According to “anon8mizer”:
CNBC just reported that the [conforming loan limits for Fannie Mae and Freddie Mac] limit has been raised from $417K to $625K…
And from “Dave”:
This proposal (reported on Reuters) has serious legs in Congress. On top of the Fed lowering the boom this week to the tune of 75 basis points, SF may have it’s conforming loan limit increased to $700k. That would mean that someone purchasing an $875K home could put 20% down and get a rate (today) that’s below 6% on a 30 year fixed. That’s somewhere between 1 and 2 percentage points lower than just six months ago. From an affordability perspective, one full percentage point drop on the loan above would translate into a payment that’s lower by about $450/month.
This is (finally) some reasonable bullish news for the Bay Area real estate market… You will see a refinance boomlet in the coming three months (hopefully some foolish ARM-holders will lock into something more responsible) and you could see buyers inch back into the market. Recession or not, this spring is going to be an interesting ride.
We couldn’t agree with you more.
Some quotes from the report:
The loan limit U.S. mortgage funders Fannie Mae and Freddie Mac can finance will be raised to $625,000 from the current $417,000…
…several sources said the final plan might be narrowly tailored to raise the loan level for some high-cost metro areas as high as $700,000. [that would be us]
[Update: Important to note that the proposal is to raise the loan limit “temporarily”, and although agreed upon, it is not yet written into law.]
–US package may up GSE loan cap to $625,000-sources [Reuters]
“…the new limit would be 125% of a metropolitan area’s median housing price, up to a cap of about $725,000.”
What is the Bay Area’s “median housing price” – 125% of that should be the new limit for us!
This is going to have a HUGE impact on property in SF, especially with the median price at $725K. I think this is going to cause a massive influx of demand, and drive prices even higher in 2008, after a pretty solid rise in 2007.
Fed cut, and now 50% more mortgages allowed to get conforming level loans i.e. 30yr fixed at 5.5% or below, is huge.
what does this mean for a typical jumbo mortgage at say 1.025 million?
Here is the CNBC article with some details
http://www.cnbc.com/id/22825724/site/14081545/
FYI according to the article I found on CNBC, the limit is only raised for ONE (1) year…
This is going to spur activity. Off the top of my head, this is great news for yours truly personally and three different perspective buyers I’m currently working with. Half the agents in town probably feel the same way. And I guess its “momentum” has been called a “bipartisan steamroller.” Seems like it’s gonna get done. Awesome. To be fair, Kenneth Harney predicted this three months ago or so.
If there is truly a limit of one year on this boost, I can easily see a rush to buy for many buyers that were sitting on the fence should this all play out. This could push prices up in the next year. Another frenzy, if you will.
It makes me laugh reading the comments on SS or CL, given they are all renters how they type War & Peace length posts to justify that a 75bps rate cut, and increasing the conforming limit to 625K from 417K is a bad thing. :) I guess once you’ve missed the boat, you’ll always be stranded lol
Those great rates available on jumbos yesterday are gone today – sux
what does that mean for people who have a mortgage “just between”? (above old number, below new number)
what is the diff between a conforming and a jumbo? should people in between refi to fall into the other group?
(yeahhhhhh. more doom and gloom for 2008.. ;-) )
Later – It’s just the way human nature is. If you’ve rented and missed out on this enormous boom, you naturally become bitter and pessimistic. I can’t imagine what’s going on in some renter’s minds about all these rate cuts and bailouts. Must be so frustrating and infuriating I can imagine. I just refinanced yesterday, and am saving about $300/month myself.
Pity the fool who wants to buy a 600-900K condo now! Good luck fighting all the demand! lol
BoomTime
Help me out here –
“I guess once you’ve missed the boat, you’ll always be stranded lol”
I “missed out” on the boom because I graduated from college in the summer of 2006. Unless I scooped up a NINJA loan a year and a half ago, I have not had an opportunity to buy, although I did manage to save over a third of my gross salary while I watched the market sputter. Am I supposed to believe that, just like those older renters, I have “missed out” on the boom, and my generation and all those younger than myself will never be able to own property in the San Francisco area? Does anyone else think this idea sounds completely ridiculous? I have only been amused by the pissing match between the people on the boards here and at SS, but I have to point out how silly this “priced out forever” argument sounds to someone in my position.
