Roger Smith of LaSalle Financial offered up this timely financial red flag at The Grubb Co's Tuesday morning meeting and I thought it worth passing along as it may profoundly affect your ability to borrow funds from here on out. (No, I'm not including a pithy anecdote this week; this news flash is story enough and you should read on - especially if you are in the market to buy.)
As of January 10, 2104, as part of the "Dodd-Frank" regulations on first mortgage loans, all Lenders will be required to determine a borrower's true ATR (that's "ability to repay") BEFORE underwriting a loan.
"Haven't they been doing this all along?" you appropriately wonder.
Why yes, they have, but NOW the Lender is financially responsible if a defaulting borrower can prove that the lender did NOT thoroughly determine whether or not the homeowner could actually pay the loan back. (Gee, what a concept.)
In other words, the bank can no longer foreclose on a house, OR the defaulting party, IF they shouldn't have made the loan in the first place!
"Come again please?"
The Bank is responsible for their lending practices, not the consumer.
Given that the onus is now on the bank to do more due diligence prior to making a home loan, you might imagine that tougher lending requirements are likely to follow . . . and you'd be right. There are many aspects to this new regulation, but the one that will impact many potential borrowers (that's you) is the hard and fast rule that the DTI can no longer exceed 43%!
That stands for "Debt to Income Ratio," and it is calculated by taking one's gross monthly income and dividing it into the total monthly debt. Included in "monthly debt" is total housing expenses, or "PITI" (principal, interest, taxes, insurance - and HOA fees should they apply), as well as recurring payments on consumer debt (i.e: student loans, car loans, credit card payments, etc.), AND total payments on other properties owned (vacation homes, rental properties, commercial properties - for those fortunate enough to own additional properties).
In short, what are your TOTAL EXPENSES on a monthly basis? (Surprisingly, private school and college tuitions are not yet counted as part of a borrower's monthly debt, but that's likely to change, given the expense of these educational institutions - as any of us can attest to who currently have kids in college or private schools.)
Whether you agree with this stricter fiscal policy or not (many will say these guidelines make practical sense, while others believe that lending requirements are already too tight) the result is that with much tougher restrictions in place, Borrowers are likely to qualify for less today than they would have this time last year.
How does this play out for Buyers?
If you are in the market and have a pre-approval letter dated from 2013, you will absolutely need to double back with your lender/broker to make sure you still qualify for the amount outlined in last year's understanding. (Don't be surprised if the amount has been reduced dramatically.)
This is just one example of how these new regulations will impact potential borrowers, but it's not the only calculation. We haven't even touched on liquid assets vs. savings. Equity that is locked up isn't going to cut it no matter how much is sitting in your 401K or Charles Schwab accounts unless it is paying high dividends and can be counted as monthly income. Got it?
If you would like further information or have any specific questions, feel free to call Roger Smith at: (510) 339-4300, or email him at: firstname.lastname@example.org .
Thank you, Roger. That was rather timely, although not necessarily the most welcome news to date. (I know, you're just the messenger and we appreciate it.)
"Nobody is leaving here until the work is done." I said in no uncertain terms, "this project has gone on long enough." (In reality, we were only running a few weeks overdue.)
Home renovation is a lot like child birth; there has to be enough down time in between to have forgotten about the pain and inconvenience, you'll often feel like you want to throw-up, you are likely to run a few weeks late, AND you have to be so thoroughly sick and tired at the end of the process that you are willing to push, push, PUSH to finish the job and finally give birth!
"I'll get the hinges and garbage disposal," I volunteered, grabbing my purse and heading out the door, "stay put . . ." Between my frequent trips back and forth to Home Depot, a case of Raspberry Snapple (we all have our vices) and a full labor force on hand, the crew was 95% finished on the kitchen remodel by Friday evening and it was starting to look really gorgeous.
"We'll see you on Monday," the plumber said, packing up his tools and heading out the door. "No, no," I emphatically responded (I am nothing if not emphatic), "your punch list isn't complete and I absolutely need a working sink for the weekend . . . " I could see the finish line now and I was desperate to move us ALL across it.
As much as I had tried to practice acceptance and tolerance (tools that are high on my priority list) I'd really begun to lose patience and was hanging on by a VERY slim thread. (I'm not great with clutter and dust.) In truth, we were now looking at a HOSTILE TAKEOVER . . .
