As you are aware, the upheaval in the Mortgage Lending industry has necessitated a change of strategy throughout the entire Real Estate Industry.
The prior dynamic within the industry was that the professional attached to the client or property was the "hub of the wheel", so to speak, and all other individuals were, while necessary, incidental.
That still remains true to a degree, but with one major change. The new Real Estate Industry MUST put the mortgage financing process at the center of the wheel, or, alternatively, as step one in the process. Any time a prospect approaches a Realtor or Builder for a home-buying transaction, the first statement needs to be, "You need to get qualified with a Lender with whom I am acquainted. I'm not saying you have to use my lender, but in the present market you need to be verifiably pre-qualified before we go any further." The response you get to this statement will quickly tell you how serious the prospect is. Because of the increased chance of fallout on Home Purchase transactions, I advise that you spend the majority of your time with clients who are pre-qualified with a lender whom you know and trust. Put the others into an incubation system for later business down the road.
According to a national survey of mortgage brokers released at the end of August, approximately 33% of contracted purchase transactions scheduled in August did not close. Again, a 33% failure rate in August on purchase transactions! This was due to a failure in ability to put together financing for the prospective buyer. This is HUGE!
However, it is easily avoidable. The first step, again, is to require that your buyer prospects get pre-qualified, up front, with a lender whom you trust. The second step is to NOT fall into the trap of continuing working through the purchase process with those who are not, or will not pre-qualify with your lender.
There is another aspect that is central to your success in this new business model. The current hype naturally creates fear and uncertainty for the uninformed. As part of any initial consultation, you must be able to convey the reality of the situation, backed by accurate statistics, and when possible, convey why now is a time for people to buy. This can be done in any market. In a down market geographic, odds are foreclosures are up, allowing buyers to obtain properties for pennies on the dollar. In stable or improving markets, (yes, they are out there still,) now is the time to buy because we WILL come out of this lackluster market and home prices will escalate once again, so buying low is key to financial success for the Buyer.
I am noticing a disturbing trend lately. Too many professionals seem to be a little gun-shy of late, as if concerned with making a mistake. Let me be clear - it's one thing to make a mistake; it's an entirely different matter to commit fraud. Let me give an example: I recently dealt with an appraiser who, because there were not enough comps in the subject neighborhood, went to a nearby, yet inferior neighborhood for additional comps. He came back with an inaccurate appraisal that eventually killed the deal because he placed more weight on the inferior comps. He simply wanted to take a very conservative approach because he really did not understand the micro-local market. (I say this because I happen to live in the subject neighborhood and know well the values of properties.) My point is this - appraisers, like all of us in the Industry, happen to be under the gun lately. Fear is not the way to react.
By getting on top of the Real Estate Industry, as opposed to getting mired in the conventional hype, seeing what's really there and the opportunities within, and then being able to calmly, professionally, and accurately convey the real assessment of the situation to your prospects, you will instill confidence in them. They will be more apt to move forward properly and you will have established yourself as a beacon of reason in a world otherwise filled with reactionary, knee-jerk oriented individuals, and you will come rolling through this new real estate market with great momentum.
Recently, the August Report of the Case-Shiller S&P Housing Survey stated that housing prices, nationally, declined at an annual rate of 3.2%. What the local headlines in the Denver Area missed is that Denver is now in its third month of appreciation. Denver is poised to move into one of the top spots of twenty metro areas tracked in the report.
So, what is happening with rates? Conventional rates are actually doing OK. They are staying steady in the low to mid sixes without much fluctuation. I will come back to this when I discuss Treasury movements. Nonconforming products continue to take a beating with rates in the upper sevens. I expect Nonconforming rates to continue to stay high until the market gets its head on straight. Having said this, some investors are beginning to segment the nonconforming market to reward good borrowers.
Mortgage (Treasury) rates recently dropped recently to a point where, in my opinion, the bonds that are supporting those rates are now overbought. If my inclination is correct, compounded by my instinct that the Fed will lower the prime rate next week, I think mortgage rates will soon start to increase. So, if you are considering buying or refinancing, I recommend a "sooner rather than later" plan of attack.
