Current housing market challenging for buyers

commentary /// Residential real estate



There is a housing supply problem that is not unique to California: It has multiple root causes and no signs of improving.

Recently I participated in a western states housing-supply webinar that discussed both the existing and new home supply in metro areas from California to Colorado.

Whether it is Los Angeles, Las Vegas, Phoenix, Denver or Salt Lake City, studies show that the current housing shortage in metro areas is severe, and the shortages are projected to worsen over the next couple of years.

Too many future home-building projects of both attached and detached homes for sale do not pencil out. Projected future costs outstrip the future home buyer purchase capacity. Home price increases from cost of materials, subcontractors, insurance and regulation continue to increase.

In 2008 the skilled construction work force was decimated and has not come back to meet demand. Experienced and skilled contractors are in high demand and the cost to employ a skilled worker continues to rise.

Construction material costs continue to increase due to increasing government land development requirements.

Soft building costs incurred before a shovel is put into the ground have ballooned to 25 percent of the cost of a new home.

Developers hire consultants to help sort through the 300-item federal, state, county and city development checklists.

Regulation increases the building complexity, requiring a greater use of specialty designers, architects and engineers, such as soils, civil and structural engineers and geologists.

This year, California is mandating solar for all new single-family homes. This mandate will increase building costs, further exacerbating the housing supply shortage.

Whether you are looking for your first home, move-up home or move-down home, the following are some actions you can take that may alleviate some of the house-hunting challenges.

•Pay cash. An all-cash home purchase offer is more likely to be accepted in a multiple offer situation. Immediately refinance to reimburse yourself. A refinance within 90 days of a cash purchase is priced and treated very similar to purchase financing.

•Get pre-qualified. A mortgage pre-qualification letter is required with all home purchase offers. When sitting down with your loan officer, you will become familiar with the purchase finance process and have an opportunity to explore with your loan officer all finance options.

The more familiar you are with your finance option the greater the probability your purchase offer will be accepted.

Know the monthly cost of a higher offer. Most transactions are multiple offers and you may be asked to increase your offer. When negotiating, it helps to know that a $10,000 increase in sales price when putting 20 percent down results in only a $41 increase in monthly mortgage payment at today’s rates.

After your purchase, your friends and family will tell you that you were lucky to secure a home in this tight real estate market. I say that luck is a combination of preparation and execution.

For more information, contact lending expert Robert Bianchi at (818) 597-8656 or go to