SAN JOSE, Calif. (7/9/14)--In the always-volatile California real-estate market, Bay Area credit unions may soon face more mortgage challenges.
The "b-word," as in bubble, has surfaced in several recent articles focusing on the local housing market, Dan Hapner, director of mortgage sales for $1 billion-asset Meriwest CU, San Jose, told National Mortgage News (July 7), as starter homes prices have increased to as high as $800,000.
Once those prices reach $1 million, most, even buyers with incomes of $250,000, will be priced out of the market, Hapner said.
To minimize risk, on any loan above 75% loan-to-value or $1 million, Meriwest CU requires two appraisals, according to Hapner. And the loans the credit union does make are to well-qualified borrowers, he added.
The median purchase price for a mortgage made by Meriwest CU in April was $808,000, and the average is above $1 million, National Mortgage News reported.
Considering those numbers, most of the mortgages Meriwest CU books are jumbos, which the secondary market has minimal interest in. Investors are looking for six to 12 months in payment history. That means the credit union is placing most of its mortgages in portfolio at the current time, with hopes that the secondary market will open up in the future.
Part of the reason for the Bay Area market explosion is foreign investment in real estate, particularly from China, said Dwight Johnston, chief economist for the California and Nevada Credit Union Leagues.
But Johnston did offer some good news when comparing the current housing market with the market that led to the crash of 2008: The previous crisis was caused by bad mortgages, which are not driving the current market increase.
Steve Donahue, vice president of mortgage origination for $1.8 million-asset Technology CU, also based in San Jose, went a step further. He said talk of a housing bubble was unfounded.
Donahue said the Silicon Valley housing market is hot because numerous tech companies are moving to the area, creating a demand for expensive housing. With that kind of money coming in, a drop-off is unlikely, he told National Mortgage News.
Vince Salinas, vice president of home loans for $4.1 billion-asset Patelco CU, Pleasanton, said that it was unlikely there enough volume in the local housing market to create a bubble. High prices do not equate to a bubble, he told National Mortgage News.