Because the music has stopped in many pockets nationally, many areas are seeing real decline. This is, in my opinion, only going to get worse, as many borrowers in the wrong mortgage product will a) not be able to continue making their payments, leading to b) have to vacate a property creating a glut of additional homes on the market. This will serve to drive prices down further.
And, it gets worse. As this happens, economies will slow down and the nation could move into a recessionary period where jobs and incomes will be reduced. You can see where this is going.
However, locally, I continue to see good things on the horizon. Denver has a good, growing jobs market; housing prices are reasonable, especially compared nationally; foreclosure rates are declining compared nationally; housing inventories are declining; and new housing starts are down substantially. This all creates a lower supply side on an economic scale and, with a stable to increasing demand side, housing prices should go up.
There are four actions possible for current home-owners: Do nothing, Sell, Refinance, or Convert the Current Residence to an Investment.
Do Nothing: This is for those individuals who are either happy and content in their present situation and don't want to take any chances, or those who are so caught in the current perceived uncertainty of the real estate market that they simply aren't equipped to make a decision. (I mean absolutely no slight at the latter; it's simply a truth that some people don't really know what's going on and don't have the information to equip them to make a decision.)
Sell: Lots of people can fit into this category, but I'll break them down into two general groups - those who see opportunity and want to grab it, and those who simply have no choice but to liquidate the current holding.
Refinance: This group also falls into two basic camps - those with equity in a property and see a benefit to repositioning that equity, and those who are currently in unfavorable financing terms with the ability and inclination to take advantage of better financing terms.
Investors: This group is who I'll call the opportunists. They see a value in holding the current residence because they can either make money renting it, or they foresee the value of the property increasing in the future and are so confident that they want to leverage their position by getting into another property where the same will happen. (Or, perhaps they might have otherwise been a seller, but just see the value in holding real estate as a strong suit in their overall investment portfolio.)
So, what to do?
The mortgage market currently requires that you come to the table with a fairly strong hand - good credit, financial reserves, good future income potential, etc. If you fall into this category (and if you're unsure, consult a trusted mortgage professional for some guidance), now may be a great time to consider a buy and hold strategy.
I am often asked about the fix and flip market. In my opinion, now is probably not the best time for most to try their hand at this. If you're asking if now is the time for fix/flip, you probably are not well-versed in this market niche and there is a big learning curve. And, for the inexperienced, there is enough uncertainty so that your exit strategy cannot be confidently guaranteed.
But for the buy and hold purchaser, there are opportunities, whether you are in an appreciating market, or in a market that will rebound nicely due to economic longterm fundamentals, or a market where foreclosures allow you to buy a property at a substantial short-term discount.
Again, if you are considering buying or refinancing, your first step should be to consult a knowledgeable mortgage consultant. Opportunities abound! In the new real estate industry, seeking guidance from a trusted advisor is essential.
I live in Castle Rock, Colorado, on the south side of the Denver Metro Area. This article will cover both local and national (general) trends. Let me start nationally.
Over the past five or so years, most of the nation has seen rapid increases in real estate values. I won't go into the "why" of all that, it just is a fact... for most places. However, recently, just about anyone who's watched the News, been on the Internet, or read a Newspaper, knows that the party is over.
The most recent Case-Shiller S&P Housing Index Survey (from August) indicated that housing values are down nationally by, (I'm going from memory here,) 3.2%. So, this is bad, right? Well, I guess it depends on how you look at it and how you react.
I was talking recently with a professional acquaintance who told me someone on her team had recently lost a relocation client because housing values had started to decline in the market where his current home is located. This is kind of like someone saying, "I'm on the Titanic, we just hit an iceberg, the ship is starting to go down, so I think I'll stay on board." Professionals in our industry MUST react calmly to such situations and be able to explain the reality of the situation to the client.
I personally think now is a great time for the relocation market in most pockets in the country. If housing prices are starting to decline, the play-book should read something like, "OK, you have an opportunity to get out of here. You've made twenty percent over the past five years; the market is now down 5%. Sell now before it gets worse, make 10-15% and move to a market that did not ride the wave where prices, comparatively, are more reasonable, appreciation is more likely to occur, and where jobs are good."
