The Pleasanton real estate market in August was slow but steady, which has been the trend for the past few months. Inventory dropped slightly, perhaps signaling the start of a seasonal trend downward after Labor Day. At the end of August, there were 264 homes on the market, down from 269 at the end of July. Pending sales for August were up slightly, with 50 pending sales for the month, as compared to 45 for the month of July. Recent rate declines with the Federal takeover of Fannie Mae & Freddie Mac might give the market a shot in the arm, and with some of the values in the marketplace now, some buyers are again sticking their toe in the water. It remains an excellent market for buyers, and especially for move up buyers, who admittedly will take their lumps on the sale of their home, but will be able to benefit from some of the values available today. (click on the graph to enlarge)

In the Under $1 Million market, inventory is actually up slightly, with 148 single family homes on the market in this bracket, compared to 146 at the end of July. Pending sales were up as well, with 38 pending sales in August, up from 33 in July. Indeed, this is the highest level of pending sales since April in this price range. (click on the graph to enlarge)

In the $1 million to $2 million market, inventory was down, with 83 homes on the market at the end of August, as compared to 87 at the end of July. Pending sales were flat, with 9 pending sales in August, which is down from 20 pending sales in April & May. There is some activity, there are still showings in this price range, but buyers remain value driven. (click on the graph to enlarge)

In the luxury home segment over $2 million, inventory dropped slightly, with 33 homes on the market at the end of August, down from 36 at the end of July. Pending sales have been identical the last 4 months, with 3 pending sales for the month of August. There is a 1 year supply of homes in this segment, and this price bracket remains slow. (click on the graph to enlarge)

Look for some buyers to jump into the market as we enter the fall, perhaps wanting to get a jump on the spring market and take advantage of some of the great values available now, which is smart. With the drop in rates, it is a great time to shop for a new home.

Popularity: 65% [?]

The real estate market in Pleasanton CA in July looked a lot like the market in June. The activity level is remarkably steady, though not brisk. Inventory is up slightly, especially in the under $1 million price bracket. But for now the market seems to have settled into a slow but steady pattern. The good news is that there are sales occurring… 45 pending sales in July to be exact, down slightly from 49 pending sales in June. The bad news is that there are now 269 houses on the market, which is up from 243 houses available at the end of June.

For sellers this means you will have to be competitive with other homes on the market. You need to be one of the best values in your price range to attract the attention of buyers, which is no easy task. In fact, buyers today have an attention span seemingly measured in hours or even minutes. “Yes, I kind of like that house” in the morning turns into “It’s okay, but let’s see what else is out there” by mid-day, and by evening they have completely moved on. For buyers, this is a prime opportunity to get a great house in a prime neighborhood for prices well below the peak of 2005. So here is what the market looks like at the end of July (click on graph to enlarge)

In the under $1 million bracket, inventory increased to 146 homes for sale at the end of July, up from 120 at the end of June. There were 33 pending sales in July, which has remained fairly steady (30 in May, 32 in June). There is a 4.4 month supply of homes on the market now at the July sales rate (click on graph to enlarge)

In the $1 million to $2 million bracket, inventory has crept up slightly, with 33 homes on the market at the end of July, up from 32 at the end of June, and 30 at the end of May. However, sales have declined, with 9 pending sales in July, down from 14 in June and 20 in May. (Click on graph to enlarge)

In the luxury home bracket over $2 million, there were 36 homes on the market at the end of July, down from 42 at the end of June. Some of these were the result of price reductions, and some sellers simply decided they no longer wanted to play in this market. There were 3 pending sales in July, which is the same level as May and June. Overall, conditions in this price bracket remain sluggish, and there is currently a 12 month supply of homes at the current level of inventory and sales. (Click on graph to enlarge)

I expect inventory to edge up slightly as we get towards the end of Summer, and sales to remain fairly stable at current levels. Still a great time to buy. And if you are going to sell, you had best price your home to reflect the current market, or be very, very, very, very patient.

