October was a good month overall with 1,137 pending sales on the Eastside. Inventory declined 20% from September and 17% from a year ago. Clearly, this inventory problem is not easing up. Historically, the next four months slow down in number of pending sales. The table below shows pending sales by month as a percentage of an average month with average being 100%. If you are considering selling your home, the first few months of the year will give you the least amount of competition. Buyers are out in droves looking and there isn't much for them to choose from. It's my favorite time to list a house!
So you've found your dream home and want to write an offer or maybe you are just thinking about moving. Either way, if you are like many homeowners, you can't buy without selling. You've heard about this crazy real estate market and how hard it is to buy a home due to all the competition. The idea of selling your home first and possibly being stuck without a place to live seems like a logistical nightmare. What can you do? This is where a bridge loan or a HELOC comes in handy. Most people tend to use HELOC's but they do have limitations. Today we are going to talk bridge loans.
Bridge loans help make it affordable to financially span the time between when you buy a new home and when you sell your current home. There are several types of bridge loans, the first two in the list below are the most common and the third is a new product offered by one of our lending partners.
Leverage Your Equity: You borrow against the equity in your current home and use that money as the down payment on your new home. This type of loan requires that you have sufficient income to qualify for the mortgage payments on both your current home and your new home. The bridge loan allows interest to be deferred to the balance of the loan (so the balance grows monthly based on simple interest) but your lender will still calculate the payment into the qualifying ratios.
Leverage Your Equity with Combined Financing: Similar to the first type but in this case you use a single loan to cover what you need to borrow to buy your new home. The equity you have in your current home is leveraged to cover the down payment requirement on your new purchase (the lender’s loan-to-value limits). When your existing home sells, you pay down the balance of the loan and end up with a regular 30-year fixed rate mortgage. Your lender will usually re-amortize your loan, which means they recalculate your monthly payment based on your newly reduced principal balance. This option does not change your payment or obligation with the lender on your current home.
But wait there is more....
Cross Collateral Bridge Loan* : This is a third type of bridge loan. It allows you to borrow against the value of your new home based on how much equity you have in your present home. You can secure a fixed-rate loan to cover the down payment on your new purchase without changing the payment or obligation to your current lender. Being able to leverage the equity in your current home in this way means you can make an offer on the new home without contingencies.
Most people don’t have the income to qualify for two mortgage payments long term. That’s why your lender will take a look at your financial situation and may be able to exclude your current house payment when evaluating your loan application. They will want to make sure you clearly have the ability to handle the temporarily high payment obligation until your current home sells. If you qualify, this option can work out really well – especially in the current real estate environment. It is a quick and easy calculation to determine if this option will work for your circumstances.
Bridge loans can also be used to finance the construction of a custom home, allowing you to live in your current home while your new home is being built.
If you are considering a move to a new home and don't want to sell the one you have until you have found the new one, consider some of these financing options. They can be complex, but with the help of our lending partners we can help you find the best solution for you and make your home transition as painless as possible.
The above loan information was provided by Sheila Bryan at Caliber Home Loans. Sheila.firstname.lastname@example.org 425-605-3110, MLO-175890
Recently I attended a Windermere event to listen to a panel of experts from the local builder community. The three panelists were Eric Campbell of MainStreet Property Group (formerly of Camwest Development), Todd Bennett, CEO of BDR Capital Partners and Ron Boscola, GM of Murray Franklin Companies. The discussion was facilitated by Windermere's Chief Economist, Matthew Gardner. It was a great discussion and they covered a number of topics but there were a few take-aways I wanted to share.
Lately, there has been a lot of talk about interest rates (again). Will they go up? Will they go down? Not even the Fed seems to know for sure but mixed economic data and fears about a global economic slowdown kept them from raising rates at the September meeting. More and more economists are moving into the camp that believes we won't see a raise before March of 2016. Regardless of when it happens, a quarter point hike will still leave interest rates at historical lows. Some experts believe rates would have to rise at least 2% before buyers would have to move down from their current price range. Speaking of, we've included this very interesting chart showing how much interest rates effect the price of the home you can buy. 1985 looked pretty gruesome!
Hopefully you are as excited as we are that school is back in session (especially those of you in the Seattle School District). Not only are the kids back in school but our offices are full again with everyone back to work after our very lovely, warm summer. Although August felt slow to many of us, sometimes what we feel and experience as individual brokers and what really happens as the numbers tell it, are two different things. Despite feeling sluggish, August sales knocked it out of the park. The Eastside had the second highest number of August sales on record with 1,303 pending sales. Only 2005 was higher by just a small margin. Seattle had the lowest number pending sales since 2011 at 915 but most likely due to low inventory, not for lack of demand.
For those of you considering selling in the near future, hearing about the lack of inventory and the escalation of prices can put dollar signs in your head. Naturally, as the market heats up sellers tend to want to push the price that they list their homes higher. But be forewarned, we often say that you can't under-price a home in this market, it will be pulled up organically to the market value through competition, but you can definitely over price a home and this can have severe consequences on what a house finally sells for. As an example, here are the stats for Eastside closed sales (not pending) for August.
Of the 865 closed residential sales in August:
This means that 48% of the closed sales in August sold for under their original list price and half of those had to drop their price first. Sellers should be careful of getting too crazy with their home's value. There is strategy involved in appropriately pricing your home. Buyers are well educated about value and they won't pay for an over priced home, no matter how low the inventory. On the flip side buyers should take heart that not every home is a heated battle.
There is no easy answer- some homes sell in a few days, others may take several months. Recognizing the key factors influencing a sale can give you significant control over market time.
Location is the single greatest factor affecting value. Neighborhood desirability is fundamental to a property's fair market value.
Buyers compare your property against competing properties. Buyers interpret value based on available properties.
The real estate market may reflect a seller's market or a buyer's market. Market conditions cannot be manipulated; an individually tailored marketing plan must be developed accordingly.
Property condition affects price and speed of sale. Optimizing physical appearances and advance preparation for marketing maximizes value.
The more flexible the financing, the broader the market, the quick the sale and the higher the price. Terms structured to meet your objective are important to successful marketing.
If the property is not properly priced, a sale may be delayed or even prevented. The 425 Group's comprehensive market study will assist you in determining the best possible price.
Our September numbers are in and show a market that still has very low inventory and high demand. It's not the white-hot spring market but it's still very active. The buyers are out looking but there aren't as many homes to buy. One key difference between fall and spring is the attitude of the buyers. There seems to be less willingness to dive in to multiple offer situations with crazy offers and pre-inspections. Pre-inspections in particular seem to be significantly reduced in number. Many buyers have done several without a house to show for it and have decided that enough is enough.
A few key stats for the September market...
What does all this mean? With low inventory, strong buyer demand and interest rates below 4% (not what we were expecting), it couldn't be a better time to sell a home. Market activity tends to slow down around the holidays but that means less competition for sellers who put their homes on the market. For buyers, it's still going to be slim pickings and lots of competition for the best homes. As always, supply and demand will vary among the different areas and price ranges.
Statistics source: Windermere Real Estate