Warnings That Could Cause Problems for Homebuyers

  Imagine you've located the ideal home in the perfect neighborhood. It checks off every box in your list of cant-do-withouts, a lot of room, as well as all of the nice-to-haves. But when you go see it with your agent, a few big problems stand out, like evidence of water damage,low ceilings in the kitchen and other rooms, or a visible crack in the wall. The question is now do you take this off the list from what seemed like your dream home?

Watch Out for These Warning Signs During a Showing

When you view homes for sale, it's good to keep in mind that the seller may not ever disclose (or know) the entire truth about their home. They may have moved in just within the last few years and it's a 10 or 20-year old home.

With regards to your home's condition, ask a professional home inspector or your agent because they'll usually be able to identify problems that you may not see yourself.  Their experience can be very valuable in terms of cost savings if you decide to purchase the home.  

And although the home may look well-maintained at first glance, there could be some remaining defects that aren't noticeable to an untrained eye—the following are a few examples.
Foundation issues

Water damage in ceiling

A bad foundation is among the largest and most expensive issues you will have in a home. If you discover any foundation cracks (either inside or outside) it may indicate the home may have significant structural defects if its larger than one-third of an inch.

Additional clues of possible foundation problems consist of doors that don't shut closed, window frame gaps, or floors that droop in spots.

Quick handyman fixes like a leaky faucet or ungrounded electrical outlet may point to a much bigger problem. If you're looking at a home you're interested in putting an offer on or have your offer accepted already, tell your agent to find out the age of the wiring and plumbing.  This should be very important to you in order to prevent potential floods or fires and costly repairs in the future.

Ideally, roofs should be replaced every 12 to 15 years. So if you notice some missing or curling shingles, it could mean that a home's roof is getting pretty close to the end of its life cycle. If you're unsure regarding the age of the home's roof, just ask your agent. They can contact the seller's agent for more information or get a home inspector.

Did you notice any dark spots in the ceiling and floors of the home? If yes, this may be a evidence of water damage, which is usually an expensive repair. Make it a point to examine the drainage condition of the home. Following a big rainstorm in a yard that isn't appropriately graded could result in water to leak inside the home.

Homes that have basements are more likely to have leaks than homes without a basement, so remember to go downstairs to search for water damage!

Insects, rodents, and other unwanted pests can become a huge problem for a home, especially if it's extensive in the home. Termites for instance should be a big red flag because they can ruin a home's total structure prior to being discovered.

If you see a huge number of bugs or mice droppings during your viewing, you may want to pass on the home and move on to the next.

If you smell a foul odor during a showing, these scents could be an indication of mold, mildew, water damage, pests, poor ventilation, and numerous other issues. You should be especially concerned if a seller appears to be masking odors with heavily scented candles or air fresheners.

Even if you don't come across any of these issues, it's highly recommended to have a physical inspection after your offer is accepted. A professionally licensed  home inspector can identify trouble both big and little and will give you a comprehensive report of everything he/she inspected that must be repaired.

Once you have the report in hand and it has issues the seller was unaware of, you may want to consider renegotiating the price of the home or request the seller to fix the problems. Having said that, if the home is being sold "as-is," you may just have to accept the cost and do your own repairs.

Southern California's Housing Market Facing a Formiddable Challenge

The Southern California housing market was firing on all cylinders since the beginning of 2020, helped by low interest rates and a thriving economy.

Then the Covid-19 virus came to the US and globally. We are in a pandemic with the media reporting case counts and deaths 24/7. As a result of the fears people see all day and forced to shut down non-essential businesses in the economy, deals and escrows are being canceled. Sellers are slashing prices. Specific types of mortgage programs have been suspended until further notice.

A California Assn. of Realtors survey from early March revealed that  25 percent of agents had clients reconsider their plans to buy or sell due to the sudden eruption of the coronavirus.

A second survey was performed a week later: The agents working said the sellers who are delaying their plans had surged to 45 percent; over fifty percent had a buyer who put their plans on hold.

After that what made real estate matters worse, was the stay-at-home order issued by Gov. Gavin Newsome. Many agents said referrals for new purchases became nonexistent. Many identify the change to right around the time of the order.