Popularity: 100% [?]

There has been tremendous fallout from the sub prime & mortgage market meltdown. Lenders have tightened up underwriting criteria, and are demanding higher credit scores. Downpayment requirements have increased, and most of the high risk “stated income” loans have gone by the wayside. There is, however, no truth to the rumor that the major lenders now demand your first born child as collateral as well. Needless to say, the stricter lending environment has had a direct impact on the local real estate market. And once a buyer and a seller agree on price and enter into a contract, the challenges are not over.

Appraisals have become an issue for many transactions now as well. Lenders have been stung by overly optimistic appraisals, and even out right appraisal fraud. During the wild and frenzied market of the early 2000’s, when money was cheap and plentiful, appraisals struggled to keep up with the surging prices. Appraisers have to use data on closed sales, which means in a rapidly increasing market, by the time the comparable sales close escrow and become viable for an appraiser, often they were behind the market. Appraisers were forced to compensate for the rapid price moves by using adjustments for market conditions. They were forced to use adjustments to compensate for differences between the subject property and the comparable sales, and many times these adjustments added 10% or more to the property value in order to bring the appraisal in at the sales price, which was often bid up over asking price. And in cases where there was outright loan fraud on the part of the borrower, the appraisal had to be inflated well above market value (again using shaky comparable sales and excessive adjustments) in order to give the fraudulent buyer money back at the close of escrow. While it certainly was not always the case, many times lenders on non-performing loans or loans in default found that the appraisals contained excessive adjustments and inaccurate data.

As is often the case, the pendulum has now swung back the other way. Lenders are very diligent in analyzing appraisals, and now have tightened up the requirements for appraisals to be valid. They are requiring that the appraisals have comparable sales within the last 90 days that are within the immediate neighborhood of the subject property. And in cases where the appraiser is using excessive adjustments to the subject property because of poor comparable sales, the lender is often adjusting the appraised value downward during the review and underwriting process. This is causing some deals to fall apart during escrow, or forcing sellers to renegotiate the price to reflect the lower appraisal. Most troubling is that the appraisal review process can often occur at the 11th hour, catching both the buyer and seller by surprise.

So how do you protect yourself? As a seller, it is imperative that your agent inquire with the lender about the status of the appraisal, and whether there is an appraisal review that is part of the underwriting. On all loans appraisal reviews are commonplace, and sometimes lenders even require two separate appraisals on large loan amounts. Until the loan has made it through the lenders underwriting and appraisal review process you might not have an escrow that will close.

As a buyer, your agent needs to be extra diligent in how and when they remove the appraisal and loan contingency. You might get a loan approval from the lender, but again you need to make sure that it is not subject to an appraisal review. You should not remove the loan and/or appraisal contingency until you know that the appraised value is approved by the lender. Otherwise, you might find yourself in the position of removing your loan and appraisal contingency, and then finding out that the appraised value has been reduced by the lender.

The properties that have the most difficulty are homes that sell above recent sales in a neighborhood. Homes that are larger, or more upgraded, or have spectacular views and amenities should be expected to sell for more than other homes in the same neighborhood. But when it comes time to have the lender approve the appraisal you might have issues, since the appraiser will have to use large adjustments in the value to justify the higher sales price. And the lender very well may knock down the appraised value of the home during the review process, even though the home is clearly worth more in the “real world”. As a rule, you should have your home “bracketed”… in other words, there should be some homes in the immediate neighborhood that have sold for more than your home, and other similar sales of homes at the same price or less so that the lender has a good range of value behind the appraisal.

So if you have an over-improved home, or a home that was added on to that is now larger than the other homes in the neighborhood, you might have some problems with the appraisal when it comes time to sell, since it will be difficult to find comparable sales in the immediate neighborhood. So you might want to think twice before you put in that Resort sized pool with a water slide and swim up bar, or that $60,000 outdoor kitchen, or the tennis court, etc. While it is always cool to own the nicest home in the neighborhood, you might not be smiling when it comes time to sell, and you have to justify the appraised value to the lender.

