Part 1: Let’s get the bad news out of the way
Watch the local or national news, or pick up a paper, and you are bombarded – almost daily it seems – with negativity about the mortgage and housing markets. It’s all over the news – mortgage lenders laying off hundreds and closing their doors, others cutting services.
But what does it all mean? Is this just a crisis, or is there opportunity to be had, too?
Looking back on 2007, many key words come to mind – “subprime”, “foreclosure”, “short sale” “credit crunch”, “downturn”, and “housing bubble” – it was the year of the subprime collapse causing a credit crunch whose effect on the broader economy still has to be assessed.
Since the credit markets seized up last summer, the secondary markets for subprime loans (borrowers with less than 620 FICOs) and Alt-A loans (borrowers with decent credit but minimal down-payment and/or unable to verify income) have virtually disappeared. Investors have lost their appetite for these types of loans.
Fears of rising delinquencies and defaults has crippled the secondary market and caused a dramatic slowdown of these types of mortgages.
Subprime and Alt-A lenders started going belly up as they lost access to funding in an avalanche of delinquencies and foreclosures on loans that were packaged and sold to Wall Street investors (secondary market). It seems the “credit crunch” in the mortgage market will only ease when investors regain their confidence.
Each week has brought more bad news in the mortgage and financial markets as more lenders and security firms started reporting losses. Congress held numerous hearings on plans to help relieve some of the fallout.
This story was by far the most important one in real estate in 2007 and will continue to unravel in 2008. But is there an end in sight?
Yes, but not for a while. According to Steve Hargreaves of CNN Money, the crisis in the subprime mortgage market may actually be good news for the average American buyer. If you have good credit, a low debt-to-income ratio, a healthy down-payment and verifiable income, you should encounter little difficulty qualifying for a mortgage with the still low rates.
Can we expect more trouble ahead? The Mortgage Bankers Association (www.mortgagebankers.org) Chief Economist Doug Duncan said he expects housing markets to bottom out no later than third quarter 2008, but that “substantial inventories” will result in full-year price declines through 2008.
“Substantial inventories” means 2007 has seen soaring inventories of existing and new homes for sale, a record number of foreclosures, and the strongest buyers’ market in a decade.
But sellers, on the other hand, aren’t happy as builders are more than willing to deal on price and upgrades. Investors who have tried to unload their properties often have found no takers, leading to the largest number of vacant homes on the market since the number has been tracked.
Clearly the wind came out of the real estate market, but keep in mind that the housing market has always been cyclical, with varying degrees of peaks and valleys. While the market is bad for most sellers, it’s looking very good for buyers.
Keep an eye out for more good news in Part 2 of this report coming soon.
Its good to hear that there is an upside to all of this real estate “problems” these days. Not a comfortable upside but a boost of confidence!
An average American like myself worried about ever even being able to purchase a home in the future; with this scare and the rising cost of living. But if you continue to have good credit and work hard there is a chance.
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