Conversely, in markets that did miss the boom, like my own in the Denver Area, the inbound script is more like, "We did not participate in the nationwide frenzy; housing prices in our area are now in line with, and even a bit below the current national average; our jobs market is growing; housing inventories are declining (indicating a future appreciating market); and we are actually now three months into a housing appreciation cycle."
What I'm driving at, for industry professionals, is to see the opportunities and don't fall into the current media-hype that is inappropriately scaring the wax out of consumers. Fear breeds inaction. Confidence, which you can instill, will enhance your professional standing and, more important, create value to your clients.
Now... a word for home-owners: Because interest rates have dropped, there is a segment of the population where the current housing situation creates great opportunities. They're everywhere! In down markets, there are a higher number of foreclosures. In markets that did not participate in the rapid appreciation of the past five years, there is a higher chance of housing appreciation over the next five to seven years. Now is a time to leverage equity from a current home, liquidate the home, and buy up in a market that is currently favorable.
I love the position of the Denver Area market especially. In my opinion, because of a wide variety of economic fundamentals, the Denver Area will be a great place to buy real estate for the next six to twelve months because we are on the very front-end of what I foresee as a five to seven year appreciation cycle. I will go so far as to say that housing in my area should appreciate by 20-25% over the next five to seven years. When you combine that type of increase with a 10% down-payment, the return on investment would be somewhere around 100-150%. In other words, an investment of $50K would be worth $100-150K.
The current market is not only creating opportunities for housing sales and purchases, it is also creating opportunities because of favorable interest rates. See the "glass half full" side of the equation and you will be able to capitalize on real opportunities that the "panic-driven" will miss.
We've been hearing a lot lately about a "meltdown" in the mortgage industry. First, this is a media-hyped gross exaggeration of what's really going on. The best thing to do is remain calm and get professional advice from somebody you know and trust, who is really equipped to explain the situation.
Let me explain how all this works, then what I foresee as happening in the future.
First, the life-cycle of a mortgage loan:
A customer decides s/he needs a loan. The loan is prepared by a loan originator. That loan is underwritten by an investor (the bank.) The loan closes and is funded by that bank. Now, the bank holds the debt. The bank then packages that loan, along with a bundle of other loans recently closed and goes to Wall Street (generally) to sell that bundle. The Street buys it and resells it to other interests... say, a foreign country, an insurance company, etc. Those entities then basically sell it back to investors (could even be you or me.) That's how the process works.
The problem:
Because the banks became so lax in underwriting standards that recently, when the music finally stopped, Wall Street decided not to buy any more nonconforming bundles. THAT is what left the investor/bank with a lot of debt, unable to sell, with all cash now tied up, and created what we hear as "the liquidity crunch."
Solutions:
First, you need to understand the difference between conforming and nonconforming loans. Let me oversimplify. Conforming is, first, a loan of $417K or less. It is also one where the borrower has good credit, verifiable repayment capacity, assets, down-payment (or equity)... a fully documentable transaction. EVERYTHING else, generically, is nonconforming. This includes Stated Income, Subprime, Jumbo (anything greater than $417K), 2nd mortgages, etc. Obviously, this nonconforming thing is a big chunk of the market.
With that, I think the market will soon react by learning how to properly segment nonconforming products. As a case in point - Jumbo loans are typically given to fairly well-to-do borrowers who have good income, assets, etc. Right now, those loans still get jumbled in with all the other "higher risk" loans. This doesn't seem right. In fact, I would almost think that fully documented Jumbo loans are perhaps even a better market investment than many conforming loans. I think we will see a breakout in jumbo pricing for those good borrowers. The market just has to figure out how to package and resell it. Some banks/investors are already showing signs of figuring this one out.
