Pending Home Sales Rise for Record Eight Straight Months

Pending home sales rose again, marking eight consecutive monthly gains – the longest streak since measurement began in 2001, according to the National Association of Realtors®. The Pending Home Sales Index rose 6.1 percent to 110.1 from a reading of 103.8 in August, and is 21.2 percent higher than September 2008 when it stood at 90.9. The gain from a year ago is the largest annual increase on record, and the index is at the highest level since December 2006 when it was 112.8. Lawrence Yun, NAR chief economist, said the momentum is understandable. “What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” he said. “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.”

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Are Low-ball Appraisals Hurting Our Market?

Houses are still selling swiftly in East Bay. Limited inventory means that sellers are still experiencing the joy of multiple offers. Unfortunately, spirits are sometimes dampened by low-ball appraisals. Houses get into contract for a fair price, dictated by willing buyers bidding in an open market. This contract price is often diminished through the appraisal process when conservative appraisers are pressed by ridiculously conservative banks.

It's a tough job for appraisers. They have new guidelines for justifying their conclusions of value. They are being asked to provide a greater number of comparable sold properties than they have needed in the past. In addition, the timeline for these qualifying properties has shrunk from data collected within the last six months down to three. Geographical requirements have also been tightened. Some lenders are requesting comparable sales within 1/2 mile radius of the subject property. This process is complicated by our limited housing inventory and low sales volume. In short, appraisers are now required to produce more data, while obeying stricter guidelines, in a market with less turnover.

At the center of this debate is The Home Valuation Code of Conduct ("HVCC"). HVCC regulations prohibit lenders and Realtors from choosing or directly communicating with the appraisers. This means that sometimes out-of-area appraisers are chosen at random and are working to justify home values in a market they do not understand. Due to resulting low appraisals, legitimate loans are being turned down and Bay Area buyers turned away (with dreams crushed.) You can help by signing the petition, Request For Reconsideration of HVCC.

Note: When an appraisal comes in low, the buyer (with an appraisal contingency) can cancel their offer, try to renegotiate with the seller or elect to proceed under the original contract terms. Often the original price is the fair price. Yet, it is difficult for buyers to feel confident paying a price that the "expert", in this case the appraiser, tells them is high.

Buy a House, but Don't Pay the Mortgage!

A new reverse mortgage option, HECM (Home Equity Conversion Mortgage, the FHA term for a reverse mortgage), has been unveiled that may help senior citizens age 62 or older buy a house or downsize from a current home in the Bay Area. Reverse mortgages have been around for quite some time. However, the concept of their use to purchase a home is new.

In the past a reverse mortgage was a way for seniors to access the equity they had built up in their primary residence. The concept is simple; a homeowner receives a check (in lump sum or multiple payments) from the bank against the existing equity in his/her home and the homeowner's obligation to repay the loan is deferred until the owner dies or the home is sold.

The new version of the HECM program allows buyers to use a reverse mortgage as a plan to permanently finance the qualified buyers new home. Through the program, the qualified homeowner may live "mortgage free" and only be responsible for property taxes, insurance and maintenance costs for as long as they live in the home. Beyond living mortgage free, additional financial benefits may be found by freeing a retired homeowner's equity:

The purchase program, in effect, doubles the purchasing power of eligible buyers, several brokers said. Under the program, a couple with a $1,800 monthly payment on a home in which they have $250,000 in equity could sell the house, use $150,000 of their equity to buy a $300,000 condo and never make another mortgage payment.

They would then have $100,000 in cash that could be used for any purpose, such as supplementing their retirement savings or pension income.

Here are few of the fine points:

• Buyers need to be at least 62 years old. The older the borrower, the greater the amount of the home price that can be financed.
• The property being purchased must be a principal residence and owner-occupied.
• Homes can appraise at up to $625,500.
• Buyers need to put up a substantial down payment (often 40% or more) to create the instant "equity". The size of the down payment varies depending on the age of the buyer and the interest rate of the loan.
• Reverse mortgage costs and fees can be substantially higher than for conventional loans.
• Buyers must pay 2 percent of the property's appraised value - up to the maximum value of $625,500 - as a premium for federal mortgage insurance.

Resource: New reverse mortgage opens options for seniors, by Robert Hollis, Special to the Chronicle.