by Jacqueline Chen
Adjustable rate mortgages, interest only loans, and a variety of other loan products are helping to keep demand strong in the home buyers' market despite escalating prices that have more than doubled Southern California home values in the last four years.
Local real estate investor Tracie Heileson said that properties that list for $3 million can sell within a day, whereas three or four years ago, the property would have stayed on the market for six months or more.
According to local Realtor Mike Derian of Keller Williams Realty, the newest obstacle faced by buyers, sellers, and their brokers is appraisals that fall short of the selling price. He said that very recently he sold homes in the $1.2 to $1.3 million price range that have been valued by lending institutions for about $1 million. Appraisals are often falling short of selling prices by $100,000 to $150,000. Nonetheless, Derian feels that low interest rates and cooperative lenders are still the main reason for the continuing upward trend in real estate prices.
"Fueling real estate is lots of creative financing by banks and brokers," Derian said. "Banks are pushing interest only loans with very low start rates."
Alan Pezeshkian, sales manager with Countrywide Home loans, agrees.
"With all these increases in real estate price, what makes it all affordable are aggressively priced loan programs that lenders are offering these days," he said. "What home buyers are looking for is affordability; they are all asking 'what can I do to get into this house?'
"Nowadays, the deal can be structured so that the seller pays the closing costs, so that a buyer can potentially buy a house with no out-of-pocket money."
Pezeshkian said his company offers mortgages that vary from the long preferred 30-year fixed rate, to interest only with a 103% loan-to-value ratio, to adjustable rates (ARM) that include negative amortization. Negative amortization appears in loans with fixed low interest rates and payments that rise after the initial period. A payment increase cap limits the amount payments can increase and any unpaid interest is added back to the loan principal, which then rises. In the early 1990s, the high foreclosure rate was partially attributed to ARMs because borrowers could no longer afford the rises in monthly payments.