"You promised that the kitchen would be completed today," I insisted, "so I WILL see you tomorrow. How early can you get here?"
With a new understanding in play, I was baking cookies for my listing appointment on Sunday. The painting crew still needed to return for final touch ups the following week so we couldn't unpack just yet, but we had a nearly functional kitchen - and not a single tradesman in sight. Heaven!
The truth is that, intellectually, I like the process of home renovation and I'm fairly good at it. Certainly, I've had enough practice to know how to collaborate and direct others. Moreover, I also have the support of a family that understands the process and is willing to eat take-out for dinner night, after night, after night . . . It's just that, in reality, construction is a lot more difficult to live through than one imagines, especially when the clients stay in the home, as opposed to moving out temporarily. And admittedly, I don't always make it easy on my vendors, as I grow increasingly impatient and start to crack the proverbial whip.
Let's not even talk about the change orders, as in: "Do you think you can build a custom stove hood since the one I ordered doesn't quite fit?" Or to be perfectly honest, I'm not always the easiest customer. I've got standards and high expectations and like most paying customers, I want what I want, and I want it when I want it. Sound familiar?
Suffice it to say that "acceptance" had left the building and "tolerance" was barely hanging on. "Tolerance isn't about 'tolerating' others," a friend gently reminded me, "it's loving acceptance of someone else's process and differences." Oh snap . . . in short, he was saying there's little to be gained by "hostility" and lots to lose. (I still have so much to learn grasshopper.)
So what's the moral of the story?
Renovations require diligence and an eye for detail. They require good planning, preparation, and flexibility, but in he end, we have to decide what's really critical. While a new kitchen is a lovely thing to fret over, even I recognize that it isn't truly significant on the scale of "life's curve balls" to worry about. When it comes to renovations, the mantra of the day should be: It's not a "problem;' it's an "inconvenience." So more than anything, renovations require real "perspective."
I want to thank those around me for reminding me of what's truly important (although I do love my new kitchen; it's fab!) and I want to thank my team for hanging in there with me and creating something very special - and on budget no less. If I didn't say it enough, I really appreciate it; I appreciate you.
Hey, life is a learning curve. I'll meet you on the road to enlightenment.
Did you catch the article in The SF Chronicle on January 9 on the front of the business section with respect to luxury sales in San Francisco in 2013 (San Francisco Luxury Home Sales Saw a Big Bump in 2013)?
If not, let me give you the Cliff Notes: wherein it states that luxury home sales last year outpaced luxury home sales at the peak of the market in 2007, by twice as many and averaged $1,100 a square foot. One high-rise condominium at the Millennium Towers in South Beach sold for $2,500 a square foot and closed at a whopping $4,500,000! Now that's pricey real estate.
What do those results mean for those of us who hang our hats here in Piedmont? It means that our values are a bargain by comparison where the average price per square foot in 2013 came in at a mere $559. Certainly, that's not chump change compared to other markets in other states, but in the Bay Area, it's the best deal coming, or going.
I'm certain that if you check these figures with other nearby communities of our caliber, ie: Ross, Kensington, Palo Alto, Woodside, Menlo Park, Hillsborough, Tiburon . . . you'll find that we simply offer more bang for the buck (and with great schools to boot)!
So what are you waiting for and how can I help you?
Building Community, One Family at a Time . . .
Aloha, welcome 2014. I hope your holiday break was everything you had hoped for - and more. I spent the first part of mine with my family in Hawaii and the New Year in Phoenix at a the world's most elegant and understated wedding (how refreshing), which means it's time to get back to work to pay for these lovely holiday getaways.
Our scenic vacation in Oahu included long walks along the beach, tennis with my husband, and snorkeling among the reefs, which also meant (alas) that a new swimsuit was in order (sigh . . . ).
"I'm not getting in the water," I complained bitterly to my sister, Jill, over the phone just before boarding the plane. "I look like the whales I plan to be watching." (I'm prone to hyperbole).
You'll get in the ocean," she calmly replied: "ONE, because it's Hawaii and you've worked hard to have time away with your family, TWO, because you'll be swimming with turtles for goodness sakes, and THREE, because our bodies are practically weightless in the water! (I love her so much.)