Popularity: 70% [?]

The Pleasanton CA real estate market remained steady in May, with activity down slightly from the banner month of April, and inventory climbing slightly. Of course, with the Memorial Day holiday, many people were no doubt exhausted from spending hours trying to find gasoline for under $5 per gallon for their 3 day weekend, so I’m sure that few had the time or energy to look for homes. That being said, the market activity seems to be decent, although there is still downward pressure in most price categories and neighborhoods.

For the month, we had 53 pending single family homes, which is down slightly from the 67 we had in April, but still respectable. Inventory is up some, which is normal from a seasonal standpoint. We ended the month of May with 245 single family homes on the market, as compared with 221 at the end of April. For the market overall, we currently have a 4.6 month supply of homes. Or put another way, if no new homes come on the market, at the current sales rate, it would take 4.6 months for all the current listings to sell. (click on graph to enlarge)

In the under $1 million segment, pending sales were down for May, with 30 pending sales for the month, as compared to 42 in April. Inventory at the end of May was 132, up from 118 at the end of April. (click on graph to enlarge)

In the $1 million to $2 million bracket, the market was stable. Pending sales were 20 for the month of May, which is the same as April. Inventory rose slightly at the end of May, with 71 homes on the market, as compared to 70 at the end of April. This is arguably the strongest market segment right now, with a 3.5 month supply of homes. (click on graph to enlarge)

In the luxury home segment over $2 million, sales were down slightly, with 3 pending sales for the month, as compared to 5 for the month of May. Inventory jumped from 33 available homes at the end of April, to 42 homes at the end of May. Overall in this price segment, it is still sluggish, with a 14 month supply of listings. (click on graph to enlarge)

At the end of the day, it is still a value market. Homes that are priced well and in pristine condition will continue to attract a lot of interest from buyers (even multiple offers on occasion). Other homes that have unrealistic prices or major flaws in condition or location will continue to struggle. There continues to be positive signs from the weak secondary markets like Stocton, Tracy, Antioch, etc. We are seeing much stronger activity in these markets, which might be an indication that these markets are starting to stabilize, which is good news. Is the bottom of the market closer than we think? Stay tuned…

Popularity: 65% [?]

There is a silver lining to the slumping real estate market after all. If you purchased your home in the last 3 years or so, it is likely that your home has probably decreased in value. While that is certainly not welcome news, there is a small benefit. You are allowed by law to request a reassessment of your current assessed property value, thereby potentially lowering your property taxes temporarily.

The assessed value can be found in two ways. First of all, the county tax assessor (they are so nice to do this) send you out a NOTICE OF ASSESSED VALUE for the coming property tax year. Remember, the property tax year runs July 1st through June 30th. In the NOTICE OF ASSESSED VALUE, the assessor indicates the new assessed value of your property for the next tax year based on the property value as of January 1st.

If you have not saved this notice, you can also refer to the actual property tax bill when you receive it. Both documents will indicated your assessed value. You can also contact the county assessor’s office and get the information that way.

If you feel the market value of your home is less than the assessed value as of January 1st, then you have the right under proposition 8 to file a Decline in Value Reassessment Application. You can obtain the form from the county assessors office, or by using the link below.

On the claim form, you must provide the Assessor with any information that supports your opinion of the market value. The best information, of course, would be sales comparables. You should provide two comparable closed sales that sold as close to January 1st as possible, but no later than March 31st. Remember, the assessed value of your property is based on it’s value on January 1st of that year. Of course, the assessor is free to consider other sales information at their disposal to arrive at a decision, so it is not an automatic approval. This form should be submitted to the Assessors office before June 2nd.

