The New Star That's Out Of Alignment
Those of you who read this blog regularly have heard me refer to housing prices, mortgage rates, taxes and insurance as the stars that must be properly aligned in order for the residential real estate market to complete its correction and for things to return to some new standard of normalcy.
Well, another star has just jumped out of its alignment and it probably will have a negative effect on the long awaited real estate recovery.
The star that has stepped out of line is mortgages, specifically the subprime mortgage sector.
David Lereah, chief economist for the National Association of Realtors said "Lending problems in our nation's subprime marketplace are building, which could inhibit future housing activity and further dampen our forecast." Translated, this means that Lereah is still predicting a market recovery, but it is going to be later and probably more modest than he first thought.
Here's what I think this subprime mess (and "mess" is the word to use) really means.
First, I think it is going to be harder for home buyers to get a mortgage. People with weak credit ratings are going to have a hard time qualifying as mortgage companies start taking a harder look at the creditworthiness of borrowers. Easy access to mortgage money is one of the key things that fueled the housing price increases in recent years, brought out loads of speculators and caused overbuilding in many sectors of the housing industry including the condominium market. Tightening up credit requirements will slow everything else down. Period. Remember, nothing in housing moves without access to money.
In this area of Florida, 15.7 percent of all mortgages were subprime in 2006. Now, this is not to say that all of these mortgages are going to fail -- hopefully most will be good. But a certain amount of them will surely have to be foreclosed. Whose fault is it? The borrower's, to be sure. But let's not overlook the guilt of the greedy mortgage companies who were ever so willing to loan money to people who were not creditworthy -- and at higher than normal interest rates I might add.
Second, buyers are going to need cash to buy a home. I think the days of 100 percent financing may be about over and mortgage companies are going to want to see some equity in these homes. I'm thinking the good ol' days may be coming back, and that means home shoppers will likely need to put from 10 to 20 percent down in order to make a home purchase. For people with good credit but who are short on cash, look toward using VA benefits or FHA programs. Sounds like a great excuse to bring back an old time financial strategy -- open a savings account and start saving part of every paycheck to get your downpayment money. (That's how people used to do it -- remember?)
The St. Petersburg Times summed things up beautifully in their little article about the subprime mess. They said that stringent credit requirements will result in fewer home buyers. An increasing number of subprime foreclosures will put even more houses on the market. Fewer buyers and more houses mean it will likely take even longer to sell a house. Frankly, I think it also means sellers will have to further reduce asking prices as the inventory increases and the number of qualified buyers decline.
Despite all this I'm seeing signs that buyers are on the move again, spending time looking at property. That has to be a good sign. I just hope they can all make a downpayment and qualify for a mortgage, don't you?
For more info on Tampa Bay real estate, visit my website at www.TheStPeteRealEstateSite.com.
Well, another star has just jumped out of its alignment and it probably will have a negative effect on the long awaited real estate recovery.
The star that has stepped out of line is mortgages, specifically the subprime mortgage sector.
David Lereah, chief economist for the National Association of Realtors said "Lending problems in our nation's subprime marketplace are building, which could inhibit future housing activity and further dampen our forecast." Translated, this means that Lereah is still predicting a market recovery, but it is going to be later and probably more modest than he first thought.
Here's what I think this subprime mess (and "mess" is the word to use) really means.
First, I think it is going to be harder for home buyers to get a mortgage. People with weak credit ratings are going to have a hard time qualifying as mortgage companies start taking a harder look at the creditworthiness of borrowers. Easy access to mortgage money is one of the key things that fueled the housing price increases in recent years, brought out loads of speculators and caused overbuilding in many sectors of the housing industry including the condominium market. Tightening up credit requirements will slow everything else down. Period. Remember, nothing in housing moves without access to money.
In this area of Florida, 15.7 percent of all mortgages were subprime in 2006. Now, this is not to say that all of these mortgages are going to fail -- hopefully most will be good. But a certain amount of them will surely have to be foreclosed. Whose fault is it? The borrower's, to be sure. But let's not overlook the guilt of the greedy mortgage companies who were ever so willing to loan money to people who were not creditworthy -- and at higher than normal interest rates I might add.
Second, buyers are going to need cash to buy a home. I think the days of 100 percent financing may be about over and mortgage companies are going to want to see some equity in these homes. I'm thinking the good ol' days may be coming back, and that means home shoppers will likely need to put from 10 to 20 percent down in order to make a home purchase. For people with good credit but who are short on cash, look toward using VA benefits or FHA programs. Sounds like a great excuse to bring back an old time financial strategy -- open a savings account and start saving part of every paycheck to get your downpayment money. (That's how people used to do it -- remember?)
The St. Petersburg Times summed things up beautifully in their little article about the subprime mess. They said that stringent credit requirements will result in fewer home buyers. An increasing number of subprime foreclosures will put even more houses on the market. Fewer buyers and more houses mean it will likely take even longer to sell a house. Frankly, I think it also means sellers will have to further reduce asking prices as the inventory increases and the number of qualified buyers decline.
Despite all this I'm seeing signs that buyers are on the move again, spending time looking at property. That has to be a good sign. I just hope they can all make a downpayment and qualify for a mortgage, don't you?
For more info on Tampa Bay real estate, visit my website at www.TheStPeteRealEstateSite.com.
-30-
posted by Terry Ward at 5:33 AM
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