Just for fun, let’s imagine a possible silver lining to the complete melt down on Wall Street. In this scenario, the next big shoe to drop will be access to consumer debt. No one is going to extend car loans, credit card debt, retail debt and so on. But this may not be all bad for our industry.
Imagine John & Mary Homeowner talking about their day. John says gas prices are up and his long commute is killing them. They need to buy a different car. “But no one is lending money for new cars,” Mary replies. John decides that if he can not have a better ride, he will have a better destination. “Let’s add on a nice deck for me to enjoy after my long commute.” Mary smiles pleasantly and reminds John that no one will extend an equity line for home improvement. Exasperated, John suggests they just buy a jacuzzi and settle for some easy relaxation. But Mary points out that no store is offering credit, so large purchases are largely impossible.
What do you suppose John and Mary do? What about next Sunday, out for a drive, when they see a nicer home, closer to work, with more square footage – and they realize they can own it for the same payments they are making now. What happens when the only money available is purchase money? Thanks to Fannie & Freddie (and FHA, VA) home loans will be plentiful while every other kind of debt will disappear for a while.
Supply and demand… the meltdown might be just what we needed.
Missy Caulk says:
Sean, the housing market and all it’s subsidiaries have always driven the economy. Too many other industries piggy back off housing. That could be the silver lining, but who knows?
September 19, 2008 — 6:06 am
Chuchundra says:
Umm…dude, do you really think that if John and Mary can’t swing a car loan or a tiny HELOC to get a deck or store credit to buy a jacuzzi, that someone is going to loan them money to buy a house? Really? Really really? That’s just nuts on a stick.
I realize that during the boom years banks were handing out home loans to random people passing by on the street, but those days are long gone.
If credit becomes so tight that it’s hard for a person with a job and marginal or better credit to score a car loan, I’d suggest forgetting real estate all together and investing in Hoovervilles and soup kitchens.
September 19, 2008 — 8:08 am
Sean Purcell says:
Chuchundra,
My point (and it is a light-hearted, hopeful point at that) is not that John & Mary will not qualify for these loans. But rather there is no one willing to issue debt (or buy debt or deal with debt – this is a credit crunch).
Mortgages, however, are readily available through Fannie & Freddie and I don’t see the government (currently the largest lender in the land) turning that spigot off when it is the only thing that may keep the consumer economy going. So my point is that John & Mary can qualify for any loan… but the only loans out there are mortgage loans.
September 19, 2008 — 9:33 am
Thomas Johnson says:
Sean: I have had this kernel rattling around in my pea brain for a while. Thank you for crystallizing it.
So, if our buyer has less than 20% down stroke:
1. Get to know an FHA competent originator.
2. In effect, they are all FHA loans, now.
(We are all Berliners?)
3. The bubble markets may have to decline in price to hit FHA limits, before we see significant activity since they are all FHA, now.
Yes, I know that there is a conservatorship blah blah. In the end, the Feds will be guaranteeing all median priced loans that require PMI : the monolines are toast, as well.
September 19, 2008 — 12:14 pm
Sue says:
I am here in the midst, so I feel it strong and would suggest that John and Mary just take a breath and sit for a bit.
September 21, 2008 — 7:20 pm
Sean Purcell says:
I hear you Sue. Sometimes it feels more list mist though, wouldn’t you say? 🙂
September 22, 2008 — 9:06 am