If the assessor does not agree to your value, you do have the right to appeal the decision. If you decide to appeal the assessed value, you must do so between July 1st and September 15th. The appeal forms can be obtained by contacting the assessor’s office.

Once the assessor agrees to a temporary reduction of assessed value under Proposition 8, the assessors office automatically review the subsequent years assessed value. Again, if you do not agree, you can file another appeal in that tax year. If the property appreciates, the assessed value can never increase above the Prop 13 baseline assessed value (your annual assessed value based on your original market value or purchase price, plus increases). So you will never be worse off for filing an appeal. It is a temporary reduction in assessed value.

Here are links to information and the Decline in Assessed value forms:

Alameda County:

Reassessment Information (PDF)
Decline In Assessed Value Claim Form (PDF)

Contra Costa County:

Reassessment Information
Decline In Assessed Value Claim Form (PDF)

Popularity: 66% [?]

The Pleasanton CA real estate market saw a spike in activity in April, as pending sales for the month rose to their highest level since June 2007. Despite continuing dismal news on the national and regional real estate markets, and shaky economic indicators, many buyers in Pleasanton are deciding that values have reached a point where they are very attractive, and are deciding to act. This is yet another example of why there is no “real estate market”, but rather a series of micro markets that vary in terms of activity, outlook, and strength. Even within the city of Pleasanton there are neighborhoods and areas that are fairing much better than others. But as a whole, Pleasanton saw a strong month of activity in April. There were 67 pending sales for detached homes in April, up from 35 in March, and 43 in February. Inventory rose to 221 homes on the market at the end of April, up from 206 in March. This is perhaps a sign that this summer could see strong activity, certainly welcome news (click on graph to enlarge).

In the under $1 million price range, there were 42 pending sales in April, up significantly from 26 in March and 30 in February. Overall, 2/3 of the sales were in the under $1 million price range. Inventory rose to 118 available single family homes at the end of April, up from 106 at the end of March (click on graph to enlarge).

In the $1 million to $2 million price segment, activity was up significantly. There were 20 pending sales in April, making it the most active month in this price segment since May of 2006. March saw 8 pending sales in this price segment, so it was certainly a good month. Inventory rose slightly, with 70 homes on the market at the end of April as compared to 67 at the end of March (click on graph to enlarge).

In the over $2 million price range, activity was up as well with 5 pending sales in April as compared with 1 in March and 3 in February. Inventory remained unchanged, with 33 homes on the market at the end of April (click on graph to enlarge).

Overall, the spike of activity is certainly welcome news. With many sellers getting more aggressive on pricing, many buyers are getting off the fence and taking advantage of the values available in the marketplace. With interest rates remaining low for the foreseeable future, there is hope that this will be an active summer for the Pleasanton housing market. Only time will tell….

Popularity: 61% [?]

Good news. Pending sales in Pleasanton are up. There are 44 pending sales as of today (April 23) for the month. We have a week to go, so we might hit 50, which is a great month. Inventory is keeping steady with 223 homes on the market.

Pending sales are at or near record levels in Stockton, Tracy, & Antioch. Could we be getting close to a point of stability? Only time will tell.

And now, back to our regularly scheduled real estate slump…

Popularity: 33% [?]

One often overlooked casualty of the great real estate slowdown has been revenues from property taxes. Counties, cities, and school districts are the primary beneficiaries of property taxes. In fact, over 80% of the revenue raised by property taxes are used to fund these 3 entities, with schools getting over 50% of the total property tax revenue. So it is not just Realtors, mortgage brokers, and over-mortgaged homeowners who are the biggest casualties of our real estate slump. Schools are a big loser as well. In fact, our school districts are in financial crisis, and proposed budget cuts are deep and painful. The Pleasanton Unified School District expects a $4.5 million shortfall this year alone.

