Conforming Markets Operating Normally
· But what the media is not reporting is that there is no credit crunch for qualified buyers taking out conventional loans for under $417,000. And this is where the bulk of all home loans are made.
· The reason why this market continues to operate normally is because loans up to this amount can be purchased by Fannie Mae and Freddie Mac and have the implicit guarantee of the federal government.
· While underwriting standards may have tightened for all loans, credit-worthy home buyers should have no problems finding conventional, conforming mortgages at very attractive rates.
· In fact, today’s mortgage rates remain near historic lows at just above 5 percent for fixed-rate, 30-year loans.
· Even though the jumbo loan market is still feeling the effects of the credit squeeze, there is still money available for credit-worthy borrowers. However, the rates on those loans are about 1 percent above conforming loan rates and down payment requirements are higher.
Foreclosures are High but Limited in Scope
· There is no question this is a serious problem. But again, a close examination of the facts shows that for a VAST MAJORITY of the country, there is no foreclosure crisis.
· While foreclosure rates have increased this year, almost all American home owners are making their mortgage payments on time.
· Most foreclosures are concentrated in the once super-heated markets in four states: California, Florida, Arizona and Nevada. The Midwest is also experiencing problems as a result of continuing job losses in the manufacturing sector.
· Breaking down prime and subprime loans, 97 percent of prime borrowers –the bulk of the mortgage market -- are up-to-date on their payments.
· The problem is in the subprime market, where about 16 percent of borrowers are behind on their mortgage payments.
· But it’s also important to remember that 37 percent of all single-family homes are owned debt-free – without any mortgage – and that home owners nationwide have built up $11 trillion in equity that provides a good cushion against any decline in values.
· It’s also important to note that a high percentage of foreclosed loans to date – particularly in California, Arizona, Nevada and Florida – have been among speculators or investors who were looking for quick profits and just walked away from their investments when the housing market cooled.
All Housing Markets are Local
· As for the myth that home values around the country are in a free-fall, let’s stick to the facts. · Except for about 30 or so high-flying metro markets where home values doubled in four or five years, the correction in home values has been relatively modest.
· Different economic and job-market conditions directly affect demand for new and existing homes in every market.
· For example, nearly all the markets that posted the largest average decline in home prices during the past year – Las Vegas, Los Angeles, Miami, Phoenix, San Diego, Tampa and Washington, D.C. – have appreciated in value by more than 100 percent since January 2000, according to S&P/Case-Shiller home price statistics.
· It makes sense that the most super-heated housing markets in California, Nevada, Arizona and Florida are now experiencing the most serious market corrections. · Areas in the Midwest are also undergoing price corrections due to stagnant economic conditions. · For the rest of the country, however, the price adjustments have been relatively modest, with prices still rising in a few markets, flattening out in a few others or declining slightly.
Home Values Will Stabilize and Then Move Upward
· But there is absolutely no question that over time, home values will stabilize and then move upward with the next recovery.
· To argue that home values will continue to decline and never recover, somebody has to make a convincing case that it will cost less to build a new home five years from now than it does today. That’s not going to happen.
· Despite today’s housing slowdown, the price of bricks, mortar, lumber, copper and other products used in home building continues to go up due to worldwide demand and upward pressure on commodity prices generally.
· Look at anticipated population and household growth; consider the increasing scarcity of available land in metro markets where jobs are located and where people want to live.
· And the costs of getting land entitled will continue to go up because of more and more restrictions and fees being added by local governments.
· As inventories wind down, demand will rise and so will prices. Over time, all these factors will help drive up the cost of housing.
Buyers Need to Know – Now Is a Good Time to Buy
· Prospective buyers need to know that everything is going to be okay. Housing markets, like all markets, inevitably have their ups and downs. But as a long-term investment, homeownership remains one of the best investments for individual households with a track record that is virtually unmatched by any other purchase in terms of its real benefits.
· The fact is, now is an exceptionally good time to shop for a new home. Buyers with good credit, a job and steady income, will find there is plenty of mortgage credit to be had at good rates.
· And with quite a bit of inventory on the market, home shoppers will find a variety of choice in all price ranges.
· With home builders appropriately cutting back on new supply to meet current market conditions, they are also offering great incentives to boost sales.
· This is a boon to home buyers. But six months or a year from now, as the supply-demand equation rebalances, builders may stop offering these incentives.
· When it comes right down to it, Americans have only two options. They can rent a home or they can buy a home.
· Most people prefer to own the place where they live and bring up their family. And for credit-worthy buyers, the option to purchase is still very viable and still makes a great deal of sense. The bottom line is this: If you are looking for a place to live and for a solid long-term investment, it’s a good time to buy a home.
