It's going to be a rocky ride over the next few months. Think the subprime mortgage mess is behind us? Not quite. Not really. The standards under which lenders can approve loans are getting tighter by the day. Loan programs once standard are now fantasy. A colleague said to me today that we will look back on this period in the real estate business as the time when the mortgage industry regained it's sanity. I suppose the good news is that you will not be seeing anymore DiTech.com commercials offering 125% financing over the phone. 20% down loans are becoming minimum standard requirements. It's my belief that by Memorial Day of 2007 (or sooner), 100%financing will be a distant memory.
The Federal Reserve has cut the discount rate again this week to 4.25%. In reality there would have little effect on the long term rates and had they cut it to 4.0%. The Fed cut lowers the rates on things like Home Equity Lines, credit cards, and other similar lending but it can often have the exact opposite impact on home loan rates. In some ways a Fed cut is perceived as driving inflation, since spending by consumers and businesses generally picks up in times of better financing rates.
Another huge factor in this process is the ongoing subprime affect. The types of home loans available have shrunk consderably in the past 6 months with in essence a 'knee jerk' reaction taking place in the lending markets. Further as we get into 2008, we're going to see an increased need for higher and higher down payments, credit scores and overall credit worthiness for borrowers to obtain a loan. If it were our choice for the market, we would have preferred to have these changes ushered in over several years instead of 10 months. Unfortunately when FannieMae and FreddiMac announce huge losses as they did again on 12/11 to the tune of another 6 Billion dollars, there's going to be tighter requirements to get a loan. That means fewer buyers in the market and continued excessive inventory of homes for sale.
The day is coming but we're not there when things are decidedly on the upswing. Until then, sellers need to be ask themselves long and hard how badly they want to sell, especially if there is no real sizzle in the product their offering. If you want to sell, you must be updated and your price must be on the aggressive side of the curve. We get calls everyday from home owners who want, think, feel and need X amount of dollars from their home. While we'd love to make that happen for everyone, the market is still the market and doesn't care about ANY of that. The honest reality is, your home is worth what someone will pay and in this day and age you MUST look like a significant value below cost or be incredibly unique to get to the closing table.
QUESTIONS? COMMENTS? Greg@GregCooper.com or 317-848-GREG(4734)