In order to understand the impact of the real estate slowdown on property tax revenue, you must understand the now famous Prop 13. The two major provisions of Prop 13, enacted in 1978, are that (a) property taxes are based on the market value of the property when it is purchased or transferred and (b) the assessed value is limited to a 2% annual increase, regardless of market value. Prior to Prop 13 in the wild days of the 70’s, homeowners were seeing huge increases in the assessed value of their properties, and therefore huge tax bills, as the real estate market appreciated rapidly. At that time, properties were assessed according to their market value, so if your home appreciated 30% for example, so did your property tax bill. This led to the famous taxpayer revolt that produced Prop 13.

What has kept the system relatively healthy is the steady appreciation rates of residential property in California. When properties sell, there is normally a net increase in property tax revenue, as appreciation translates into a higher assessed value for the new owner. This increase in revenue is especially strong in a booming real estate market, as not only are assessed values higher, but there are more sales to boot. But the reverse is true in a real estate slump. Property values have declined, as well as the number of sales. When sales of real property drop 50% for example, property tax revenue takes a hit as well. There is still usually a net increase in assessed value on many properties, depending on how long the previous owner owned it, but the number of reassessments drops with the level of sales. So there is a net decrease in revenue.

There is normally a steady amount of discussion about the relative fairness and effectiveness of the current property tax system. When we have periods of fiscal crisis, these issues tend to move to the forefront. So is the Prop 13 property tax system fair? It depends on who you ask.

For example, consider 2 houses that are the same size next to each other. One house has been owned by the same owner for the last 20 years. Let’s say the property tax generated by this house is $3000 per year (not unusual in our area). And let’s say the house next door sold last year for $900,000, so the annual property taxes on this house are $10,000 per year, or three times the amount. It is quite possible that the owner paying $3000 per year has a couple of kids in school. And the owner paying $10,000 per year may not have kids yet. So from a use standpoint, one could argue that the owner paying $3000 per year is getting his kids public school education subsidized by his neighbor. It is hard to argue that this is fair.

Or how about a long time home owner with a very low tax base who decides to retire to the desert or the foothills, and rents their home out to a young family with school age kids. Again, this would be a net loss to the school district, as the revenue generated from the low tax assessment will most certainly not cover the cost of educating the tenant’s kids.

Or how about new homes. Local governments and school districts have collected (some say extorted) millions of thousands of dollars from new home builders in permit fees, school mitigation fees, and other fees levied on builders for the privilege of building homes in the community. This raises the cost new homes, sometimes by as much as $50,000 to $100,000. So one could make the argument that buyers of new homes bear an disproportionate share of the tax burden to fund schools and local governments. And to make it even less fair, when new homes cost more, resale homes generally benefit from an increase in value, while enjoying a cap on what they pay into the system.

On the other side of the equation, property taxes are not cheap. And homeowners need the certainty and protection of limits on the increase of assessed values. Even long term property owners need protection against huge increases in property taxes, especially those on fixed incomes. Is it fair to force an elderly home owner to sell their home because they can’t afford the taxes on their property under the old system?

There is a strong argument that while there are inequities in the current system, there is stability. When you buy a property, you know what the taxes are going to be, and you are protected against huge increases in property taxes. As is often the case, how much someone is paying in property taxes has a lot to do with their feelings on the fairness of the system.

Popularity: 50% [?]

It is always amusing when Realtors meet with potential sellers, and the conversation around pricing is often filled with comments from the seller such as “I want X amount for my house” and “my house is worth X because the house around the corner sold for Y, and mine is nicer”. And Realtors, sometimes under pressure to tell the seller what they want to hear, chime in with “yeah, I think you can get X for your home! It is magnificent!” or “yeah, the market is slow, but looking at your home, I’m thinking it is worth Y”. Often, Realtors and sellers get into a kind of “groupthink” situation where each one reinforces the other, and before you know it, they have worked each other up into a frenzy. The only problem is that there is one party who is a huge part of the equation regarding the value of the home, and their point of view is usually not represented in these meetings of the mutual admiration society… I am speaking of course about buyers. And guess what? Surprise… they usually have a totally different opinion about the value of your home.

