Fannie & Freddie Phase Out Proposal Increases Cash Sales

According to DataQuick Information Systems, about 30 percent of Southern California home sales in January were cash deals. With reports of the Fannie Mae and Freddie Mac proposed phase-out, this number could climb as the traditional 30-year fixed rate mortgage may be a thing of the past as banks become less willing to extend credit at a fixed rate for a long period of time.

Cash deals are attractive to homebuyers and sellers alike because weak appraisals aren’t a factor. Banks have their appraisers evaluate the price at which nearby homes sold to see how much a property should be valued at, which becomes the basis for the amount they will be willing to lend. In markets like San Diego, prices are still weak and appraisers are using foreclosures as the basis for their valuations. As a result, appraisals are low and banks aren’t financing the full amount needed to complete many sales. This trend, along with the proposed phase-out, could lead to an increase of cash buyers in the months and years ahead.

As we head into peak home buying season, San Diego will undoubtedly experience an increase in competition as more homes come on the market. Historically low interest rates and an increase in inventory should set the stage for an optimistic outlook for the second and third quarters of 2011. With the potential of phasing out of Fannie Mae and Freddie Mac looming, buyers should consider taking advantage of existing rates now before borrowing costs begin to rise.

What does this mean for San Diegans trying to buy or sell a home? We are entering a traditionally great time of year for our housing market and we predict the cost to enter the market will never be as low as it is today. With the median home price for attached properties at $203,000 and detached properties at $359,000 in February, it’s critical that homebuyers understand that the cost of owning a home isn’t just about the mortgage payment.

1. Special assessments. Don’t be surprised to see special assessments tacked on top of your property tax bill, covering public services including things like fire departments and paramedics, street lighting, tree trimming, pest control, libraries, and even schools.

2. Utilities and services you may not have paid for while renting become part of the overall cost when you own. Many renters have never had to pay for things like gas for hot water heating, garbage and recycling fees, water, sewer and pest services. When becoming an owner you must factor these expenses into your monthly budget.

3. Private mortgage insurance. If you’re putting less than 20 percent of the purchase price down on a purchase of property, you’ll have to pay for private mortgage insurance, or PMI, currently equaling about 1.15% of the loan amount, annually.

4. Penalties and fines. Homeowners can get ticketed and/or fined by their owners association or local political jurisdiction, for violations like having overgrown weeds or other building code violations – especially those that create fire and safety hazards.

5. Items you didn’t need while renting, but you do as a homeowner. This varies with the type of home you own, as well as on the services you or your homeowners association outsource, but can include landscaping equipment (e.g., lawn mower, leaf blowers), washer/dryer, refrigerator, window treatments, and light fixtures.

Getting back to the overall residential real estate market in San Diego, the numbers for the first quarter show an increase in the number of sales and relatively stable sales prices. Astute homebuyers should begin the process of looking for a new home now to take advantage of the current combination of competitive prices and low interest rates. It is extremely unlikely that we will see rates this low, even a year from now!

By Bob Kevane, 2011 San Diego Association of REALTORS® President - sdar.com

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