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California Home Sales & Prices Rocket Upward

Orange County, CA – Let’s start this blog off with a few cool statistics:

  1. Resales of houses and condominiums were up 8.3% from April to May. They’re also up 1.2% this May compared to last May. See Southern California home sales statistics here and County home sales statistics here.
  2. In terms of units sold, this was the strongest May since 2006.
  3. May was the 15th consecutive month that California has seen an increase in median house prices. May’s median price was up a whopping 25.9% from May 2012, and 4.9% from April 2013.
  4. Sales of foreclosed properties made up only 11.4% of all home  sales, compared to 28.5% in May 2012.
  5. Short sales were down 23.7% from May 2012 as well.
  6. The median mortgage payment in May was only $1,227/month — 56.8% below the median payment in 2006.

    CA Home Sales Rocket Upward!!

    CA Home Sales Rocket Upward!!

What does all this mean? Well, it means that the California housing market is booming, and yet still affordable. With the home sales numbers being equal to the 2006 numbers but median mortgage payments at half of what they were in the same timeframe, it’s a pretty strong indicator that this is the right time to buy a new home.

All of this is happening under the shadow of the lurking Qualified Mortgage (QM) rules that will go into effect on January 10th, 2014. The basic premise of the Qualified Mortgage plan is to create rules that safeguard people against paying more than they can afford. In turn, these rules protect the lenders against litigation from disgruntled home buyers. A few bad apples really spoils the bunch! 

The specter of QM isn’t one to be easily shrugged off either. A recent poll revealed that 44% of lenders planned to halt all non-qualified mortgage lending, and another 44% planned to ‘severely curtail’ all non-qualified mortgage lending. That leaves only 12% of lenders planning to freely offer mortgages that don’t hold up to the QM standards.

Standards that Aren’t Set in Stone
One of the reasons that some people aren’t worried that much about the QM regulations is that they’re far from set in stone. Congress continues to hear testimony about the rules. The Consumer Finance Protection Bureau (creators of QM) continues to invite and actually heed public commentary on their policy. Even now they’re making some changes and debating others, the vast majority of which ease up the restrictions QM offers.

For example, initially, there was a “bright line” set by the QM rules that was very simple: if someone’s mortgage payment was going to be more than 43% of their gross income, that mortgage wasn’t Qualified, end of story. Since then, they’ve added exceptions to those rules, and then expanded on those exceptions. “Smaller lenders” that serve “rural areas” were granted the right to create up to 500 mortgages for first-time homebuyers each year that didn’t stick to the income percentage rule. Right now, they’re debating expanding that to 1000 first-time mortgages per year. So the rules that everyone is worried about are still a long way from set in stone.

But this rule would impact the consumers seeking FHA and VA loans becasue they are more flexible with debt to income ratio guidelines. It is not uncommon to see FHA & VA loans approved at 55%. I agree that this ratio is high, but it depends upon the circumstances. In many cases a borrowers “take home” income is not considerd in qualifying. For instance, workers who receive tip income and only claim a portion of it and self-employed borrowers fall into this category. A family may have a spouse who recently changed lines of work or who is new to the workforce. When qualifying for a mortgage this income is not considered.

Regardless of how the QM rules turn out in the end they still don’t come into effect for six months. This means that, if you’re an ‘irregular’ borrower or otherwise don’t quite qualify for a Qualified Mortgage, the imperative to buy now is even stronger. Home sales and pricing increases have not shown signs of slowing. Not only will the costs be up if you delay, but the rules might keep you from getting a home altogether!

Give us a call if you would like more information about pruchasing or refinancing.

Scott Storace

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