score, so there is less risk to the lender. With conventional financing, a buyer may be able to provide additional cash if the appraisal is lower than the purchase price. With FHA, the buyer cannot do this. In 2005, we used to joke that anyone who could fog a mirror could get a loan. In 2021, the opposite is true.
The other thing that has changed is the absence of “piggy-back” loans in transactions today. This is when there are two loans involved in the purchase of the property. The first loan is 80% of the purchase price. The second loan is for
20% of the purchase price. These types of loans allow the buyer not to be required to pay PMI (private mortgage insurance) but to benefit from a higher interest rate on the loan of 20%.
When a buyer uses a piggyback loan, the buyer has no risk, no “teeth” in the game. If times get tough, walking away costs the buyer nothing in real money. It costs them in damage it causes them, but over time it can be cured. In 2005, piggyback loans were common. But in 2020 and 2021, they are not common. None of the offers we’ve seen in the past 12 months have offered this type of financing.
The overall review comes from the keepers of the money; banks, mortgage brokers, and government regulators require loan-to-value ratios, debt-to-income ratios, and income documentation to meet guidelines before a mortgage is approved.
Properties receive multiple offers, many of which are cash or have a considerable amount upfront. Many offers are without evaluation contingencies. We even see the lender waiving the evaluation of purchases made with wholesale
down payments of 40% or more. Even FHA or VA home buyers who successfully buy homes are well qualified with strong, stable jobs and incomes. 2021 is a very different market with very different strategies from 2005.
Another major difference between 2005 and our current market is the supply. Leading through 2005 and 2006, the builders overbuilt. National Association of Realtors chief economist Lawrence Yun said in a recent Realtor magazine that he believed America had a surplus of 2.1 million housing units in 2006. After the crash , under-production has led to the current housing shortage.
He goes on to state that in 2015 the deficit was 2 million households and that at the end of 2020 it totaled 4.8 million households. This lack of housing is the reason that house prices are unlikely to fall sharply. It will take at least a few years to correct this massive shortage. In the meantime, Yun goes on to say that he expects the median home price to increase 9% this year and 3% in 2022.
The pace we’ve seen in the first half of this year appears to be slowing down as we move into the third quarter as supply improves and affordability issues persist. And a simple 3% price increase is worth noting, as it’s a drop from 9%, but it’s certainly not a dramatic adjustment. This information can be an incentive to sell your home this year, but even the first half of next year should be a strong market.
I would like to end with a final observation and a comment to sellers or potential sellers. I review a daily report that shows all of the new listings coming into the market in Fallbrook and Bonsall. I am saddened and shocked at the number of
area listing agents and commission offered to buyer’s agents.
First of all, an out-of-zone agent does not benefit you at all. If you think that because the market is so hot, it doesn’t matter who advertises your home, you are sorely mistaken. When I compare the selling prices that local realtors get for similar properties, the local realtor fares much higher prices for their sellers. Why?
Because the local real estate agent knows and explains the intrinsic value of living in Fallbrook / Bonsall. An outside agent is just selling a house, it’s a number for him. It’s not a community, it’s not a way of life, it’s a number. Which brings me to the second part. Experienced real estate agents are working harder than ever to help their sellers and buyers find common ground in the intense marketplace. Sellers do a well-deserved load of equity for their homes. But in the hands of a discount broker, not only are realtors cheated, but sellers too.
Ask yourself this. If a broker is willing to cut their fees to get your business, how more willing will they be to get you to downgrade your home, just to close the sale? Just my thoughts and my humble opinion.
Kim Murphy can be reached at [email protected] or 760-415-9292 or 130 N Main Avenue in Fallbrook. Her broker’s license is # 01229921 and she sits on the board of directors of the California Association of Realtors.