SAN JOSE, Calif. — Should credit union in the Bay Area be worried about a housing bubble?
Dan Hapner, director of mortgage sales for $1 million Meriwest Credit Union, said yes, noting that real estate prices are going up extraordinarily fast, especially in Silicon Valley where a starter home now ranges between $700,000 to $800,000.
"A year ago we were not seeing 'bubble' in any financial article, but now we see it all the time," Hapner said. "When a starter home gets over $1 million, it is going to start pricing people out, even with a couple with $250,000 in income."
To mitigate risk, on any loan above 75% loan-to-value or $1 million, Meriwest requires two appraisals, according to Hapner. "We are holding tight to our debt-to-income ratios, but almost everyone is extremely well qualified," he said.
While a conforming high-balance loan goes up to $625,000, the median purchase price for a mortgage booked by Meriwest in April was $808,000, and the average is above $1 million.
"So just about every mortgage is a jumbo," said Hapner. "There is minimal secondary market interest in jumbo mortgages. Investors want to see six to 12 months of payment history before they are interested, so we are portfolioing all of these loans. We hope there will be a secondary market at some point so we can recycle our money. There is a lot of Wall Street money on the sidelines."
Have No Fear?
Dwight Johnston, chief economist for the California Credit Union League, said part of the reason for the exploding market is a great deal of foreign money being invested in real estate here.
"People from China are buying either for the investment or a place to live," Johnston said.
However, Johnston — who famously predicted the coming of the last housing crash, and in fact sold his California house in 2004 to avoid losing money, said the situations are not similar.
"The crisis was all about bad mortgages, which we are not seeing now," he said. "We do not see no-money-down, no-interest mortgages. Most of the credit unions in the Bay Area have aggressive programs. They don't want to be all in 30-year, fixed-rate mortgages, so they offer hybrid mortgages. Typical is fixed for three years or five years, and then it adjusts."
Steve Donahue, VP of mortgage origination for $1.8 million Technology CU, here, said the conversations about a bubble are "unrealistic."
"The Silicon Valley market is hot, and it is hot for a number of reasons," Donahue said. "A lot of tech companies are moving here, which is creating a lot of demand for housing. With demand so strong, I do not see a bubble. There is a lot of money coming in, so the likelihood of any type of dropoff is unlikely."
Vince Salinas, VP of home loans for $4.1 billion Patelco CU, Pleasanton, Calif., noted that there probably is not enough volume to be concerned about a bubble.
"Markets get disjointed over time when there is not enough supply," said Salinas. There is not enough inventory in some areas so there are multiple offers over list.
"High prices do not necessarily equal a bubble," he added.
Patelco protects itself by following internal concentration limits, according to Salinas, adding the CU is "balanced" with other types of investments, including auto lending.
"We have some attractive hybrid ARMs, including a very popular 5/5 and a 7/1 jumbo ARMs. We have a 30-year fixed jumbo that we portfolio."
