Archive for November, 2007
We’ve posted here several time that market trends and your personal situation do not necessarily coincide. Just because nationally things are a little dicey with real-estate doesn’t mean anything about your house. And now, let you think we make these things up, here’s a great article from CNN Money. Here’s my favorite quote, mostly because it matches exactly something I’ve been saying here for months:
If you’ve owned a house for a while, you don’t have to worry. The gains you’ve enjoyed in recent years are huge compared with recent price downturns.
Even if the median price of a single-family home in Miami, now $393,000, falls by 20%, the price on that house would still be about $20,000 higher than it was at the end of 2004.
“With all the sound and fury associated with the recent downturn, in the places with the most dramatic price declines, they’ve only erased a few quarters of appreciation,” says OFHEO’s Leventis. “Long term, prices still tend to go up.”
Point #1: Across the country, the real-estate market is being seen as in complete collapse, so I thought I’d put some of those numbers in perspective:
if a $100,000 home appreciates 7% in a year, it increases in value to $107,000. This is seen as a relatively healthy increase in value, but nothing outrageous. If it then declines by 5% (which is the current level of annual decrease nationwide), it is worth….$101,650. That is, unless my math skills have really atrophied over Thanksgiving break, $1650 more than it was originally worth.
Yes, if you bought the house at $107,000, this is not comforting. Nevertheless, less than 5% of the US is living in a house purchased in the last 12 months, so the “collapse” of the real-estate market seems to me to be somewhat overblown.
Point #2: one of the major reasons the media cites for the destruction of the credit markets is foreclosures on houses with ARM loans, which loans have reset recently to much higher payments. I thought I’d just take a second to point out that those ARM rates are generally tied pretty closely to the Fed Funds rate, so the ARM resets are being massively augmented by the Fed itself and its ridiculous 17 straight rate increases over the last 3 years. I said several times while this was going on (2005) that the Fed ought to pause for a while, like a year, and see what effect its breakneck increases would have on the market. Doing what the Fed did is like trying to drive a semitrailer down the highway using only the rearview mirrors. Guess what? We’re off the road now. And who is the Fed blaming? The tire manufacturer. Sheesh.
Point #3: if you live in Utah, there’s still reason for hope in real estate (credit markets, by contrast, are national, not regional, so those problems, outlined in my last post, are still there and still nasty). See this article in the Deseret News today.
I’ve been saying for a long time that things in the mortgage market are not as bad as they are being made out to be, and that might be true. And I am now forced to admit that it might NOT be true, as well.
Fannie Mae last week changed its accounting practices, almost certainly in an attempt to disguise the true number of foreclosures on its books. Today Freddie Mac announced that its foreclosures were going to cut its market valuation by almost 25%. We’ve seen lots and lots of losses by banks over the past little while, and the market has priced a lot of that in, but this is different. Fannie and Freddie are the mortgage clearinghouse for the entire industry. If they are forced to contract their services, then it won’t matter any more if you have good credit or not, and it won’t matter if you have cash or a job or a letter from the Queen of Sheba, you won’t be able to get a loan at a decent interest rate.
And if that happens, we’re not looking at a recession. We’re looking at a depression.
Now, you know me, and I’m not an alarmist. I think everything will work out well in the end. The short term, however, is not going to be pretty, and I think that’s established now. I have, therefore, some advice:
If you’ve been thinking about buying a house, or refinancing, or getting a line of credit, or anything at all real-estate related, do it now. Right now. Do not wait until Thanksgiving is over. Do not wait for the first of the year. Do it right now. If you have an ARM, get off it. Get off now. It doesn’t matter how you have to do it or if your rate rises or if you have a prepay penalty. If you can get out of it, get out of it.
I had planned to stop working tomorrow at noon for the Thanksgiving holiday, which is my favorite. I will not be answering the phone over the weekend. But I will be answering email and if you text me, I’ll get it. Email is firstname.lastname@example.org. Phone is 801-310-3407.
Please don’t ignore this. I don’t charge for advice, you all know this, and if your situation doesn’t admit of help, I won’t try to talk you into anything. But please call me and let’s find out. And anyone you know that is in a similar way, have them call me, email me, as well.
A few random thoughts:
- The edition of the Potty Post just coming off the presses is the best we’ve ever done. Period. I’m serious. You’re going to love it. If you’re not on our mailing list, send an email to email@example.com
- Elections were yesterday. We had all the incumbents win here in Lehi, and we have a new Mayor in Eagle Mountain (Friend of the Group Heather Anne Jackson!), and Friend of the Group Steve Turley won in Provo, and most of these races were acrimonious and nasty to one degree or another, but this morning everyone picked up his yard signs and life went on.
- Meanwhile in Pakistan, Benazhir Bhutto is calling for a rebellion to oust General Musharraf, there’s rioting by opposition groups in Tblisi, Burma is in shambles, and we don’t even want to start talking about the political/social unrest in Sudan. I didn’t get what I wanted yesterday, not by a long shot, but I have a lot more of what I want today than almost anyone else on earth. We are truly a very fortunate people.
- Speaking of not getting what I want, the voucher-bill-turned-referendum-1 lost badly, which likely spells the end of the legislative school-choice movement in Utah for the near term. I’ve been involved with it fairly intimately for ten years, and still consider choice in education to be as basic a good idea as choice of breakfast cereal, a lovely thing that has resulted in an almost 80% drop in the real price of cereal over the last 25 years. Only in education is choice supposed to make things more expensive, and reduce quality. But the fight will go on. This is much like other battles we’ve been fighting for a generation; we’ve got the right of it, and eventually, we’ll win.
- This ought to be its own post, but there’s a new anti-predatory-lending law being proposed in the halls of Congress that falls squarely under the heading of “this is what I warned you about” in a post a few months back, where i said that the only think that could really destroy the real-estate market in the US was Congress trying to “fix” things. HR3519 is a truly abysmally stupid piece of legislation, so it will likely not pass, at least not in present form, but oh, how tired I am already of people blaming the mortgage mess on me. Okay, not me, exactly, but mortgage brokers in general, of which I am one. If this ridiculous legislation passes, I’ll have lots more time for blogging, because we’ll be out of business, and thousands like me across the country. I’ll keep you posted.
The Fed did cut by.25%, which means that the Prime Rate is back down to 7.5% and that the Fed is keeping its promise not to sit on the sidelines while things go south in the credit markets. The move was originally greeted with a run on bonds and a run up in the stock market, but this morning bad banking results and poor oil company profits destroyed confidence in the stock market and there was a serious buy-up of bonds. That will be good for mortgage rates tomorrow.
Unfortunately, it won’t be good for very many borrowers. It is increasingly difficult for even good-credit borrowers to qualify for loans, to the point that we have one fine client that wants an 85% LTV, full doc, owner-occupied loan, with 660+ credit…and he can’t get an approval. This is the way of things right now, and it’s very dangerous for the economy, in my opinion. We told four clients today that we couldn’t get them financing at the terms they needed to make the deal work. For one of them, that will mean that she has to sell her house, if she can. Another can’t buy one, and the other two cannot refinance to lower interest rates. Yeah, I know about FHA loans. I also know about up-front and monthly mortgage insurance, which all FHA loans carry.
It’s not all bad news on that front, as there are still good rates available for those that want to purchase houses (and have a good jobs and excellent credit), or that need to refinance and have 20% equity in their homes. But other than that, it’s really tough out there.
We’re still here. We will be.