The Future of Real Estate Sales

by Russell Shaw

Mega-Producing Realtor

Author website

The real news from the mortgage and residential real estate business just keeps getting better.

First the 30% of investor or 2nd home sales went away. Then the 20% of the market that was the sub-prime business went away. Then the 10% of the market that was the alt-A business went away. Those numbers may not be exact but those are about the right percentages nationally. In the Phoenix area the number of true “investor sales” was even higher. Particularly in the edge communities where foreclosures have now skyrocketed. Yes, those very same edge communities where numerous builders sold 10 – 15 homes to each “investor” who wanted to buy them. Some of those subdivisions sales were primarily to “investors”. It is interesting to note that the amazing percentage run up in foreclosures in the Phoenix area is due to us having almost none a few years ago – back then everything could sell quickly. Drive through some of those neighborhoods on trash pick up day. Notice how few trash cans are out at the curb. (hint: a trash can at the curb = an occupied house)

In my opinion, the drop in sales from about 10,000 resales a month to about 3,000 sales a month in our area isn’t going to be a “temporary thing”. Most of those extra sales were fueled by low cost, no real need to qualify, money that never should have been available in the first place. Here I am referring to the alt-A, the sub-prime and the stated income (liar loans). It never ceases to amaze me how people with money can find (or is it the other way around) really really stupid things to “invest” in. If they had all of the facts available, I don’t know anyone who could have loaned money (their money) on 1st & 2nd liens, who would have made any of the 100% LTV sub-prime loans. No one who wanted to keep their money for later, anyway. Yet billions and billions of dollars were flooded into such “investments”. Now, after the horse is WAY out of the barn, they are really tightening up on their standards. Good timing.

Here is an email I received last week from our lender, Kathy Rhubottom. She has been with O’Dowd Mortgage a little over 25 years.

I know you have your staff meeting tomorrow, so I thought I would let you know of some things that are probably going to be start happening soon.

Typically when your office refers a buyer to me to prequalify them, they do not have a home picked out yet. When I give them an approval, I am going to start adding to my LSR, this approval is for the buyer, the property will be subject to approval of the lender.

Probably next week, most of our lenders are ordering review appraisals on EVERY file/appraisal. If the review does not come in to their liking, they can ask for either a field review from another appraiser, or a complete new appraisal. At an additional cost.

Next, when we are running a loan on Fannie Mae or Freddie Mac approval system, if we do not have a property address, we still receive a loan approval, it just says, re-verify approval with property address.

When the borrower buys a house, we will go back in and put in that property address. There is now a potential warning that will come out “Property in declining Market”. If that message comes out, the lender will either require an additional appraisal, or some lenders are now saying they will cut the loan to value by 5%. Which means, if the buyer is say applying for a 100% loan, and the property is in a declining market area, which we are seeing in Surprise, Anthem, Queen Creek for sure…those properties will not be eligible for 100% financing.

The last of my news, is we are hearing what is a rumor as of now…that the PMI companies are going to stop insuring any loans for borrowers with FICO scores under 620.  So, those are the changes that may be happening soon. They will affect all lenders/banks etc, so we will just all somehow adapt. Not much fun though.
 

 Let me know if you have any questions on this!

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My prediction is that it is going to take about two years (that part is unfortunate) for the membership in the NAR and all the various state and local associations to drop off to the point where the Sales Opportunities Per Agent gets back to the level where – if you are one of the survivors – it is totally alright to have total sales numbers down to 35 – 40% of what they once were. Looking at the pattern of number of members of the NAR, plotted against number of sales made it is clear that on the way up there is no meaningful lag in the agent numbers. On the way down takes a bit for the flock to properly thin. They are already on the way out – but in addition to being inefficient at selling homes they are even inefficient at leaving.

So, be extra nice to all agents. The ones leaving can be a great source of referrals for you once they are gone.