Reported by Lummie Jones, REALTOR, Associate Broker
Updated July 4, 2009.
Current Market Rating: 2
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Current Price Trend: 2
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WHY DID IT HAPPEN and WHERE ARE WE NOW in Rea Estate today? by Lummie Jones
Not so long ago, we had to meet certain criteria to get a mortgage for our home---a down payment of 10% to 20%, good credit, a stable employment history where income could be verified. What has happened to the state of Real Estate?
Once upon a time, the government felt it would be in our best interest for more Americans to own homes and therefore, established agencies which would help buyers accomplish this goal with less down payment and fewer requirements. The mortgage companies then partnered with various insurance companies to guarantee the mortgages and packaged the loans to be sold to investors on Wall Street. That worked so well, they added more mortgages to the packages by creating new products such as one year ARMs, three year ARMs, interest-only loans, 102% loans, 95% loans---you name it. On top of this, they included sub-prime loans---loans which the borrowers were not really qualified to borrow---they did not have to prove income or show good credit. The rationale was that the packages had a mix good loans and sub-prime loans---but all protected by the insurance companies. The common thought was that property values would continue to rise and the borrowers would be okay because they would refinance before the ARMs adjusted upward.
What did happen---interest rates on one and three year ARMs began to adjust and the borrowers were unable to make the payments. Homes began coming into foreclosure---too many homes. The insurance companies could not pay off all the guarantees and at the same time, the mortgage companies tightened their credit requirements. The borrowers had to have a verifiable and consistent income, just like in the old days. The result---too much inventory... not enough qualified buyers...values came down. The jobs lost in construction and the home building industries are staggering. General unemployment figures reflect the dependence of the entire economy on construction. Number of home sales decreased 40% since the high of 2005 when just over 23,000 sales took place in the overall Richmond market, compared to approximately 14,000 sales in 2008. Before new homes can be built again, we must decrease the current inventory. When we do build, the appraisal will be an issue for new homes built to the buyers' specs. As a result of deep discounts on standing inventory and short sales (where the bank takes less than is owed on the new home), builders simply cannot build today for the price a buyer can purchase a resale, or an already standing new home with comparable features.
Now the good news---is that for the first time in a year, we have seen a slight uptick over the same time last year of homes going under contract. Why? I believe it is because the market values are adjusting to what it takes to get homes sold. Values show a decrease of 12% for the overall Richmond MLS in the past 12 months. It is painful but it must be done. The housing market did not have a credible business foundation on which to stand up to changes in the economy. With the return to rational lending decisions, we anticipate that the real estate market will grow in value as it has for years. Land or homes are still one of the smartest investments one can make. They are not making any more---as one would say!
Think about it. When I got into the business in 1983 the first piece of property I sold was $5,000 (reduced from $7,500)---for a building lot. Today that lot is worth $60,000 or 1,100% increase! Not many other investments have done that! By the way, in 1983 interest rates were 14% and higher and real estate values were falling!
My advice to you is buy smart or build new what you really want with a reputable builder who is established and well-known for their work and integrity. You will enjoy it so much more!
Lummie Jones VP Napier Realtors ERA www.LummieJones.com *Some of the stats used were from the Richmond MLS and excerpts from Suze Orman, 2009 Action Plan
About Lummie Jones:
Lummie has been helping buyers and sellers since 1983. As a top producer for the Richmond area Lummie makes it her business to stay current with what the real estate market is doing. Call her today to help you on your next move.
These reports reflect the views and opinions of their authors and are not necessarily the views and opinions of Realty Times.
