August/2009

Now what?

In his novel A tale of two cities, Charles Dickens opens with the line, "It was the best of times, it was the worst of times... ." In the economic climate we are currently experiencing across this country and across the world, it may be difficult to find any "best of times". The past couple of years have been described as the perfect storm as it relates to the real estate industry. There exists a combination of stagnant or depreciating property values, HUD foreclosures, bank short sales, noted financial entities going poof in the night, the stock market vacillating between "the best of times and the worst of times" and lenders realizing that hoarding cash is the path of least resistance. All these things are happening at the same time.
    And then?
    The government steps in with their "bail-out" program; pumping billions of dollars into purchasing ill-faded mortgages. The hope is that this influx of cash will loosen the purse strings of those who control the purse strings.
    There is an old saying, "He who has the gold makes the rules." We are there. Unless you are Warren Buffet with a couple of million bucks in your wallet, obtaining financing in the future will be more difficult. Not impossible, but it may cost more and take more documentation to get.
    This is a different financial market than we have experienced for many years. In the early 1980's mortgage rates ramped up to over 15%. The real estate market slowed, as few buyers could afford to borrow. New home builders offered 3-2-1 buy down programs to attract buyers and help them qualify.
The real saving grace for the real estate market back then were the non-qualifying assumable FHA/VA loans, seller financing and, dare we say it, undisclosed wraps of existing conventional loans. As Einstein said, "Imagination is more important than knowledge." It was an imaginative time.
    Then the late 80's came loping along and the savings and loan fiasco surfaced. It changed the government and established the Resolution Trust Corporation (RTC); designed to dispose of insolvent savings and loans. Projections were that the RTC would need to dispose of the assets of over 700 institutions, totaling nearly $400 billion. Peanuts compared to what the government is facing today.
Pocket change!
Which brings us back to where we started this little narrative. Now what? Here are some thoughts:
1.   The wheels of change often move slowly. Rationally, pumping $700 billion into the economy will take time. Where the funds go, when they go, and how they will be used will not be a quick and easy process.
2.   In the future, lenders will be much more weary of who they will lend money to and under what terms. There will be multiple sets of eyes looking at new loan files to insure that what is being represented is accurate and realistic.
3.   Appraisers will be more conservative in their approach to valuing property. Just because the same style house down the street sold for $250,000 six months ago, doesn't mean the subject house is worth the same or more. Real eastate markets fluctuate up and down, and the access to sales information is much quicker today than it was in the late 1980's.
4.   TAKE HEART! According to CNN Money, "The National Association of Realtors says pending home sales increased from May through July; highest since June 2007". The old wisdom "buy low" has never been so appropriate to the times.
5.   First time home buyers or those who have not owned a home the past three years are still eligible to receive the $8,000 stimulus bill tax credit when they purchase a home prior to December 2009 and interest rates still hover in low 5% range ...something to think about.