Like I said, help me out here and convince me that my life will be forever tinged with the bitter sadness that I was not born 10 years earlier.
You won’t be priced out forever. Housing will trend back toward “equilibrium” but it just doesn’t move like stocks (i.e. overnight). This situation will play out over many, many years.
You will find on many of these boards plenty of “jealous, bitter renters” who desperately wanted to buy something during the boom but did not. Now, they are desperately cheering for a wholesale crash to justify their positions. Unfortunately for them, housing has never corrected in that way. It’s just not liquid enough.
On the other hand, you will also find the other end of that spectrum, also very vocal on the boards, which usually leads to the “pissing matches” that you describe. These belong to the head-in-the-sand, real-estate-never-goes-down, buy-at-any-price, sunshine crowd. They bought, and bought, and bought some more. Borrowed from mom and dad and countrywide and four other banks and probably have five properties on the MLS right now.
The reality is somewhere in the middle. The government won’t let housing crash. They will let the bubble deflate slowly. The Fed will keep money cheap and allow Fannie/Freddie to intervene and prop up any big bank that teeters. This won’t come for free, of course. We all will “pay” either through taxes or inflation or both. But, like it or not, we’re all in this together and nobody (JBRs included) wants a Great Depression.
So, my best guess is that housing drifts sideways for years. Crap neighborhoods will shoot down rapidly (already happening) and nicer places with more financially established homeowners will hold up fine. You won’t see 20% YOY gains for the foreseeable future, but you absolutely won’t see YOY losses of that magnitude either.
My advice is to keep socking away your paycheck and keep you eye out for deals. I’m ten years older than you, and waited for almost 2 years before I finally found a “bargain”. It’s a single family home in San Francisco THAT I COULD AFFORD. That’s the key. Don’t do a NINJA loan and don’t buy more than you can afford, and you can’t really go wrong. The value might move up or down but you’ll be happy and won’t have trouble sleeping at night… Just my $0.02.
how much have you saved dave? don’t expect to ever see the ridiculous lax loan standards again, meaning you really need 20% down, just like the rest of us here on this board had to pay. when you get what you think is 20% down saved up, start hunting. i wouldn’t spend too much time looking until then. you’ll only frustrate yourself. this is and always has been a big boys market. don’t kid yourself about what you can afford and what you could be happy with. that being said, you need to decide if you’d only be happy in pac heights or if you really just want own something. there are things to be had for 300k in this town, it just isn’t pac heights.
good luck.
Why does someone who just graduated college 1.5 years ago need to buy a place? Is this the entitlement generation speaking? i’m confused.
james and dave.
I kindof abide by Alex’s motto. If you NEED to buy, buy. If you NEED to sell, sell.
I bought my first place after my first year of working. I was single, didnt have considerations of spouse, kids, cars, and other criterias. That opens A LOT in this market – and to some extend, it opens some great deals in SF (hayes valley and other so-so areas which are just ok now). I really believed I bought high. And I even got bitter about my own deal when I learned weeks after the closing that while I made an offer at 100%LP, my neighbor made an offer at 85%LP to the same seller and closed at 90%LP.
(and I’ve rarelly seems people who think it over carefully do “a bad deal” in realestate. Bad deals are often the result of greed and of the call from fast painless profits. EVEN if you sell in a couple years for less than you bought, you might not have done a bad deal because the property you’ll trade for will be less expensive too!)
SF Studios are usually overpriced, but in the 1BR and 1BR+ there are some stuff that could be appealing to a young single renter. It might (or it will) be smaller than the place the same renter rents right now, but it can be a first step. And risks get proportionaly smaller: loosing 10% of 400K is less painfull than loosing 10% of a 1.2M condo.