The fact of the matter is that it is the opinion of the buyer that counts the most. They are the one(s) writing the check, so you must see the market through their eyes if you want to sell your home in this market.

Price Vs. Value. You see, all the seller and the realtor can do is set the asking price for the property. They can not set the value. The value is determined by buyers and the strength of the market in that price segment. So the seller and Realtor might agree to set the asking price of a given home at $900,000, for example. But if they receive no offers and very little interest after 30 -60 - 90 days, then the value of the house is not $900,000.

So if buyers ultimately hold the power in determining the value of a home, it makes sense to try and understand how buyers view the market. What is the mood of buyers today? What is important to them? What are their concerns? So here are some things that buyers think about when evaluating a house in this market.

How Long has it been on the market? This is the first question buyers ask about a home without fail. Why? Buyers want to gauge how much “room” there might be in the asking price, and how desirable the house is to the market in general. If the answer is “90 days”, then the buyer will generally assume it is overpriced, and mentally discount the value of the house. Or worse yet, buyers will ask themselves “what is wrong with this house that no one else is interested in it?”. Either way, it is not good. Of course, if the price has recently been reduced, it helps reduce the impact of this question. If the answer to the question is “3 days”, then the buyer knows that there is likely not as much room in the asking price, and will need to be fairly aggressive in terms of the offering price if they want to make an offer. The fact is the seller’s position weakens the longer the house stays on the market.

I don’t want to be a fool. Buyers, whether they verbalize it or not, are afraid of making a mistake. No one wants to buy a house for $900,000, only to find out it is worth $800,000 six months or a year later. In a soft market like this, buyers need to feel somewhat insulated against future price erosion. Translation: buyers want to buy your home at a good enough price that the market can slide some more, and they will still feel okay about it.

It needs to be as close to move-in condition as possible.. To have success in this market, buyers have to be able to move in without having to do a lot of updating or work. Buyers just don’t seem to be in the mood to buy homes that need a lot of work, unless it is at a substantial discount. So carpeting should be new or newer, paint should be fresh, and there should not be any repairs or touch up items needed. Sellers in this market need to eliminate as many possible buyer objections as possible before the home goes on the market.

The value has to be justified. Buyers have to be convinced that the price is justified by hard data. Comps or comparable sales are great. The only problem is that sellers tend to gravitate towards the sales at the higher end of the spectrum, and guess which sales the buyers tend to give most importance to? The lowest ones, of course. It takes a seasoned professional to explain both the high comps and the low comps to the buyer so that they can be reasonably certain that the value is there for that home.

If it’s not near perfect, I am better off waiting You can’t blame buyers. There has been an onslaught of negative media attention on the real estate market, and the economy. This leads to insecurity and uncertainty on the part of buyers today. So if the house is not exceptional in terms of value, or close to perfect in terms of condition, buyers often revert to waiting.

It takes strong value in today’s market to get buyers to act. Your home has to stand out in your price segment in order to attract the attention of serious buyers. Smart sellers know that they have to leave some money on the table if they want to sell today.

Now that we talked about what buyers care about, here are some examples of what buyers don’t care about:

* How much the seller “needs” in terms of the sales price. Adding the phrase “because the seller really needs the money” to an ad will have zero impact with buyers. They don’t care.

* How much potential there is. Buyers buy what they can see, and they buy what the property has now. Buyers don’t generally assign much value to the fact that you could add a guest house, pool, sports court, or family room addition for example.

* The seller is offering a credit of $50,000 to remodel the kitchen, or baths, or flooring, etc. Bad news: Buyers are not willing to undertake remodeling or updating unless there is substantial incentive to do so. Sellers see a dollar amount associated with upgrades. Buyers see spiraling costs, flaky contractors, living with chaos, stress, and a huge hassle. Buyers are more likely to pass on your house and buy one that they can move right into.