The next issue is interest rates. Recently, interest rates on conforming loans have been going down. This is because of the uncertainty in the economy and how it has affected Wall Street investment. Wall Street Equities and the Bond Markets compete for the same dollar. As money moves away from equities and into bonds, interest rates on mortgages tend to go down. The opposite is also true. The other thing that will affect mortgage interest rates is the direction of the Fed Prime lending rate. This one is not as easy to understand. Currently, the market is anticipating a drop in the Fed Prime next week. If this happens, it will send a comforting message to the Equities market and money will most likely want to move there... from bonds. In this case, this would mean upward pressure on mortgage rates.
So, there you have it. To learn more about how all this may affect you, either as a consumer, or as a professional in the industry, please check out my other recent blogs or contact me.
We all need to understand the reality of this statement.
In the real estate market, the mortgage part of the industry is of vital importance. And the mortgage world has changed recently in a way that is rewriting the rules of the entire industry.
Let me start by saying that the core essentials required in the real estate industry now are absolute professionalism and decisiveness. In my blog about the Law of Attraction, I touched on loyalty, fear, and uncertainty. Those character traits will be the kiss of death in the new Real Estate Industry.
In this new world, there are a few preeminent keys to success. The foundational key is knowledge. Knowledge of the ins-and-outs of the marketplace sets the stage for everything else.
Following from knowledge is the key of having a solid, fact-based opinion. The marketplace, and the average consumer, is filled with uncertainty and requires guidance. You don't want to do the "well, what do you think?" thing. In this new industry, you need to be authoritative and have a professional opinion that provides clear direction.
The third key is recognize the need to incubate clients and understand that the incubation process may take six to twelve to eighteen months to culminate in a transaction. This also requires commitment, follow-through, and systemization.
Next, to earn the loyalty of that prospect, you must provide value on an ongoing basis. This is NOT just sending postcards or newsletters, but is a process of getting to know the prospect on a personal basis and offering items/services that speak directly to their individual wants or needs.
And finally, you simply have to get the result! It is not about price. It is a final grade where the culmination is a "Wow!" experience from the client's point of view.
Despite all the loud voices, the industry is not about lowest costs, cheapest price, etc. It is, instead, about the best bang for the buck. If your compensation is not the lowest in the area, but your services are the best to be found, you will a) obtain the kind of clients you want, and b) avoid the kind of clients who don't appreciate the value of what you bring to the table. (There are enough people in the industry who work from the transactional mindset of cheap price that those clients will find someone else. And those agents are worth what they get paid.)
Now, there are many other keys to success - professional attire, good business planning, etc., but by now those should be basic carry-overs from the old Real Estate Industry.
Yes, The New Real Estate Industry is three months old. You need to jump in quickly and decisively and gain mastery of the new skills required, or, I assure you, you will get left behind.
The market is panicking; home values are declining; stocks are plummeting... how can this be a great time to buy?
The simple adage, buy low, sell high, is an economic basic. We've seen how high high has gone in recent months, days, or years, depending upon what investment you're looking at, whether it's been oil, stocks, bonds, or real estate. For purposes of this article, I'm talking about real estate.
In some sectors, real estate has begun to take a pounding (and rightfully so); in others the market has merely softened; and almost nowhere has real estate continued to move up unscathed by recent events. I'll call this last scenario "santa claus" because I just don't think many of us have seen the real thing.
In areas where the housing market as imploded, my word is this - foreclosures! You've already seen them and there will continue to be more, so get ready for the opportunity to purchase for pennies on the dollar. Be careful, there can be some real lemons however.
In markets such as my own in Denver and Douglas County Colorado, the housing market has just been a bit soft. This is, as far as I can tell, an ideal situation. There isn't an air of panic that is forcing prices into a deflationary cycle, but there are good deals to be had. Especially in the Denver area, I also see how, by sitting on the sidelines while the rest of the country was going real estate nuts, we will now be the beneficiaries of appreciation while the majority of the country licks its wounds. Soft but not clobbered markets will, in my opinion, see the best appreciation in upcoming years. Now is the time to get in on a ground floor.
Whatever you do, please do not try to "time" the market, or interest rates, or anything else. For goodness sakes, if you're thinking that that's what you want to do, all I can say is, "Haven't you learned anything over the last eight years?" As my Dad says, "Pigs get fat, hogs get slaughtered." Be happy with "almost" timing it perfectly. Otherwise, one of these days, you'll be telling "fish" stories about how you almost hit it big way back when.
