Front page of the Wall Street Journal today was an article entitled, "Mortgage Giants take Hit on Fears Over Capital." Well this is surely nothing new in today's turbulent economic times, the statistic that struck me the most was that both of these companies (who were expected to aid the failing housing industry in it's recovery), have taken hits to the tune of over 60% YTD. Their lowest levels in 14 years. The plot just seems to keep thickening for the troubled financial industry. If Fannie & Freddie keep weakening their stock by selling bonds to raise needed capital, they are possibly digging a hole that only the government can bail them out of. Shareholders know this, and fears have incited a sell off of stock.
The prognosis for the housing market as a whole doesn't look very bright at the moment, especially considering that Fannie Mae & Freddie Mac are the biggest providers of funding for US home mortgages. Couple that with surging gas prices, near hyper-inflation, and tightening of the money supply by prominent banks. The result is a stream of fear who's inception begins on Wall Street and trickles down to Main Street, USA. Consumers everywhere are tightening their belts- decreasing spending on housing, retail, restaurants, and just about anywhere they can seem to trim the fat from their budgets. It's no wonder. Due to rising gas prices, decreasing home values, and inflation, our dollars are not going as far as they used to. With banks ever tightening their grip on mortgage funding due to increased foreclosures and decreased room for error, many consumers are being forced out of the mortgage market all together. In the short term the impact of this "Mortgage Meltdown" may have a huge effect on property sales in Tucson. Already in Tucson we are seeing real estate transactions falling apart as lenders become more restrictive with their underwriting criteria, many deciding at the last minute not to fund loans they had already committed to funding. This is obviously creating a stranglehold on buyers and sellers, causing moves to be completely fouled up, or cancelled altogether.
Currently, fewer lenders are offering second mortgages (such as 80/10/10's), 100% financing, loans to people with low credit scores, and no doc loans that previously required little to no verification of income or assets. Most lenders state they still fund loans to borrowers with good debt to income ratios, 10% or more down payments, and high credit scores, but at what price? The cost of borrowing money is increasing, along with the cost of just about everything else! Borrowers in today's mortgage market are paying higher closing costs to compensate for the changes in underwriting and funding criteria, and the fact that now many lenders must keep these loans in their own portfolios (as opposed to selling them in the secondary mortgage market). You don't have to be a genius to figure out that the increased difficulty in getting a mortgage is in turn causing many homeowners to hunker down and not make a move or refinance unless they absolutely have to (death, divorce, or job transfer).
Components of mortgages have drastically changed in the last six months, along with banks stricter underwriting standards and criteria. Mortgage insurance, which had all but disappeared since 2004 has now reared its somewhat ugly head again. This takes a big bite out of the average home owner's monthly mortgage, many to the tune of $150 a month and up for borrowers putting less than 20% as a down payment. A new weariness of borrowing money (especially for big purchases) has hit today's consumer. Many are opting to rent as opposed to buy, especially if they have little or no money for a down payment. The combination of fears over capital and fears over debt by consumers seems to be creating a withdrawal affect on the overall economy. This is a vicious cycle that will end up causing more and more job losses as consumers pull back from spending, and corporations are more cautious about lending.
FHA was the golden goose that Congress and the White House were betting on to revive the depleted housing market. But with Fannie Mae and Freddie Mac suffering combined losses of over $11 billion, analysts are expecting the picture to worsen, as more and more borrowers are forced into foreclosure. The implications for the housing market are troubling, because losses for these two mortgage giants means higher mortgage rates and costs for consumers. The worst case scenario of Fannie & Freddie not being able to handle their obligations- forcing a government bail out, has the possibility to render their shares worthless.
At any rate, what's the average homeowner to do if you want to sell your home, or buy a new one? There is still a real estate market in Tucson, and serious buyers are looking to buy a home. In order to foster a sale in today's challenging market environment, it is critical that your home be priced to sell, as buyers have every right- given the economic situation and the abundance of inventory- to be choosy.
If you have any questions about buying or selling Tucson real estate in today's market, please do not hesitate to call me.
Written by Sarah Ley,
BSBA, ABR, CRS, CHNSA
Realtor with Long Realty Company
Direct: (520) 404-0544
http://www.sarahley.longrealty.com/
sley@longrealty.com
Tuesday, July 8, 2008
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