Real Estate Round-Up: S is for sellers

Kim Murphy

Murphy & Murphy Southern California Realty

This is an incredible time to be a seller. The average price of a detached home in Fallbrook has increased $182,500 since January making June’s average selling price $827,500. The median price of a detached home has increased from

$729,283 to $858,153, a $128,850 increase. Over 2/3 of all home sales are selling above list price. These kinds of numbers remind me of 2005 and 2006, but much is different from then.

Many people tell us they are waiting for the market to adjust in anticipation of a collapse reminiscent of the Big Short of 2008. I don’t have a crystal ball, but economist who are much smarter than I, do not expect a similar dramatic

adjustment. Why, you may ask? The simple answer is another S-word, shortage.

Adjustments don’t just happen. Something must occur that causes an adjustment to happen. The real estate purchase is very different this time around. Lenders are not making it easy for a buyer to qualify for a loan. Buyers must have strong income, excellent credit, and properties must appraise. VA and FHA loan limits are well below the median or average price of a home, so buyers need to qualify under conventional guidelines.

Conventional guidelines require a higher credit score so there is less risk to the lender. With conventional financing, a buyer may be able to bring in additional cash if the appraisal comes in below the purchase price. With FHA, the buyer cannot do that. In 2005, we used to joke that anyone who could fog a mirror could get a loan. In 2021, quite the opposite is true.

The other thing that has changed is the absence of “piggy-back” loans in today’s transactions. That is when there are two loans involved in the purchase of the property. The first loan is for 80% of the purchase price. The second loan is for

20% of the purchase price. These types of loans allow the buyer to not be required to pay PMI (private mortgage insurance) but come with a higher interest rate on the 20% loan.

When a buyer uses a piggy-back loan, the buyer has no risk, no “teeth” in the game. If times get tough, walking away costs the buyer nothing in real money. It costs them in the damage it does to their credit, but over time, that can be healed. In 2005, piggy-back loans were common. But in 2020 and 2021, they are not common. Not one of the offers we’ve seen over the past 12 months has proposed this kind of financing.

The overall scrutiny is coming from the gatekeepers of the money; the banks, mortgage brokers, and government regulators demand that loan to value ratios, debt to income ratios and income documentation meet guidelines before a mortgage is approved.

Properties are receiving multiple offers, many that are cash or have a considerable amount of money down. Many offers come without appraisal contingencies. We are even seeing the lender waive the appraisal on purchases made with large

down payments of 40% or more. Even the FHA or VA buyers that are successfully purchasing homes, are well qualified with strong, stable employment and incomes. 2021 is a very different market with very different strategies than 2005.

Another major difference between 2005 and our current market is supply. Leading up to 2005 and 2006, builders overbuilt. National Association of Realtors Chief Economist Lawrence Yun stated in a recent Realtor magazine, that he believes that America had a 2.1 million surplus of housing units by 2006. Following the crash, underproduction led to the current housing shortage.

He goes on to state that by 2015, the shortfall was 2 million homes and by the end of 2020, it totaled 4.8 million homes. This lack of housing is why home prices are in no danger of falling sharply. It will take at least a few years to correct this massive shortage. In the meantime, Mr. Yun goes on to state that he expects the median home price to rise 9% this year and another 3% in 2022.

The pace that we experienced during the first half of this year appears to be tapering off as we enter the third quarter as supply improves and affordability challenges persist. And a mere 3% price increase is worth noting, as it is a decline from 9%, but it certainly is not a dramatic adjustment. This information may be an incentive to sell your home this year, but even the first half of next year is expected to be a strong market.

I’d like to end with one final observation and comment to sellers or potential sellers. I review a daily report that shows all new listings that come on the market in Fallbrook and Bonsall. I am saddened and shocked by the number of out of

area listing agents and the commission being offered to the buyer’s agents.

First, an out of area agent does not benefit you at all. If you believe that because the market is so hot, it doesn’t matter who lists your home, you are sadly mistaken. When I compare the sales prices achieved by local Realtors for similar properties, the local Realtor is by far achieving much higher prices for their sellers. Why?

Because the local Realtor knows and explains the intrinsic value in living in Fallbrook/Bonsall. An out of area agent is just selling a home, it’s a number to them. It’s not a community, it’s not a lifestyle, it’s a number. Which brings me to the second part. Experienced Realtors are working harder than ever to help their sellers and buyers find common ground in the intense marketplace. Sellers are making a boat load of well-deserved equity for their homes. But in the hands of a discount broker, not only are the Realtors getting short-changed, but so are the sellers.

Ask yourself this. If a broker is willing to discount their fee to get your business, how much more willing are they going to be to get you to discount the value of your home, just to make the sale? Just my thoughts and humble opinion.

Kim Murphy can be reached at [email protected] or 760-415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.