If you are considering buying in or moving to the Denver Metro area, I encourage you to contact me as one who will serve and assist you professionally in these tricky times.
We are so used to the terms "Seller's Market" and "Buyer's Market" that we forget there is a point in time where there is equilibrium. I like the Denver Metro housing market right now because I think we are on the very cusp of what I'll call a long-term equilibrium. Let me explain -
Currently, compared nationally, the Denver home real estate market is very reasonably priced. Homes are neither cheap, nor are they over-valued. Many factors go into this, but the thing to remember is that the Denver area did not participate in the sky-rocketing home appreciation market of the past five years that most of the rest of the country experienced. And, likewise, Denver is not participating in the hangover to the degree that the majority of the country is now experiencing, either. The fundamentals in Denver are very sound and some of you have already read previous statistics I have used regarding employment, appreciation, job-growth, income levels, etc., so I'll not bore you with it again.
For those who are considering selling - now is a great time to sell - with one caveat: get real about pricing! We are not in a seller's market and if you overprice, not only will your house sit and sit and sit, but you will eventually be forced to lower the price and then you will set yourself up for a negotiating nightmare. So - set a realistic price and sell sooner. Also, with the instability of the mortgage market right now, if you turn your nose up at a reasonable offer (thinking you can get more) from a well-qualified buyer, you may pay a hefty price by not accepting it. 98% of something is far better than 100% of nothing. By the way, one admonition - if you are in the Denver metro market and seeking to sell, please contact me for a referral for a competent real estate professional to represent you. You will not be best-served in most cases by trying to sell it yourself, nor using the services of a discount broker. We are in a time where you either play with the big dogs, or stay on the porch. I know that's blunt, and maybe a bit crass, but as a knowledgeable professional, I'm less concerned about hurting sensitivities at the expense of not telling you what you need to know for your best interests. Long and short - work with a professional!
Now - if you are a buyer (or a seller who will then buy), you also need to be realistic. This is not a buyer's market. You cannot expect to go in and low-ball, or expect a lot of seller concessions. The home sellers who are professionally counseled already are priced right. If you play games, especially with the mortgage market the way it is, you may wait yourself right out of contention. This is not a time for gamesmanship. It is a time for people to act with purpose and intelligence!
Continuing with the market equilibrium - I foresee the Denver area housing market as averaging 3-5% annual growth for the next 5-7 years. This will probably start off a bit slow (and has actually already begun) and will pick up some steam within a couple of years. You might be thinking, "How can appreciation mean equilibrium?" The answer is that 3-5% growth is very responsible in much the same way as inflation under 2% (but inflation nonetheless) is a good thing. Over seven years, 3% annual appreciation means an increased home investment value of 23%. And, if you put down 10% on a home (which can still be done), you will triple your cash investment. Not a bad deal!
Whether you are buying, selling, or moving into the Denver market, I encourage you to contact me as one who can provide a guiding hand during these turbulent times. You need knowledgeable, expert advice and I am in a position to provide for your real estate needs.
Wow!! Every day seems to be more exciting than the last. Just today (8/16). The headlines warned that Countrywide could end up in bankruptcy (I don't necessarily subscribe to that), and even the institutions Fannie Mae and Freddie Mac could have solvency issues. What is important about this is not that it could happen (I just don't think it will), but that it's being bandied about. This kind of talk creates panic and, as a result, markets overreact, creating more panic.
What opportunities this creates! It's actually very exciting in a good way.
So, what is happening with rates? Conventional rates are actually doing OK. They are staying steady in the mid sixes without much fluctuation. I will come back to this when I discuss Treasury movements. Nonconforming products continue to take a beating with rates in the upper sevens. I expect Nonconforming rates to continue to stay high until the market gets its head on straight.
