My New Blog

What's next:

Well, there are some definite things happening and going to happen and you don't need a crystal ball to figure it out. But there are a couple over looked bits of info that might help you put the pieces together.

The first question I hear is "do you think home values will go up in the future?'. Often followed right on the heels by "how low will values go?" To get to an answer you have to know what factors impact prices and their direction.

To understand what will happen to your home we need to know the ingredient that go into making home values change. In the case of homes value going up, there are two prime factors...demand and income. Throughout much of the country the idea of demand has been the big pusher on increasing home values. Nothing wrong with that. But the other necessary ingredient is income. If your home price continues going up quickly, getting beyond the ability of income to manage, price at some point will stop going up (no income to support the increased outgo from mortgage payments) and start to drop off. That critical point was delayed under our recent run up because of the creative financing tools put into place to help folks get in to more expensive homes. Things like teaser rates and interest only payments and 40 year terms all benefited the consumer and delayed the reckoning that was on the horizon. We now see the horizon and it's as cold as an artic hug. You must have an increasing income base if you want an increasing home value.

The other question, how long will value  continue the downward spiral? It's then that another factor comes into play and that's rental income. Most people will pay more for a home over what they will pay to rent...particularly if they see the potential for an increase in value. But when the potential is limited or unsure most folks will not pay much more for a home than for a rental. There must be a balance between the two. So mortgage payments must come back inline with rental payments. Meaning values must come down on homes.

So what we're seeing now is values..and therefore mortgage payments, coming back in line with rents. Once that happens values will stabilize and have the potential to increase as incomes also go up. Our current problem is that the market factors got out of line and are now needing to adjust. That adjustment will be very hard on many people. And people will be affected differently depending on where they live. If you're in a strong growth area with a good income base you're going to be fine. If your in an out lying suburb or city, very distant from the main financial hub, you're probably in some trouble.

According to national estimates some areas will need to adjust as much as 30% to be in line with the rental market. One such area is the San Francisco Bay. Other areas include Sacramento, the central valley, and several inland areas in S. California.

With that said, is it a good time to be thinking of buying? Yes, if you're smart. One of the great sadness of this whole run up in values is the folks who bought at the top of the market just before the air was let out of the balloon. With real estate as with stocks you buy at the bottom of the market...that's where the values are. And that is now. And even with a potential for some drop off in the future, if you buy right and in the right area you can make a ton. A good agent and lender can make that happen.

Another fun day in Loanland.

There's some very good things starting to happen in the market. More programs are coming back into use and that's a grand sign for lots of folks looking to consolidate debt or reduce interest rates. And while rates are low, some people seem to not know it. A standard 30 year fixed rate is about 6% today. For a shorter term, like 3 or 5 year fixed, the rate is even less. No matter how you cut it those are very good rates.

Another place for good rates is in the commercial market. Apartments are fairing very well as new programs free up more equity and give lower payments. Remember commercial programs and qualifications are based on cash flow...and the relationship between income and out go actually determine the property value. And it's the property that qualifies for the loan not the borrower. So someone with shaky credit can buy a commercial property if the property has a good cash flow. And the appraisal is a reflection of condition, unlike residential appraisals which reflect other sold properties. In residential property you always hear the maxim location, location, location. In commercial it's cash flow. Location isn't a real issue if the cash is coming in.

A couple tips on buying property:

One, always check your credit so you know where you stand on being able to purchase, how much home can you afford. And two, always get pre-qualified. Your mortgage broker can handle this for you. And as we've said in a previous blog, check out the location you're buy in to be sure it's in a growth area. This one step, or misstep can cost you a ton of money and grief if not done properly.

By the way. There has been some lender auctions on foreclosed property. I didn't go but Renee and Virgil both went and were impressed. Lots of people and activity. And it seems that with an auction people just get into the buying frenzy ( I wonder if that's what they know will happen) and end up paying more than the property is listed for on MLS. That was happening. Still, you might want to check it out at the next offering, at the first of the year. If you think this would be your cup of tea you need to have cash in hand or be pre-qualified. As we get closer to the date I'll get you more info.  