If you believe you can hold to this property for at least 5 years no matter what, and have some financial backup (daddy’s wallet in case you loose your job is not a shame to call for).. then keep looking. Even better, enquire NOW to your bank so you have an idea of your possibilities (and have one more chance to tinkle your credit score according to the new rules), and interview several agents, and find one that can share your vision, and keep an eye out for you, and help you move fast if and when the right opportunity arise (smaller properties fly of the shelves, so you really need to be ready “overnight” if you get the call from your agent). In the mean time, keep living, and keep growing your savings/downpayment.
Last, there is no maximum age to finally buy. My godfather bought his first place the year he retired (at 61yo). They bought a little smaller than they could have bought 10 years earlier, but at the same time, they could choose an empty nester property. And they have no regrets * to have rented so many years * to be owners now.
that’s a great post sophie. if he is single, needs to commute south or to sfo, there are a ton of 1 bedrooms to look at in the beacon that can be had for a great deal. it seems to be one of the better spots for singles these days too.
Later.
the usual pattern is that people get married, then buy they big large family house, then have kids. Let’s say. expenses of a couple, and a couple with kids is higher in ratio to the expenses of a single worker on a single paycheck. Or at least it CAN be.
My first year of work, I saved most of my wages (dont ask). I got employed at the same time as two other guys the same age I was. One bought a very expensive car on a car loan with his first paycheck, and the other one rented a 3 BR condo to have a BR for him AND an office AND a guest br – and drained all his income in remodelling of the RENTED condo (new floors, new kitchen etc).
4 years later, I had a downpayment to buy a house with my brand new spouse – and they had nothing (and one still had debts on his car) having to wait one more year to have enough money to marry, 2-3 years to afford kids, and maybe 2 more years of painfull “tiny” rental living with small kids before they could afford to move up.
Buying early might be an early investment into your future family life – maybe because you dont want to start marital life with financial fights – or draining mortgage payments. (and it’ll up your credit score for the future bigger property etc etc)
The other point that I experienced was that when you are on your own in that decision, you own and earn all the responsability. So you actually learn for yourself what it means to be an owner. It’s the best crash course against buying later an overpriced suburb mcmansion with a 125%ARM. Better do a mistake on your first 1BR property than on a large SFH in SF.
Now not everybody should buy, and specially not people who still have a college loan, some short notice mobility (like west/east coast) etc. But saving focusing on buying your next property is another reasonable option.
Sophie – Thanks for your post. Did you get help from your parents when you bought 1 year out of undergrad? I could never afford it myself, and had to work for 4 years or so. Thnx
Sophie and Later – Great posts
We waited until married and bought together. I would have bought on my earlier but thought (mistakenly) that my large law school loans would prevent me from getting a mortgage. The neighborhood that we ended-up buying-in 3 years ago, turned out to be the same neighborhood that my husband lived as a renter 10 years prior. He kicks himself b/c he could have bought three buildings on our street 10 years ago for what it cost for us to buy one single-family home in 2005 (he had the finacial means and credit, just no desire to own). That being said, I think it is great that you are thinking about ownership so soon after graduation (I wish I had been more focused on it). I think it is also great to learn what your options are so that you can be ready if the right deal becomes available.
I know it’s hard to read some of these posts by realtors who own “several investment properties” and who have enjoyed unprecedented appreciation levels in the past couple of years. However, you have time on your side (you are younger than most of us) and it sounds as if you are very financially mature. Best of luck to you!
did not.
had my savings (in a year of working, I saved about 25% of the price – I have to add that the RE prices went up a good 15% between I set my goal and bought, lessening my down payment from “big” to only 25%). Had some money from grandpa (another 25% of the price). So even without grandpa, I had my 25% downpayment after a year – and no, not san francisco, but Paris, which is not the less expensive market around.
(I was not undergrad, but grad btw – and I chose the condo over a PhD at UCdavis which was actually the first reason I was saving for)
Just got the sfnewsletter, so I was looking for examples to back up my says.
below market units aside (altho some “bitter renters” might still qualify – OR fresh from college who are just under the threashold – why not use it if possible?), there is 1401 Eddy – foreclosure asking 345K closed at 330K. 20% downpayment is 66K. If you can probably save 22K a year, in three years you can pay your downpayment. Now I know my example was not typical – but there are so many untypical kiddos in the bay areas. Some still earning today over 100K their first year of work.