Now - Treasuries: This is where you really need to pay attention if you are a real estate industry professional or a consumer. If ANY lender talks to you about rates and associates it with Treasuries, run away as fast as you can. You are obviously talking to someone who has no business being in this business. And, I'll say this bluntly; if they go so far as to say Treasury "Bonds", just go ahead and push them off a cliff please. Why is this clarification so important? Connecting mortgage rates to Treasuries is like someone asking, "How is Yahoo stock doing?" and getting an answer back of, "Well, Google is up 3%." They both offer online search engines, but they are, in fact, two different companies and will not always move in tandem with each other. Get it? In mortgages, Mortgage-backed securities is where rates are determined; NOT in the Treasury Markets.
Why am I ranting about this? Right now, as I write, evidence that the two are not the same is evident. Today, Treasuries are up currently over 100 basis points while mortgage-backed securities are actually down 6 basis points. What I am really driving at is that conventional rates are staying steady because there has not been a lot of movement in mortgage-backed securities, and if someone is giving advice based on tracking the Treasuries, they are not only misinformed, they are misleading the person they are counseling by creating a belief that rates should be improving.
I don't expect you to know every aspect of the mortgage market. Heck, nobody does. But it is important to know that the person who is advising you is armed with proper intelligence. A highly qualified mortgage professional is well worth what they will earn and you will be best-served by working with a knowledgeable professional as opposed to someone who has, in effect, a .22 caliber intellect walking around in a twelve-gauge world.
There's a Rudyard Kipling poem that starts, "If you can keep your head when all around you are losing theirs... and blaming you...."
That seems to be the current state of the Real Estate market. A lot of people are panicking and it can be seen almost daily in the Stock Exchange/Equities markets. But here's the thing that consistently seems to separate the successful person from the rest of the crowd - the ability to keep a cool head and to see things for what they really are. I hear a lot about how "quiet" it's gotten lately in the marketplace. This is a sign of opportunity because it means the typical consumer is currently experiencing a bit of a "deer in the headlights" syndrome. What these folks need is the calm, experienced guidance of a professional, and those of us who can lead RIGHT NOW are the ones who are currently in a state of knowing calmness.
So, how does this relate to the real estate industry? - In my opinion, this is not a time for panic but for opportunity. (Panic is an emotional state that will keep someone from seeing clearly.) As I see it, we are on the front-end of what I'll call reality. Here's what I mean - the past several years in our industry have been marked by sky-rocketing real estate values and very liberal home mortgage loan practices. That might have been "reality" but it certainly isn't realistic. The corrections now taking place in both of those sectors are a return to real "reality" and those of us who see it know what opportunity there is.
Here's the meat - I will use my local market in the Denver and Douglas County Colorado area as an example. Home prices are slightly soft; there are an elevated level of foreclosures; listing inventories are slowly declining; and the national market is bumpy. So, if you are a Listing Agent, and calm, cool, and professional, you can explain to your sellers why now is the opportune time to list at a realistic price. The client will get the sale; they will, in some form or another, improve their present situation; and they will set the stage for their next acquisition or otherwise prudent move.
If you are representing a Buyer, the very same advice holds true. Gone are the days in Denver where there are lots of selling concessions, deeply discounted prices, etc. So, home buyers must be given the lesson in reality as well. From a buy side, the Denver market is absolutely poised on the cusp of an appreciation cycle and this will benefit home-owners.
What I have left out of this article is the need for a command of local market facts and statistics. As a professional, you must first have absolute command of your facts and only then will you be able to develop a professional opinion based upon those facts. This is not the time to "dabble" for anyone who seeks a profession anywhere within the Real Estate Industry. You will need to commit to a high degree of professional expertise, or, quite simply, get out of the way. I am not saying this to be hard; I am saying it because, especially in times like this, the marketplace will demand it or will crush you otherwise.
Seek to be the best! Know the facts, keep your head, provide a credible opinion, be a person of action, and move with purpose!
Greg Polashock specializes in providing home Financing Solutions for move-up home buyers in Castle Rock and Lone Tree in Douglas County Colorado. Greg also consults with and for a variety of industry-related professions including Realtors®, Financial Planners, Accountants, Attorneys, Builders and Insurance Professionals.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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