Doom and Gloom

Our guest blogger Terry Johnson contributes the following...

The WORLD IS COMING TO AN END

I don’t know about you, but I’m sick & tired of people who see nothing but DOOM and GLOOM all around us. I remember when interest rates were 20%. Property values falling? In the 1950’s, $10,000 bought a nice ranch style house with a barn and a few acres. Today a $10,000 home would be someone sleeping in a used car. Is real estate a great long term investment or what?
The foreclosure rate in many areas of the country (like Oregon) is low. In other areas where declining home values are coupled with a higher percentage of adjustable rate mortgages, the foreclosure picture is bad.
Our local market is solid. Values continue to rise at around 6.5% a year. There certainly is a segment of buyers that could have qualified for a sub-prime loan a year ago, but can’t buy a home today. If you have poor credit history and too much debt, you probably won’t be buying a house until you fix that. Contact a good loan officer for advice. If you could only qualify for a sub-prime adjustable rate mortgage 3 years ago, and have since followed your loan officers’ advice and reduced your debt and cleaned up your credit, you’re ready to re-fi out into a great fixed-rate loan. If you still have crummy credit and too much debt, you’ve got a problem. Sorry. (Really).
Today, with good credit and a steady job, you can get a 30-year fixed rate mortgage at a great interest rate, even with 100% financing. It wasn’t too many years ago that it took that kind of good buyer to be able to purchase a home. Period. Welcome to the past. With a segment of the banking industry imploding, the rest of it did a knee jerk reaction. Banks closed or withdrew programs daily. A year ago there were programs for buyers that had no money, bad credit, and were 1 day out of bankruptcy. That stuff is gone, maybe forever. That’s not a bad thing. Reasonable, less risky programs are starting to come back. I get 2 or 3 e-mails a week announcing the return of specific programs. I got a call yesterday from a well known wholesale bank. The Rep introduced himself as the regional manager of their new SUB PRIME division. I’ll be danged. So is there a crisis in the mortgage banking industry? Sure. Does it affect you directly? For 90% of you looking for a home, probably not. In fact, it is the reason rates are so good right now. It’s called a silver lining.
Here’s how the mortgage system works (simplified): Banks loan out money and take back mortgages. If they kept it up, the vaults would be full of mortgages, and they would be out of money. So banks package up and sell mortgages on the “secondary mortgage market”. That secondary market is in a real slump. Foreclosures have left too many investors holding the bag on those mortgages they had invested in, so they have shied away from mortgage backed securities with their investment money. That’s left the banking industry short on cash for new mortgages.
However, most borrowers who buy houses are not credit risks likely to be foreclosed on. But there is such bad press (daily) on the Doom and Gloom of the housing/mortgage industry, that it further erodes investor confidence in that secondary mortgage market. It does the same to you, our customers. The good things that are going on do not sell newspapers, or help sagging media ratings. So this constant negativity becomes a self – fulfilling prophecy. Daily reports of Doom and Gloom help create the very lack of confidence which leads to more Doom and Gloom. I actually see professionals use this fear as a marketing tool to scare customers into calling. That disturbs me. A lot. It does not help our industry or our market and actually adds to the problem. The glass is either half full or half empty, depending on one’s personal perspective. You don’t have to be naïve to see that it is half full.
I joined the real estate industry in this area in 1994. For years there averaged 2700 or so listings of all types in our MLS, with an average market time of around 75 days on market. Those years were GOOD market conditions. Hmmm. That’s about what it is today. Welcome to the past. Did I already say that?

Terry Johnson, OMT Mortgage Terry@OMTmortgage.com 541-242-8083