Oh Yes...it's a time of goodwill and cheer!

With the holidays comes a bit of stress and anxiety. Some of those factors are money, buy, buy, buy, and some are time, more, more, more. It's tough to just sit back and take it in and revel in the spirit. A cup of cheer will sometimes help. So that's what we're going to try to give you today...a symbolic cup of cheer.

But first the grinch doeth cometh.

Rate Is Low, like most in the mortgage business has gone through many changes this past year. Some have been disappointing. We've had to do layoffs and downsizing. We've had to change our view of what to expect and how to get to the end game. For the last three months the fall out from programs not being available has been nothing less than shattering. Because of the mammoth exodus of lenders, many borrowers have been left in a financial lurch with no where to go. There just weren't any programs for them. And good or excellent credit didn't matter...everyone suffered. So, as we pick ourselves up from the ruins of loan fallout, dust our selves off (more like taking the boot prints off our necks) and start to recover, we must look at business differently.

First, and this is truly sad. Many of the programs that best served the client are indeed gone. Where we were able to deliver programs when the credit score was in the low 500 range, that range is now about 620 as a starting point. And that simply means many folks who need financing, need to consolidate or get cash out, now can't. They haven't changed, the world did. And they will and do suffer the fallout.

And many people are blaming mortgage brokers for the "bad' loans on the market that "drove" people into foreclosure.There's even federal legislation in the works to hunt down the preparator and rid the world of their evil influence. The great thing is that you don't have to know the facts to have an opinion. And because there are people loosing their homes...well there must be someone to blame...and we've got to get them. The truth is a bit different...

In the past when someone bought a home and didn't have a down payment, needing 100% financing, they were given temporary loans designed to be refinanced in about two years into better rates and terms as the homeowner established a payment record and equity. There was nothing wrong with this system as it worked for tens of thousands of people and allowed us to experience the highest rate of home ownership in history. So what happened...what went wrong?

The housing market is what happened. As everyone and their cousin decided they could be the next Donald Trump, everyone bought one, then two, then three homes. We were rolling in profits and our future looked bright. Nothing could go wrong and to the devil with all those doom and gloom people who said it would all end. And them one day it did end. Rates started up, fewer people could afford the increase, demand changed, and everyone stated to dump those wonderful investments. The result was as predictable as Britneys' bad behavior...with less demand (buyers) the price started to drop. And all those good folks who bought homes with 100 % financing now couldn't refi to better rates because they were up side down on their home...and they started walking away and  foreclosures were everywhere.

So the newspapers picked up on the term "sub-prime" and "teaser" rates and pretty soon the world was awaking to a new villain. And isn't that always the way to make us feel better...blame someone...especially those evil lenders who made us take these terrible loans. Much like the cartoons from the past where the helpless maiden was strapped on the railroad track waiting for the on coming train, we could see the disaster and we blamed the conductor.

But the conductor isn't the villain. And neither is the mortgage professional or lender. In both cased they are responding to the needs and expectation of the client. Loan programs are created because of demand. And lenders did their job and provided the public with ways to borrow and get the home they wanted. Then, when it falls apart, through no fault of the lender, that is exactly who we blame,...amazing. Were these the programs some how exotic, mystifying or filled with ambiguities. No. All of the programs had been available for many years and were widely used. So what happened...again, the market. When values tumbled so did equity and so did the lenders ability to refi a person out of what they had to what they expected.

And who takes the big loss? The lender will have to write off the huge loss on each home that is in default. And if you haven't noticed many are going out of business. And not because of bad decisions or poor management...but because of the changing market. And that's o.k. No reason to feel sorry for them. But there's no reason to blame them either. They did a great job of getting folks into homes. And for many borrowers...the hard work and diligence of those lenders and brokers have made a huge  positive difference in creating wealth. 

tomorrow: where we go from here....