The word on the street two months ago was that Wells Fargo was requiring 25% of the units in a new development be in contract or closed before they would fund the first loan. From a plugged-in tipster yesterday:

Wells Fargo had a guideline change this morning, they are now at 50% pre-sale [required].

Not quite a rumor, but yet to be officially confirmed.
UPDATE: Confirmed (“Wells Fargo has formally raised their new construction pre-sale requirement to 50% from 25% placing them on par with Chase and B of A”) and effective December 15th.
Developers In San Francisco Getting Squeezed From Both Sides [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by Louis

    What WF is saying is that they are no longer in this business.
    That math just does not work for a home builder. It cannot.

  2. Posted by tipster

    Translation:nothing is selling at anywhere near these prices, and we don’t want to be stuck when the developer converts more than 50 percent to rentals

  3. Posted by plan C-sparky

    I wonder how this would affect the Eastern Neighborhood Plan. With builders being required to have nearly 50% affordable housing anyway, couldn’t they just submit the city waiting list?

  4. Posted by Jimmy (Bitter Renter)

    I think the 50% pre-sold requirement could trivially be satisfied by simply lowering the asking prices on new developments to the market-clearing price.
    In fact they could probably get the project 100% pre-sold if they *really* wanted to.

  5. Posted by Jake

    Sparky, I don’t know the details, but I am certain that the EN plan has nowhere near those levels of affordable units. As I recall, it’s something like half that, 25%, and that’s on average with umpteen permutations higher and lower depending on heights, etc., and also offers ways for developers to build less by paying additional fees (which are almost always much cheaper than providing the actual units themselves). Moreover, these “affordable units” are really “moderate income” units targeted at 120% – 150% of AMI and possibly higher. Funny thing is that if the market keeps going the way it is, this may effectively match market rate or come close to it.

  6. Posted by anon

    IMHO, Wells is simply not in the mortgate business any more. 8.545% for a 30-year fixed jumbo is the evidence. I don’t expect to see much change at least until there are terms and an agreement for the Wachovia aquisition later this month.
    https://www.wellsfargo.com/mortgage/rates/
    But at least 8.5% is better than the ridiculous 10.5% rate Wells posted last month!

  7. Posted by SocketSite

    UPDATE: Confirmed (“Wells Fargo has formally raised their new construction pre-sale requirement to 50% from 25% placing them on par with Chase and B of A”) and effective December 15th.

  8. Posted by Louis

    You can look at it however you wish, but:
    1) If there is no construction financing market
    and
    2) If there is no realistic mortgage market for condominium buyers
    There will not be any new construction in multifamily for-sale for a long time.
    New supply will probably LAG an economic recovery by a couple of years.

  9. Posted by gowiththeflow

    Call me crazy but given all the comments noting new condos like the Infinity will be or need to be dropping prices… would a no construction fin market and or no realistic mortgage market for condo buyers (in the context noted above)= buildings like the Infinity may have hit a sweet spot (not too sweet given the current state of the economy)… but they have sold over the “new” required % from what I recall some of the posts here stating, and now have apparently limited if any competiton. Even if you look a few years forward if anything does break ground it will take some time before anything is move in ready. Thoughts on a lower % of availability possibly helping keep some of the prices higher? In particular if anything comes to fruition such as lower int rates, inflation strikes big time etc. etc. you would think it may push some to buy RE or at least consider it no? In these types of cases would this not help these buildings out or are we too far down the rabbit hole?

  10. Posted by San FronziScheme

    The way it’s going, you’ll soon need to buy condos all cash in these towers.
    Hey, at least you’ll be sure all your neighbors are actually the “wealthy professionals/foreigners” targeted by these developments and not highly leveraged flippers trying to time the market…

  11. Posted by Arn Cenedella

    I think a little perspective is needed.
    I have been in the real estate business 30 years.
    I got an 11.75% mortgage on my first house and now loan rates above 6% are considered high.
    I did 2 condominium developments in the late 1980s and early 1990s. One was a 36 unit development in East Palo Alto and the other a 48 unit development in Mt. View.
    At that time, the PRE-SALE requirement for new condominium projects was SEVENTY PERCENT – YES 70%. That is still more than the new WFB requirement of 50%. Developers can still sell new condominiums but buyers going in need to be patient until the pre-sale requirement is met.
    Hope this trip down memory lane helps put today’s market in perspective.

  12. Posted by Tall Guy

    Well put Arn. Now all we have to do is wait until (at these new constraints) supply (prices) are adjusted such that demand is willing to cosume. You can easily build at 50% or higher pre-sale rates if you price appropriately. We’re just waiting around for the correction to occur.

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