Top 7 Reasons The Housing Market Is On The MendEd Craine
July 2, 2008 — 1,290 views
The housing and lending markets have been in peril for some time, as we’re all well aware. The media, (which is more than happy to report on the “failing housing market” or the “subprime storm” or the “mortgage meltdown”) has yet to report though, that there are seven encouraging signs that the housing market is at or near the bottom and is showing signs of recovery. Consider that the housing market has been in a decline for nearly two years. However, it has only been within the last year or so that it’s been so widely covered. Many great economists have said that by the time we (as part of the general public) recognize a downturn in the economy, we’re already on our way out of it. This certainly seems to apply to the state of the real estate and lending industry. Here are 7 good indications that the state of the housing market has in fact already bottomed out, and is now slowly recovering.
1. Lenders Are Beginning To Make Exceptions.
When the lending industry started to falter, lenders tightened the guidelines they use to approve borrowers for loans. The zero-money down, exotic loans, and stated income/stated asset loans went the way of the dinosaurs. Guidelines for lenders tightened unanimously and many people found themselves unable to obtain a loan that just a year prior, they’d have been approved for easily. The guidelines became stricter and stricter, and did not allow for any exceptions to the hard line parameters. Now however, some lenders are beginning to make some exceptions. This is not happening frequently, but is happening in some instances. This indicates that trust is once again being rebuilt between consumers and lenders.
2. Rates Remain Low.
The FED has cut interest rates with gusto over the last six months. Historically speaking, when the FED cuts short term interest rates, the effect on the bond market (which sets the tone for mortgage interest rates) is generally negative, and interest rates on mortgage loans start climbing. This happened initially, but in recent months has stabilized, with interest rates on mortgage loans remaining near historic lows.
3. Rate Difference Between Jumbo Conforming and Conforming Has Narrowed.
In February of this year, the limit on how much a lender would loan a consumer in order for the loan to still be considered conforming rose in many markets. Prior to this temporary increase, the maximum conforming loan limit was$417,000. When the increase went into effect, some markets experienced increases in loan limits to $729,500. The loans that fell into this category were dubbed “Jumbo Conforming Loans.” While this allowed for many consumers to apply for larger loans, these loans were accompanied by higher interest rates; sometimes even a full percentage higher than a traditional conforming loan. Recently though, this has narrowed, and now interest rates on Jumbo Conforming Loans are very competitive with the rates on loans below $417,000. Again, this is a sign of stabilization.
4. Bank Owned Properties Are Receiving More Offers.
There were unfortunately a lot of homeowners who became unable to make their mortgage payments over the last 18+ months. Those who could not make their mortgage payments were forced to give their homes back to the lenders holding the mortgage loan. These homes become REO’s (Real Estate Owned or Bank Owned Properties.) Up until recently these Bank Owned Properties were receiving few offers in many markets from investors. Now however, in select markets, these Bank Owned Properties are beginning to receive multiple offers from buyers and investors. This is good news for the banks, as they’re truly not in the business of selling homes. This move also indicates that investors are recognizing the incredible opportunities presented in the real estate market and are eager to get back to investing.
5. Lender Write Downs Are Less Than Predicted.
Earlier this year, predictions were made that lenders were going to realize sizable write-downs, meaning losses. Within the last several weeks one of the nation’s biggest lenders, Freddie Mac revealed that although they did experience a loss lately, it was quite a bit less than had been predicted. This likely indicates that the worst of the housing market has passed, and recovery, albeit slow, is taking place.
6. Fannie Mae Reverses Guidelines.
Fannie Mae, the counterpart to Freddie Mac as a second Government Sponsored Entity (GSE) just recently reversed one of its guidelines. Until May of this year, Fannie Mae’s guideline mandated that loans (either purchase or refinance) for properties which were located in flagged “declining markets” were subject to lower loan-to-value loan approval. Fannie Mae would still loan borrowers in these markets money; however the maximum amount of loan they would offer was -until recently- 5% less than properties in non-declining markets.
Consider a home in a stable market (deemed a Metropolitan Statistical Area, where home values are holding steady.) Fannie would for example offer a loan of 90% loan-to-value (LTV). That is, they would loan 90% of the amount needed, in proportion to the value of the property. However, a similar property in a declining MSA (as set forth by Housing and Urban Authority) would automatically be granted 5% less loan-to-value amount. That is, this time Fannie would only loan a maximum of 85% of the property’s value.
The reversal of this decision is a huge coup for homeowners, as it shows that one of our nation’s largest and most stable lenders is here to support consumers by helping us all become homeowners.
7. Economic Indicators Are Increasingly Positive.
There are plenty of economic indicators that the economy as a whole is beginning to pull itself out of the slump we’ve been in. Stocks continue to rally, job losses remain lower than predicted, and slowly but surely home sales are on the climb. In fact, to date this year our country never even reached a true recession, whereby economic growth was negative. The fact that our country was able to avoid entering a true recession, and in fact even continued to grow, albeit marginally is a great sign that the housing market will follow suit.
These seven indications that the housing market may be on the mend, are overwhelmingly positive. As homeownership has always been a major component to living the American Dream, these indicators seem to point in the direction of the housing market recovering. It took a long time for our housing market to slump, and will take a long time to recover, but at the very least, we have some inkling that the worst may just be behind us.
Ed Craine is the CEO of award winning Smith Craine Finance, one of the oldest independent Mortgage Companies in San Francisco, California. A 25+ year veteran of the real estate financing industry, Ed has originated and negotiated loans in excess of $2 billion, to include both commercial and residential properties. He has simultaneously held such notable positions as Vice President of the California Association of Mortgage Brokers (CAMB), as well as serving as the Public Relations Committee Chairperson of the 5,000 member strong association during 2007, the year in which the mortgage industry received more media attention than in recent history. Ed currently also serves as 1st Regional Vice President of the Certified Commercial Investment Member Institute (CCIM). He will be inducted as Vice President of the Southwest Region of CCIM in September 2008.