While I didn't spy any turtles, I did eventually throw vanity to the wind, and donned some flippers and a mask (a ridiculous get-up even for the fittest of Sports Illustrated models) and was met with schools of colorful fish and balmy sea waves. Yes,Virginia, there are still some rewards for being brave, OR as my husband, Cliff, joked while putting on his own swimsuit, "Some clothing is truly 'aspirational' at our age." (I love him even more.)
Homes are 'aspirational' as well. In fact, I think they are the very definition of "aspiration" as I push to complete my long-overdue kitchen and look ahead toward spring for the next 'DIY' project that lies ahead. (Maybe there's a 12-step program for that.)
I was reminded of just how "aspirational" a home can be this week by a Buyer far less experienced than me, but with vision of his own. He had called me out of the blue, having found my site on the Internet (glad to know someone's looking online) and then sent me a long list of opportunities to see - many of which were already pending or had languished for months on the MLS (the Multiple Listing Service).
In truth, he was all over the map, so I kindly suggested that, perhaps, his vision needed a bit of fine tuning. (Okay, I was more blunt than kind; I'll add that to the 'Resolution's' List.) We then met up to tour the area and see several properties that were still available but after a long afternoon together, I'd felt we hadn't really seen anything that met this Buyer's specific "wish list," or would even prove a viable candidate, given our conversations.
That's unfortunately been a pattern as of late, what with too many Buyers and too little inventory to meet their growing demand, let alone their "needs and wants." In truth, we were grasping at straws and sadly, there weren't even any fancy little umbrellas in those glasses.
Mr. Buyer had identified "all-level living" as being high on his priority list and yet, there we were, touring vertical view homes on the ridge!?! This would never do. (Suffice it to say that I felt we were barking up the wrong coconut tree.)
Turns out, I was the one who was wrong. (That wasn't the first time and it certainly won't be the last.) A week later, Mr. Buyer texted me that he'd like to return to one home in particular with an architect in tow . . . (Your wish is my command.) And after working my magic (thank you Ahmad of Tecta Associates; it's good to have friends one can call on at a moment's notice), this very gifted architect identified where an elevator could potentially be placed and better yet, he discovered a Golden Gate view we hadn't yet incorporated into the growing list of possible attributes. Now, the home made much better sense for this successful landscape artist.
Long story, short, I spent New Year's Day writing an aggressive offer and Mr. Buyer is now successfully in contract as a result of following his own instincts and jumping feet first into the waves.
(Honestly, I don't know who's teaching WHO some days . . . )
So be brave and find your inspiration (wherever it lies) and swim beyond the reef. Who knows what's in your future??? Whatever it is (wherever it is) I am here to help - and looking forward to further growth.
Happy New Year and Mahalo; 2014 has started off with a resounding bang.
(PS - if you need help finding your "aspiration," call my friend Ahmad Mohazab, with Tecta Associates. He's very clever!)
Before we dive into 2014, I thought I'd provide a quick overview of last year's sale's results, specifically as it pertains to Piedmont . . . We ended the year of 2013 with a grand total of 107 homes having transferred ownership, which was slightly down from 2012, wherein 130 property changed hands, per the MLS (Multiple Listing Service).
As such, DEMAND was incredibly high for these fewer listings. It follows then, that the average price per sale rose in 2013 to $1,597,701, as compared to $1,475,011 in 2012 - as did the medium, which jumped in equal proportion from $1,367,500 in 2012 to $1,475,000 in 2013*.
The lowest sale of the year came in at $598,000 for a fixer on Rose Avenue, while the highest, was recorded at $4,900,000 for a stunning Mediterranean on King. (For a complete list of home sales, click here.) These figures speak to sales recorded on the MLS only and do not account for any sales sold privately.
As for 2014? All indications speak to another banner year where projections have the market rising another 10-18%! And this isn't just specific to Piedmont, but to most of our communities here in the East Bay, whether you are focused on Alameda, El Cerrito, Berkeley, or here in Piedmont, where I live.
Clearly, if a purchase is on your radar this spring, the sooner, the better.
Historically, our market sees the biggest jump between March and June, levels off somewhere in the summer and declines slightly in the winter months.This year, we had little reprieve in the escalating prices at any point.
Building Community, One Family at a Time . . .
Julie Gardner, has been writing The Perspective for 18 years and has published more than 670 essays on life and real estate.