Folks shopping for a Bay Area home are enjoying a reprieve from the worst of the bidding wars and escalating interest rates.
Homes on both sides of the bay are selling with fewer offers as the bidding frenzy dies down in many cities. And anyone lucky enough to find a home -- inventory is still low -- would be locking in low rates before an expected increase next year.
The interest on a 30-year fixed rate mortgage was hovering just above 4 percent last week, well below the 4.58 percent reported in August.
Lenders are also switching their focus from refinancing to making home loans to buyers, and there's hope that they might soon relax tight credit standards. That could help more people obtain loans.
"I always advise people not to time the market, and to buy property at the right time for you, but I will say now is an extremely good time to buy," said Brad Blackwell, national sales manager at Wells Fargo.
Blackwell said the strict lending standards banks have imposed on borrowers should begin to ease "in the next year or so. You will not see credit loosen to the degree that it was in the 2005-07 period ever again, but I think you will see some easing of credit guidelines -- perhaps slightly lower FICO (credit) scores, and a little bit higher loan to value ratios."
After nearly a year of looking, Kim Rittenhouse-Garing, an airline operations employee, found a three-bedroom, two-bath home in San Leandro for $420,000 in October, when interest rates had dropped again after spiking during the summer.
With her husband's credit score in the 800s and 20 percent down, their loan carried a 4 percent interest rate. "It was a positive experience," she said.
The median price paid for a Bay Area single family home was down 2 percent in September from the previous month in the East Bay, Peninsula and South Bay, according to DataQuick, a real estate information service.
While that is still 23.5 percent higher than it was a year earlier, the dip is a break from the larger month-to-month jumps buyers have confronted this year.
"Prices, if anything, are slightly undervalued compared to the long term, and mortgage rates are still quite low by historical norms," said Jed Kolko, economist for the online real estate site Trulia.
It's still tough to qualify for loans -- perfect credit and a big down payment are just a start, said Caroline Schlendorf of Pacific Union real estate brokerage in Danville. "The buyer still needs to be very strong to get a loan. There are great interest rates, but they still have to go through a lot of hoops."
But some banks are beginning to come up with relief for people in high-priced places like the Bay Area.
Ann Thompson, a Bank of America senior vice president and regional sales executive for greater San Francisco, said BofA has created a loan of up to $1 million that requires only 15 percent down from buyers who have had a history of homeownership in the past three years, and are borrowing above the limits for conforming loans -- currently $625,500 in the metro Bay Area. The loan does not require mortgage insurance and is also available for second-home purchases.
"We wanted to open up a box for the nonconforming, move-up buyer," Thompson said.
A major challenge to buying has been a lack of inventory of homes for sale. ZipRealty reports Contra Costa County's inventory of single family homes for sale is at its lowest level since Aug. 31. Santa Clara, Alameda and San Mateo counties are also seeing drops, some of which are seasonal -- the number of sellers dwindles as the holiday season approaches.
"I have a whole bunch of people that want to jump in right now," said Cathy Warshawsky, a San Jose mortgage broker. "The biggest problem people have is finding what they want."
But some experts are predicting more homes will be on the market next year and that banks will be issuing more home loans. A Mortgage Bankers Association forecast predicts purchase loans will rise by 9 percent in 2014 while refinancings drop by 57 percent as interest rates creep up, eventually reaching 5.1 percent at the end of 2014.
Greg McBride, of Bankrate.com, said underwriting standards will be a little more relaxed. "But it's not going back to the crazy days of 2005 when somebody with bad credit could buy a house."
Contact Pete Carey at 408-920-5419. Follow him on Twitter.com/petecarey.