How The Housing Market Takes Its Toll On America
Whether you are trying to sell your house, or trying to save money to buy in the area you want to
, the housing market is taking a fierce toll on real estate everywhere. However, after months and months of gloom-and-doom reports about the housing market, the latest month has finally started to produce evidence of some positive movement.
Yet there are still plenty of economists out there forecasting a seemingly endless downturn for the weakened U.S. housing and mortgage markets. Where does the truth lie?
Are things really that bad, or really that good? The answers are unclear but several new reports give definition to the many facets of the situation.
The current market suffers from an overload of inventory, and roughly 40 percent of the current supply are foreclosed homes. These homes distort the median selling price and the true value of the properties.
And those low rates are having the desired effect on mortgage applications. The Mortgage Bankers Association has reported that its weekly application index has increased during each of the past four weeks.
During the week ended March 27, the index was up 3 percent, led heavily by homeowners interested in refinancing out of the current loans. Almost 80 percent of all mortgage applications were for refinance loans.
In addition, while it is true that most of the current applications are refinance requests, home purchase applications are still being filed, especially by plenty of first-time home buyers seeking to take advantage of low interest rates and government tax incentive programs. According to the National Association of Realtors, home sales are increasing as well.
The group's pending home sale index for February rose by 2.1 percent over January, although current figures are still down over the fourth quarter of 2008. Therefore, the market state is currently as follows: homes are more affordable, interest rates are lower and there are plenty of choices for prospective buyers.
Yet unemployment remains at higher-than-normal levels, making it difficult for many to capitalize on the incredible buyers market. Job creation may have to increase significantly before the full housing correction can be made.
The housing crisis is causing a mess, because of lower home values and massive foreclosures, often blamed on the sub-prime mortgage industry. From 1996 to 1997, the origination fee charged on a loan went from 2.1 to 0.6 points.
Folks were looking for cheap refinancing and financing for houses escaping the last housing crisis. That crisis only hit values in some states and began in the early nineties.
Houses and condominiums were suddenly worth something again in those areas. Unfortunately, the timing coincided with people falling in love with the internet.
Instead of the "old fashioned" way of finding a lender, some early adopters let their fingers do the walking and used their keyboard and their mouse. Borrowers ended up with people who said they were loan officers but only pushed paper around.
Not surprisingly, loan officers did not know what they were doing. They did not know Fannie Mae, Freddie Mac, FHA, VA, and Jumbo guidelines.
When the rest of the market quickly followed with low origination fees and low cost loans, the loan officers who knew what they were doing could not get a loan if their life depended on it. The companies also had to hire loan officers who did not know anything so that they could make more profit for themselves and less for loan officers.
In the past, loan officers were commissioned employees. In other words, sales people on one hundred percent commission.
With smaller profits per loan, the only place left for them to go was sub-prime, alt-A, and borrowers who could not qualify the regular way. Alternatively, they could make less money.
These professional salespeople found they made more money. They told their friends in the mortgage industry and as the sub-prime market began to grow, and were rewarded with rich profits.
Companies in this market hired new employees that did not know anything but to be commissioned salespeople, in both the retail (direct-to-consumer) market and the wholesale (mortgage banker to sub-prime loan officer) market. In 2000-2002, the bottom fell out of the stock market and some folks who got their money out quickly decided to make more money the old-fashioned way - in real estate.
Values sharply increased and lenders were right there to snap up the financing. These money people wanted to put as little money down as possible and they wanted things to be as easy as possible.
They wanted no qualifying. Some folks saw their values increasing and took cash out to invest in real estate, too.
In this way, the housing market took its great dive. If you are careful and play your cards right, you don't have to be a victim of this tragedy.
by: Jack Landry
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