A controversial zoning reform bill supporters hoped would help ease the state’s housing crisis failed in the Senate on Wednesday, following a two-hour debate and two excruciatingly close votes.
But thanks to the passionate opinions on both sides of the measure, Senate Bill 50 could come back for another vote Thursday. Still, after falling three votes short, it faces a significant hurdle.
“It’s not over until the session’s over, so theoretically there’s a chance,” David Garcia, policy director for UC Berkeley’s Terner Center for Housing Innovation, said Wednesday. “That being said, it’s going to be hard to see what the senator can do to get the votes necessary when it wasn’t possible today.”
SB 50 would force cities to allow duplexes, triplexes and fourplexes in neighborhoods currently zoned only for single-family homes and larger residential buildings near transit stops.
It was a good year for builders as U.S. sales of newly built homes in 2019 climbed 10.3% to 681,000, the highest total in 12 years.
The Commerce Department reported the best year for homebuilders since 2007 when 776,000 new homes were sold as the housing bubble was beginning to deflate ahead of the Great Recession. Last year’s gains were driven entirely by new homes purchased in the South and West. Sales of new homes slumped in the Northeast and Midwest in 2019.
Cheap loans are a key story line. The average rate on a 30-year mortgage was 3.65% last week, down from 4.45% a year ago, according to mortgage buyer Freddie Mac. Cheaper borrowing costs helped boost demand for housing last year, but it also led to higher prices by the end of 2019 that could weigh on affordability going forward.
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Gov. Gavin Newsom has recanted his repeated and insistent suggestion that the state’s housing challenges require 3.5 million homes to be swiftly built.
He recently described this target — based on a flawed and outdated consultant’s study — as a “stretch goal,” whatever that means. Plus, he says he’s tossed that math and is having new construction goals formulated. Sadly, the governor’s very public stretching of the housing-shortage truth only further hardens the lines drawn between the warring factions trying to solve (and/or profit from) the chore of sheltering 40 million Californians.
It’d be easy for me to drone on about Newsom’s major policy mistake — it added up to a wasted year on the housing front. Or I could use the trusty spreadsheet to help find a better number. Rather, let me applaud his words as a positive signal.
Perhaps this is a first step in toning down the housing debate’s searing rhetoric and dialing up California’s ability to compromise. Hey, a boy can have dreams, no?
Look, this is only the state’s No. 1 issue. Housing is a critical social and economic component to life that isn’t served well by political absolutes and an overall lack of trust. And there’s so much money at this bargaining table that almost everyone’s got their own pocketbook in mind.
Housing’s challenges, both availability and cost, are not an easy fix. There is no “simple supply and demand” cure … especially in a state where, despite a global reputation for innovation, old habits die hard.
By using Newsom’s housing-goal confession as a moment of clarity, let me suggest how other parties in this multi-faceted jigsaw puzzle might take their first step in an “affordability recovery.” My take: Nothing will get done unless there’s softening of stances.
Do not forget the status quo serves many players very well, especially financially. So let’s start with fessing up to past mistakes.
State lawmakers: Own up to the reality that these issues cannot be fixed from Sacramento. That doesn’t mean abdicating leadership roles, especially tweaking statewide rules that hinder a healthier housing market. And since too much of California taxes flow through the state budget, feel free to spend more (wisely) on housing.
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Southern California home price hit a record-high $550,000 in December as buying jumped 22% in a year, CoreLogic/DQ News data indicates.
Cheaper mortgage rates, a shrinking supply of existing homes to choose from, plus a resilient economy got house hunters in a buying mood as 2019 ended. Here are 13 local housing trends within the report …
1. Regional sales: 19,337 residences — new and existing — sold in December in six SoCal counties. That’s up 22.1% in a year, the biggest jump in 37 months. But the region’s latest sales count still is 17% off the December average of 23,317 since 1988.
2. Price: SoCal’s median was $550,000 — up 7.2% over 12 months, the biggest jump in 22 months. That breaks the record of $549,000 set in July 2019.
3. Single-family houses: 12,873 sold in the six counties, up 20.1% in a year. The median selling price was $570,000 — an 8.6% increase over 12 months.
4. Condos: 4,133 sales across the region, up 27.2% over 12 months. Median? $470,000 — a 6.8% increase in a year.
5. Newly built: Local builders sold 2,331 new homes, up 25.3% in a year. Median? $578,750 — an 0.8% increase over 12 months.
6. Builder share: 12.1% of SoCal sales vs. 11.7% a year earlier. Between 1998 and 2018, new homes accounted for 13.4% of all homes purchased.
7. County by county: Sales rose in six SoCal counties in the past 12 months while prices rose in five.
8. Los Angeles County: 6,293 sales, up 18.4% over 12 months. Median? $628,250 — a 7.4% year’s increase.
9. Orange County: 3,109 sold, up 36.9%. Median? SoCal’s highest at $732,750 — a 3.2% increase.
10. Riverside County: 3,473 sales, up 17.9%. Median? $401,250 — a 6.9% increase.
11. San Bernardino County: 2,411 sold, up 21.5%. Median? SoCal’s cheapest at $355,000 —a 7% increase.
12. San Diego County: 3,282 sales, up 24.1%. Median? $575,000 — a 4.5% increase.
13. Ventura County: 769 sold, up 14.9%. Median? $569,000 — a 1% decline.
Let’s not forget that for much of late 2018 and early 2019, higher mortgage rates and a cooler economy suggested the housing market might tumble.
