You hang around enough real estate agents, and you start to understand why “it’s a great time to buy real estate”. The reasons are many:
- “You get terrific tax deductions.”
- “Long-term, real estate is a fantastic investment.”
- “With so much product available, you’ll be able to set your price.”
- “This is the slow season — sellers are desparate.”
Well, now you’re going to hear from a mortgage guy why it’s a great time to buy real estate:
- The banks may not lend you money for very much longer.
The Federal Reserve surveys senior bank lending officials each quarter and not since 1990 has getting an approval for a residential home loan been as difficult as it is today.
And before you think I’m talking about “sub-prime”, think again. This is for all loan types — “prime” loans, too.
I read the story in Marketwatch as reported by the man with the best name in real estate reporting — Rex Nutting. Two out of every five banks surveyed tightened its lending guidelines for borrowers with ample income, ample assets, and strong credit, it said.
As an active mortgage planner, I can attest that this is true. Before long – maybe even before the New Year — I expect that five out of five will report tightenening up.
For people searching for new home loans, it’s like shopping at a supermarket that no longer stocks its shelves. Before long, there’s going to be very little food left and you’re going to go home either (a) hungry, or (b) with something you didn’t want.
It’s wise to do your shopping today, therefore, rather than take the chance that your Pirate’s Booty will still be on the shelf next month.
Why is today a great time to buy, the mortgage planner asked rhetorically? Not because real estate is a good long-term investment, he answered. It’s a great time to buy because the right mortgage product might not be there to finance it for you tomorrow.
Eric W. Gage says:
You are right…I am having trouble getting the product that I use for my investing! I have high credit scores and proven record and still hard to get the product…I have been now sitting to let the market iron out before I try again! Probably not wise, but what to do?
November 6, 2007 — 8:38 am
DB says:
My response… “ARGGHHH…” (Ok, I just read the bumber sticker off the car in front of me but we’re all Pirate here at East Carolina University!)
November 6, 2007 — 9:21 am
Benn says:
Whats the point in saving money in sales price when you’re being shafted and paying it in rate. There is no need to tighten guidelines on those who have all the right things in all the right places. I really feel like banks are playing on perceptions and abusing rates and consumers in the process.
So what happens is buyers wait, and wait, and wait- until lenders choke. Wonder who will blink first? Banks, or consumers… I’m betting it’s the banks.
November 6, 2007 — 2:41 pm
sean carr says:
This is also the conundrum for investors and perhaps also buyers in good cash positions. I agree with Michael Cook’s assessment that now is a good time to be doing one’s homework but also suspect the aforementioned events have the potential to exert further pricing pressure. That puts a lot of buyers back into a holding pattern waiting for some clear signs of resolution or at least stability. Compounding this, many investment sectors have been producing above average returns for the last few years. If I were in the market for a primary residence I would certainly consider a purchase now but as an investor I need to convince myself to move money from performing asset groups to an under performing sector with a few red flags for further downside. Will there be further price erosion? I don’t know but the risk appears real. Difficult decisions ahead indeed.
November 6, 2007 — 2:41 pm
Dan Green says:
Hi, Benn. I think a lot of people look at this as a game of Chicken between consumers and banks. I used to be one of them, actually. Then, I saw how banks operate from the inside.
A mortgage loan is just like a home that you may list for sale. It’s only worth what somebody’s willing to pay for it. And, if the banks can’t find buyers for their loans, they’re not going to add them to the balance sheets. And that’s why sub-prime loans are so hard to find right now.
With respect to “prime” loans, it’s a little bit different of a game. These loans are securitizes into bonds and the buyers of these loans are international players. The underlying value of the bonds is tied to the U.S. dollar and the collateral (i.e. home) — and both are falling precipitously.
This is why Fannie, Freddie, and the major portfolio lenders are being more careful with what they will and won’t do — they all just saw what happened in the sub-prime market and they are trying to avoid a repeat.
There may be a game of Chicken going on but it’s not between the banks and the consumers. It’s between the loan securitizers and the investors in mortgage-backed securities.
November 6, 2007 — 2:49 pm
Brian Brady says:
You may even have to bring in some money for a downpayment next year.
Mon Dieu! It’s deja vu all over again.
November 6, 2007 — 11:56 pm
Thomas Johnson says:
The banks are doing what they need to to be able to sell the paper. Don’t forget what those nice boys on Wall Street did to their best customers, the Chinese, the French, the British, and our good friends the Saudis, not to mention every major pension fund and 401k mutual fund family in the US. They are sitting with all that S&P rated AAA paper that has no bids (ie quasi worthless) and it is all denominated in dollars which is falling like that cow off the overpass.
Who in the global economy is going to lend us money with an untrustworthy rating system and a currency in free fall? Any wonder downpayments are needed?
November 7, 2007 — 12:08 am
Geno Petro says:
I don’t know, Dan…the mortgage industry is like a big, hungry animal. It needs to be fed. Dieting is hard, especially for an entire industry. Everything is tight now, a lot has been trimmed off in the form of job cutbacks (Bank of America, Countrywide, etc) but eventually the animal needs nourishment and will start devouring everything in sight—and like all dieters, will end up even fatter than before. I’m about to post on my CHW Blog about this very subject.
nice post.
November 7, 2007 — 9:04 am