August 15, 2007
JustQuotes: An Isolated Incident Or Important Insight?
"'The loan was approved and locked in. People were ordering moving trucks, everyone was feeling euphoric.' On Thursday, the couple buying the [$2.45 million] house learned that their lender was rescinding their loan because they were making only a 10 percent down payment.
'All of a sudden the lender, because it is backed by a series of investors that are feeling very shaky and panicky, decided it could no longer honor the loan commitment,' Hogan [their agent] said. 'This was not a subprime loan; this was fully documented, people with outstanding credit who own a $5 million home now and didn't need to sell it to buy this one.'
The buyers could have gotten a mortgage at a substantially higher rate - just under 8 percent - Hogan said, but 'they crunched the numbers and said, 'Hell, no, maybe this is a sign for us to get out.''
The buyers walked away from the deal, forfeiting their $73,000 deposit. The home is back on the market for $2.2 million, its original asking price."
First Published: August 15, 2007 12:30 PM
Comments from "Plugged In" Readers
Where's the house? Time for a lowball on it!
Posted by: GH at August 15, 2007 1:43 PM
Looks like 30 Tamalpais Avenue in Larkspur. It's back on the market at the original $2.195M listing price. The would-be buyer was paying a pretty hefty premium over the list price. What a great quote from a guy who is walking on a $73,000 deposit - "Hell no, maybe this is a sign for us to get out". But, hey, it's Marin - and DataQuick says that (once again) prices are rising, so I'm sure that the other bidders who bid say, only $150K over list price, are jumping for joy now that they may get another chance to overpay.
Posted by: howard at August 15, 2007 2:14 PM
I found this story a little odd.suspicious. The buyers walked away from a $73K deposit because the interest rate was "a little under 8%?"
At 2.45MM, assume 20% down = about 2MM financed. At 6%, the interest payment is about 10K per month, at 8% the interest payment is about $13,300/month. So these people walked away from 73K over $3300/month in extra interest payments? There are scenarios where that pencils out but I'm not sure about this situation. High end properties in this are continue to show appreciation.
I predict these buyers will just wait out the temporary credit crunch on jumbo loans and then submit a new bid contingent on the application of their previous deposit.
Posted by: anono at August 15, 2007 2:29 PM
MEDIANS ARE NOT PRICES!!!
All the median tells you is what people are SPENDING on housing for a given month. There is no information in the Median about what they are GETTING for their money or if the home sold for more or less then it would have a year ago.
Without a large amount of additional information about the sales mix, previous prices, incentives given to the buyer, and economic indicators like inflation, the median is basically a marketing tool for the RE industry.
Posted by: badlydrawnbear at August 15, 2007 2:30 PM
BDB- I agree that the median alone can't tell you everything about the true price of a home, but I think all of the people buying these Marin houses would disagree that what they are spending for the home is not the price. And that is what matters. It may be frustrating to people who think Marin housing is overvalued but buyers set the market, and buyers pay attention to median prices- not sales mix, inflation etc...
Basically, the same number of homes sold in Marin as last year and the median price is 13% higher. To most people, that's appreciation, pure and simple. Anyone can talk about sales mix, inflation etc... but buyers look at median prices and buyers set the market price. That's why the RE industry uses the stat and why economists consider it a good enough- though not perfect- measure of prices over time.
IMO, there has been a huge increase in quality of homes- more remodeling etc...- over the last 3 years and that should be a component of the true price. But I just don't think most buyers and agents think in that much detail. The agent says "prices are up 13%", shows a chart produced by an independent data collection agency, and the client ponies up the higher price.
It doesn't matter if you know the "true" price of a home if most people don't and are willing to pay more.
Posted by: anono at August 15, 2007 2:53 PM
It was obvious that sub-Prime and Alt-A mortgages at low interest rates requiring no verification of income or ability to repay would not go on forever.
To quote the late great economist Herbert Stein, "If something cannot go on forever, it will stop."
Posted by: Mark D. at August 15, 2007 2:57 PM
I think the buyers just got some sense, which is unrelated to the mortgage rate.
I am sure if they want, they can come up with 20% down payment and keep the mortgage rate fairly low.
However, it just didnt make sense to have a 2MM second home when they have a 5MM one already.
Posted by: John at August 15, 2007 3:02 PM
Interesting that it went BOM. If there were long lines of buyers bidding up prices in Marin, the sellers would go to the #2 bid who would immediately put the house in contract.
But wow, there didn't appear to BE a #2 bid. Which tells me that demand is way down in Marin, but people were still acting stupidly. This buyer bid over asking when an at or under ask bid would have done the trick.