* That you spent major money remodeling your kitchen and master bath 10 years ago. That was then, this is now. In fact, improvements you made 10 years ago might be out of date today.

Popularity: 14% [?]

The mortgage market continues to adjust to the turmoil in the credit markets. The trouble lies in the secondary mortgage market, where institutional investors purchase mortgage loans typically bundled into Mortgage Backed Securities. The yield that these investors demand is a function of perceived risk (how safe is the investment) and the typical concerns of long term bond investors, namely the threat of inflation over the long run. When the sub-prime crisis hit in July of last year, it dramatically changed the perceived risk of mortgage instruments in the secondary market. In other words, investors in the secondary market perceived a higher level of risk for mortgage loans in general, and either demanded more yield to compensate for this additional risk, or elected not to invest in mortgage instruments all together. This put immediate upward pressure on rates, especially jumbo mortgage loans (loans over $417,000).

Today, the climate is still difficult. The government has enacted legislation to raise the Fannie Mae conforming loan limits to $729,000 in our area. The hope was that this would help stabilize the mortgage rate environment and make homes more affordable in high price areas. Fannie Mae & Freddie Mac are considered to be backed by government, therefore they are perceived to be less risky than jumbo loans. Most mortgage experts thought that loans up to $729,000 would be at the lower conforming loan rates, which would be a boost to the real estate market. But unfortunately, the secondary market saw things a little differently. There are fewer buyers for the new conforming loans, and there is uncertainty on how to assess the risk, so as a result the yields are higher. (click on graph to enlarge)

Right now, loans over $417,000 up to $729,000 have around a 1/2% higher rate. Jumbo loans (over $729,000) have an additional premium of around 1/2% to 3/4% over those loans. So for fixed rate loans, current rates look like this: (note: this assumes a 0 point loan. No apr’s have been computed. Rates courtesy of Private Mortgage Advisors)

Conforming 30 year fixed up to $417,000 5.75%
Conforming 30 year fixed from $417,000 to $729,000 6.25%
Jumbo 30 year fixed loans over $729,000 7.0%

Now recently the Fed has been reducing their key short term interest rates in a bid to infuse capital into the economy. This has had some positive effect on rates in general, but it has also led to concerns about an increase in inflation, which can put upward pressure on long term rates. But it certainly helped short term mortgage instruments, especially adjustables and home equity lines of credit, which dropped as well. However, lenders and investors recently have become very leery of these types of loans given the high level of defaults. So predictably, the rates on these loans have to be higher to justify the perceived risk, which means that they are not as attractive today. In fact, these short term interest only fixed loans are not much lower than fixed rate loans. (click on the graph to enlarge)

Here is a breakdown of current rates for short term loans:

5 year interest only fixed up to $417,000 5.625%
5 year interest only fixed from $417,000 to $729,000 6.0 %
5 year interest only fixed jumbo over $729,000 6.75%

7 year interest only fixed up to $417,000 5.625%
7 year interest only fixed from $417,000 to $729,000 7.25%
7 year interest only fixed jumbo over $729,000 6.875%

Lastly, lenders in general have tightened up considerably on the underwriting guidelines. Now lenders are looking closely at the buyer’s credit scores to judge their qualifications, and across the board lenders are demanding higher downpayments. If you are trying to obtain a loan over $729,000, lenders are now requiring 20% down. There is low downpayment money available under $729,000, including FHA loans, so downpayments are not as critical under this amount. The simple fact is that lenders are not willing to take chances with buyer’s qualifications, and will look at the buyer very carefully to make sure they are qualified. The days of easy money are over for the real estate market, and while it makes things harder for now, it is much healthier for the market in the long run. Once the secondary market stabilizes, we should see capital flow back into mortgage instruments, and rates will come down as a result.

Popularity: 27% [?]