That brief period of homebuying angst is a key reason why last year’s 228,884 regional sales total was 1% below 2018’s pace and was below the 234,091 annual average since the Great Recession ended in 2009.
Still, as 2020 started, the region’s tight inventories continue, but that’s not deterring house hunters, according to ReportsOnHousing. It tracks brokers’ listing services to gauge existing homes are for sale and pending sales contracts.
Here are conditions as of Jan. 9 in the six-county region …
Listed for sale: 30,242 residences on the market, down 28% in a year.
New escrows: 10,273 deals signed in the previous 30 days, up 16% in a year.
Selling speed: 86 days of “market time” — listings vs. escrows — down 56 days in a year.
The directive came in the form of a “mortgage letter” that threatens an HFA’s ability to recoup the down payment funds it advances.
Under the typical HFA business model, assistance providers participate in the sale of the loan on the secondary mortgage market.
Lenders typically charge a higher interest rate for such loans, thereby getting a rebate on the sale that’s used to reimburse the down-payment assistance that HFA’s issue.
Montgomery’s directive would have taken away an HFA’s flexibility to recoup their money from those rebates.
It also sought to limit down payment assistance issued by Native American HFA’s to their own reservation.
Native American finance agencies like the Utah-based Cedar Band of Paiutes have been providing down payment assistance nationwide. The group’s Chenoa Fund, for example, has issued down payment assistance to 19,000 borrowers since 2014, including 2,000 in California.
What drives the thinking behind this directive at FHA and at its parent agency, the U.S. Department of Housing and Urban Development? The risk of defaults? Is it philosophical — that is, aimed at shrinking HUD’s footprint?
I don’t know. I didn’t get a response when I asked HUD for clarification.
What is clear is Montgomery’s directive is on hold.
The Cedar Band of Paiutes sued.
Separately, the National Council of State Housing Finance Agencies sent a letter to Montgomery imploring him to clarify himself.
“Several HFA’s have already suspended their down payment assistance programs in connection with FHA-insured mortgages because of this provision,” the letter said.
A federal judge in Utah granted an injunction delaying HUD’s implementation of these new rules, finding that Montgomery’s mortgagee letter likely violated the Administrative Procedures Act.
But the damage was already done. Chenoa Fund’s down payment assistance already has been cut in half, fund President Richard Ferguson said.
This is not Commissioner Montgomery’s first rodeo. When he was FHA Commissioner under President George W. Bush, he issued an earlier mortgagee letter affecting down payment assistance that also drew a lawsuit for violating the same Administrative Procedures Act.
“The hatred of HUD for down payment assistance is not a policy doctrine, it’s a religious theology,” said Scott Syphax, founder, president and chief executive of Nehemiah Corp., a down payment assistance provider that sued HUD during the Bush administration.
Some fear, however, default risk is higher for loans to borrowers who get down payment assistance.
Dave Stevens, a former FHA commissioner and retired president and chief executive of the Mortgage Bankers Association, noted that such down payment assistance often is coupled with high debt-to-income ratios and low FICO scores.
HUD’s annual report to Congress also raised concerns about the default insurance claims hitting 9.5% in 2019, the highest level since 2009.
“Risk layering is a recipe for default,” Stevens said.
Nonetheless, that same HUD report to Congress offers data for 2015-19 showing little difference in mortgage delinquencies for borrowers getting down payment assistance, whether they got it from the government, a private agency, a relative or an acquaintance.
Chenoa’s delinquency rate, for example, is a mere 1.7%.
Harvard issued a study on risks associated with down payment assistance last October, concluding in part that such assistance appears to be unrelated to default risk. The study also emphasized its importance to minority borrowers.
What better way to acquire household wealth than property appreciation?
A sampling of 5,015 loans shows total current equity of nearly $25,000 per house.
There has got to be some common ground here. How about increasing the minimum credit score or lowering the maximum debt-to-income ratio?
Commissioner Montgomery, please leave the down payment assistance world to do its good work for the sake of families, community stability and wealth building.
Everything will be ok.
Freddie Mac rate news: The 30-year fixed-rate averaged 3.6%, 5 basis points lower than last week. The 15-year fixed-rate averaged 3.04%, also 5 basis points lower.
The Mortgage Bankers Association reported a 1.2% decrease in loan application volume from one week earlier.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $510,400 loan, last year’s payment was $250 higher than this week’s payment of $2,321.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without cost: A 30-year FHA (up to $442,750 in the Inland Empire, up to $510,400 in Los Angeles and Orange counties) at 3.25%, a 15-year conventional at 3.375%, a 30-year conventional at 3.625%, a 30-year conventional high-balance ($510,401 to $765,600) at 3.875%, a 30-year jumbo (over $765,600) at 4.75%.
Eye-catcher loan program of the week: An asset utilization program that allows you to qualify by dividing your liquid assets over 36 months and calling that income. For example, $300,000 divided by 36 equals $8,333 per month.