As I keep saying, for prices to rise, a seller needs TWO greater fools: the buyer and his lender. Buyers who are making a mistake are now, for the first time in 7 years, getting stopped cold by the lenders.
There is always one stupid buyer in the pack, and that helped push up prices dramatically. Fortunately, the stupid buyers no longer matter. Their lenders are pushing them aside.
Posted by: tipster at August 15, 2007 4:39 PM
"the sellers would go to the #2 bid who would immediately put the house in contract."
This is an assumption, on which you base your conclusion ("But wow, there didn't appear to BE a #2 bid. Which tells me that demand is way down in Marin, but people were still acting stupidly. This buyer bid over asking when an at or under ask bid would have done the trick"), with little to no evidence in its support.
Perhaps the #2, 3, 4, etc. bidder didn't want the restriction of a back-up spot. Perhaps the bid(s) of the non-#1s was too low for the sellers. Perhaps the non-#1's found new places while this one sat in escrow. The possibilities are endless and your post is meaningless as a result.
Posted by: Craig at August 15, 2007 4:57 PM
I think that there is some evidence of slight price declines in Marin on an apples-to-apples basis. But, the continuing increase in the median price sure makes it easy to spin the message that it is business as usual. Will be interesting to see if anyone jumps back in on this one - then we'll have another data point.
Posted by: howard at August 15, 2007 5:52 PM
Tipster, you usually make sensible comments.
I have seen several well priced properties BOM in the past where there were clearly multiple offers and the market was *hot*.
I'm not a Realtor nor did I ever been personally involved in such a situation. But this isn't new phenomena and I wouldn't draw any conclusions.
I do agree with anono, if these people really wanted/could afford the house that $73K would give them plenty of time to refi into something better.
To me this sounds like the failure of the mortgage was just an excuse.
Posted by: Someone at August 15, 2007 8:36 PM
Of course it was an excuse.
The thinking goes, if this property goes down 10% that will take 240K off of the price. If I walk away from my deposit and then buy it later I'll get a better price and save 167K.
It's one thing to take out a huge mortgage when you think real estate is certain to appreciate. It's another when you think it's going to go down. You'll notice that this was a second home and probably a major driver in their purchase decision was the investment potential. That is now gone.
Posted by: diemos at August 15, 2007 9:00 PM
Someone who owns a $5 Mil home and is buying a second one for just over $2 Mil can afford to walk away from a $70K deposit without giving it much thought. Pretty simple.
Posted by: movingback at August 16, 2007 12:23 AM
Countrywide is having major difficulties right now (Merril Lynch analysts are raising possibility of insolvency-although I personally doubt this), and is tightening their lending rules as of this morning.
"Furthermore, as a result of lessened liquidity for loans which are not eligible for delivery to the GSEs, Countrywide has materially tightened its underwriting standards for such loans, and, we now expect that 90 percent of the loans we originate will be GSE-eligible or will meet our Bank's investment criteria."
I've squawked on this here before:
If you have an offer in on a house, get your loan locked in, and check constantly (at least 2x per week) with your loan officer/broker. The terms of these loans are literally changing daily.
I'd also consider getting a backup loan in case your first one falls through.
And lastly, I'd think of using the strongest lenders to make sure they survive until you close on your house. (at this point Wells and BofA come to mind, and they are both SF centric)
It's really messy out there.
Posted by: ex SF-er at August 16, 2007 5:34 AM
Yikes.... put your glasses on people. It's happening right in front of you.
I still content that SF is partially isolated from this mess; but this has all the signs of a sharp downward sloping curve on most RE trends other than DOM and Active Listings...
Posted by: eddy at August 16, 2007 9:52 AM
"To me this sounds like the failure of the mortgage was just an excuse."
"Of course it was an excuse."
Agreed, but I'm not sure I'm buying that they walked away from a $73k deposit. Who would write a deal without a solid financing contingency providing the assurance of mortgage terms and conditions that they could live with?
They walked because they could, and probably with little in sunk costs.
Posted by: AnonN at August 16, 2007 6:03 PM
Exactly, AnonN. They walked away from the deal because they could!
Posted by: movingback at August 16, 2007 10:50 PM
My son and daughter in law put a $10,000 deposit on a Ryan Home townhouse. They are first time buyers. Ryan home salesman told them that they would get their deposit back if they did not get approved for financing, however they put a clause in the purchase agreement that the sale was not contingent on financing and my son and daughter in law signed with out reading the contract. Now with the subprime mess they were turned down for financing and Ryan Homes is telling them that not only are they going to lose their $10,000 they are going to be sued for the $30,000 in upgrades that they agreed to.
This has to be illegal!
Posted by: allan at August 29, 2007 9:28 AM