Another one is 195 7th street. closed at 289K. and guess what. NO parking – which translate into up to 20K more savings in those 3 years by forcing you not to have a car. Who needs a car anyway if you dont have kids cars seats or other needs? not when citycar share, zipcar and whatever luxury car rental give you much more.
This got posted / straded in an earlier thread so I thought I’d repost here:
All this refi talk is great for people that have lots of equity and can justify the cost / benefit of their home ownership. But these refi’s and the fed’s moves are all just bandaids for those whose homes are in debt for more than they are worth (or can afford) and is prolonging a larger problem. I suppose it’s the correct economic policy to not let the US sink into a massive recession, but some pain here is inevitable. If people start losing their jobs the unsecured debt (i.e., credit cards and banks) are going to get killed when people stop makng payments. And the housing bubble will deflate as people start to default at an panic rate. As much as I’d like to see housing prices fall back to a better equilibrium, I personally do not want this since the broader market impacts would be really bad. But it is what I think will happen. The government is going to hand out a few grand to certain famlies to help out, but this is just another band aid. If anything they should reduce corporate taxes and help companies preserve jobs. People need paychecks to keep this market from getting really bad,
—–
This news is all a Band-aid for a larger problem. Good for owners in lousy mortgages. Too bad it doesn’t lower the value of your purchase price. Unlike years past, this would have further fueled a bubble, but this is just slowing the burst. I think it’s a good move, but I still fear the worst is ahead.
I’m actually the opposite of the rest of my etitlement generation; I save my money, have zero debt, and don’t plan on buying a house for years. Not that my generation is any worse than the baby boomers, who haven’t bothered to save for retirement and saddled my generation with trillions of dollars of debt.
The point of my rant was that it is ridiculous to throw around these proclamations that housing will never be affordable again, especially when viewed through the eyes of someone like myself. Trying to induce a panic that housing is booming or crashing is good internet fun, but those arguments don’t hold much water in the real world.
[Editor’s note: Care to join us as a “contributor”? We really like your level-headed thinking and applaud your statements.]
later, of course, I forgot to mention that buying outside of SF is an option too (like some areas of Oakland)…. or buying in your hometown (if you know it well, and have some trustable help there).
or just plain saving, as long as you can discipline yourself as seriously as a bank loan payement.
A agree there are a lot of bitter renters. I rent, but am not bitter. But I’m glad I didn’t buy when I was in the market in 2006 and could have afforded to buy. I can’t imagine anyone that bought in 2006-2007 is particularly happy about the current state of things right now. Perhaps the only upside is that they liquidated their cash positions for a down payments and didn’t take a 15% haircut in the equity markets. One thing is for sure is that I’m seeing a lot more value in the market now and expect that the SF dollar will continue to get more attractive. I’m less concerned with a one-time bump in the jumbo definition (which will probbaly become long term anyway). Always manage the purchase price, not the payments. I think the picture will be a lot more clearer in August and September of 2008 as all of shake out will be shaken out. One thing everyone seems to agree on right now is that prices are not going to rise!
Eddy
there is no such thing as a guaranteed investment at the end of the day. i bet there was a lot of foolish money from ss in google at 700.00
http://finance.google.com/finance?client=ob&q=GOOG
sophie,
i went to ucdavis and bought a house in east davis right after graduation. we loved it there and thought we’d stay forever. we didn’t make much money since there is way too much land to develop still. hence my bullishness on sf, forever!
Eddy – prices rose at least 5% in the northern part of SF in 2007 btw. I agree though, if you look at tier 2 places within the city, pretty flat. But, ur also seeing Millenium Towers etc sell very well at $1,000+/sqft. Great time to be a buyer in Vallejo!
Do you have a source for this information? I’d love to read more about this.