Without question, the deterioration to the real estate market will be determined by how long the virus remains and how much economic pain it creates both through deaths and preventative measures for future viruses.

The sellers holding off may be a good things as they optimistically see this as a temporary crisis. It will certainly be interesting to see if pricing power drops once the epidemic subsides. 

At the time of the 2003 SARS virus that went on for several months in Hong Kong, Zillow's research shows the city's housing market was basically suspended. Home prices didn't drop very much, while sales volume fell like a brick as people stayed a safe distance from each other in an effort to save lives.  Once the epidemic ran its course, sales volume quickly returned to typical levels.

It's worth noting that the SARS virus was only responsible for the deaths of 774 people globally. The people who've died from COVID-19, has already exceeded 2,000 in the United States alone and 30,000 worldwide as of March 29, 2020.

Los Angeles Mayor Eric Garcetti has said the city could soon experience the levels of cases erupting now in New York. Newsom has announced that more than 1 million Californians have applied for unemployment benefits this month.

Zillow said the number of new listings now coming onto the market each day in Los Angeles and Orange counties is about 30% below what it was a year ago. That compares with a 4% decline at the beginning of the month.

Moving from L.A. to Orange County

Every year a lot of people are planning to buy homes in Southern California: not always in Hollywood, Beverly Hills, West L.A., South Bay, but in South Orange County. The reason for this is that there are noticeable differences in the prices for homes in different parts of California, especially inland and coastal areas. Not surprisingly, the average prices for homes can vary quite a bit from one zip code to another. This is due to multiple factors.

Furthermore, the majority of places in Orange County come with tremendous value in terms of price and are very appealing. In all of these cities, the lower prices are more linked to the local housing laws, school ratings, economy, and the inventory of homes listed for sale.

The median home price in the six county region is $533,000 according to DataQuick news of CoreLogic. (source)

Areavibes ranks American cities based on a livability score that takes into account various factors, which is comprised of the cost of living, the amount of crime, educational facilities, local job market, and amenities. The livability score is based on a scale of 1 to 100.

The following are south Orange County's top picks in the order of their popularity based on data from Data USA and the Bureau of Labor Statistics.
• Newport Beach – Median home price is $2,137,900. Livability score is 83.
• Laguna Beach – Median home price is $2,016,000. Livability score is 76.
• Dana Point – Median home price is $953,900. Livability score is 86.
• Irvine – Median home price is $856,000. Livability score is 82.
• Aliso Viejo – Median home price is $633,300. Livability score is 82.

The following are the Great school ratings for these popular cities:
• Newport Beach –  8.3  (has 3  9's and 1 10-rated)
• Laguna Beach –  9 .
• Dana Point –  3.
• Irvine –  7.9  (has 7 10's, 7 9's)
• Aliso Viejo - 8.2

These are all great cities to live in. For those who have the option to relocate and to get a better price when buying a home, these should all be considered as decent choices.

Owners Getting Paid to Buy a Home in California

According to CoreLogic’s recent HomeEquity Report, California homeowners experienced a gain in wealth of approximately $40,000, highlighting the higher home prices.

This is all good news for current homeowners, it also indicates good things to come for the nation’s economy. Gains in wealth tends to stimulate extra consumer purchases.

In the U.S., equity grew the most in Californian where they saw the biggest rise in home equity, with the average homeowner gaining $44,000 over the year. Washington homeowners experienced gains of $40,000, on average, while those in Utah, Nevada, Massachusetts and Idaho saw jumps of $20,000 or more. Equity increased the smallest in Louisiana, where homeowners gained just $311 for the year.

The midpoint price of all sales for a Southern California home was $507,000 last month, which is only $2,500 below the all-time high it hit in December 2017, the Irvine-based real estate data firm reported in late February.

That's a rise of 11.4 percent from the January 2017 median price, the highest appreciation rate dating back to May 2014. By comparison, the average price increase over the past two years was 6.7 percent.

