San Carlos is not a hotbed for sub-prime or negative amortization loans, short sales or foreclosures. With regard to those instances, San Carlos has skated through the mortgage meltdown with very few issues. However, many responsible buyers and sellers in San Carlos are paying the price for the negligence of others. Most San Carlos buyers are putting down at least 20%, have great credit, solid reserves and are living within their means. Recently, however, when many of these potential buyers have applied for a mortgage they have found the requirements to be outrageous and in some instances, demeaning. Banks have become so demanding with their requirements, that many qualified buyers are having trouble qualifying for very conservative loan amounts.
Most banks are trying to re-group after the meltdown, take inventory, figure out how the bailout will affect them and restructure their loan programs and guidelines accordingly. Until they are able straighten themselves out, they have taken a hardline, conservative approach with buyers. The result is that well qualified buyers are being put through the ringer when trying to qualify for basic, fixed mortgages.
The part of the mortgage market that is really being hammered right now is the jumbo loan market, which is offering comparatively high interest rates. In San Mateo County, the jumbo loan market is any loan amount above $729,750. $729,750 is the current conforming loan limit. For folks that can stay under this loan amount, banks will offer a better interest rate. In order for someone to purchase a $1.2M home in San Carlos (very close to the 2007 average home price), the down payment required would be $470,250. With a traditional jumbo loan, the down payment needed would only be $240,000…..however, buyers will need to pay substantially more with current jumbo rates which are considerably higher than the conforming loan rates. Additionally, qualifying for the jumbo loan will be much more difficult.
Considering the information above, it is not hard to see that a year ago a potential buyer could have bought the average San Carlos home with $240K down (20%), and received a decent jumbo rate to go along with it. Currently, that same average buyer would either need to put down 39% or 470K in order to get a similar rate to the one offered one year ago.
The key for the San Carlos housing market moving forward rests on two issues: (1) the ability of banks to relax their requirements and offer competitive programs to well qualified buyers, and (2) the jumbo loan rates have to come down. The overwhelming majority of San Carlos buyers are financially responsible and should be able to qualify for loans that have effectively been taken off the market because of those who were not as responsible.