The biggest gains occurred in the Inland Empire, which has Southern California's most affordable home prices. Median prices rose 12.1 percent to $370,000 in Riverside County and 10.8 percent to $312,500 in San Bernardino County. Ventura County’s median increased 9.8 percent to $560,000, while Orange County saw prices leap 8.8 percent to $690,000 vs. average price gains of 6 percent. Los Angeles County’s year-over-year gain of 7.6 percent was closer to its two-year average of 7.2 percent. The January median there was $565,000.

Inland Empire home sales represented nearly a third of all Southern California transactions last month, which is also the most. It's also the Inland Empire’s largest share of sales in six years.

 Inland Empire economist John Husing says "People are being priced out of the coastal counties, and the (price) differential is the largest in history between the coastal counties and the inland counties. So, more people are looking to migrate inland."

But similar to other parts in Southern California, there's not enough housing to meet demand in Riverside and San Bernardino counties, Husing said.  The large price gains are due to not enough housing which means these homes would sell for and appreciate less with a normal supply and demand inventory.

There has been a rise in blue collar jobs in the Inland Empire, yet white collar people in such fields as tech and finance now make up the largest share of commuters driving to and from Orange and L.A. counties for work.

How Much of My Monthly Income Should Go Towards Housing?

This is a typical question many homebuyers ask.  How much of my income should be applied to my house payment?  The answer you'll hear from one lender to the next or depending on the loan program can be a wide range. For example, many conservative lenders will say it is between 28% and 36%. While more aggressive lenders may allow up to 50% of your monthly gross income on conforming and non-conforming loans.

Are you budgeting already?

Figuring out how much you can afford for your monthly housing payment shouldn't automatically be determined by an arbitrary percentage. Some people are comfortable paying a certain percentage each month and then there's others who have the means to allocate more money for housing such as half of their income. 

A large majority of conforming mortgages are underwritten by an automated system that uses a maximum back-end DTI percentage of 43 or 45. Other programs like an FHA (Federal Housing Administration) loan are more generous and may offer the borrower a debt-to-income ratio up to 55%.

Important factors that dictate an automated approval are things such as the individual's credit profile, credit score, down payment, liquid assets, and type of loan.  What got one person approved doesn't always mean it will work for another borrower with many of the same data.  Getting advice from an experienced loan officer is a great place to start.

To clarify, the back-end debt to income (DTI) ratio consists of the housing payment and the borrower's other monthly debt obligations.  A front-end DTI is only the housing payment and many lenders use 28-33% but that is not set in stone so it pays to use a company that can shop around for multiple programs to satisfy your financial goals.

Real Examples

Let’s look at two borrowers whose gross monthly income is $8,000.

Borrower A has monthly debt of $1500 and Borrower B has monthly debt of $800.

FHA Mortgages

FHA will permit as much as 55% debt ratio.  Monthly Income * 55% = max housing and debt

If the gross monthly income is $8000 then $8000 * 55% = $4400

Borrower A has monthly debt of $1500.  If max housing and debt is $4400 then the difference may represent the maximum housing payment.  $4400 – $1500 = $2900 housing payment limit.

Borrower B has monthly debt of $800. If maximum housing and debt is $4400 then the difference may represent the maximum housing payment.  $4400 – $800 = $3600 max housing payment.

Conventional Loan

A conventional loan may offer up to a 50% debt-to-income ratio.  Income * 50% = max housing and debt

If the gross monthly income is $8000 then $8000 * 50% = $4000

Borrower A has monthly debt of $1500.  If max housing and debt is $4000 then the difference may represent the maximum housing payment.  $4000 – $1500 = $2500 max housing payment.

Borrower B has monthly debt of $800. If max housing and debt is $3000 then the difference may represent the maximum housing payment.  $4000 – $800 = $3200 max housing payment.

So, you know your maximum allowed payment. What is the maximum sales price?

Once you know your highest payment you're eligible, simply do the math in reverse to determine the maximum loan and sales price.   

While you can try to do this to get an approximation, other critical factors that must be included are the county property taxes, homeowners insurance, and if applicable mortgage insurance, flood insurance and HOA fee.  That's a lot of math to do without the necessary and accurate information.  These variables easily accessible by a licensed mortgage professional.