For me the following table sheds light on why the housing market is so soft today. Real Estate prices are related to Supply and Demand. The number of homes available for sale is still present, however the number of buyers that can qualify has decreased for the reasons shown in this table.
Factor |
The Housing Boom Years |
The Market Today (2009) |
Down Payment | During the Sales Price Boom, Many programs offered 100% Financing and even when a down payment was needed there were creative sources to obtain or create the illusion of a down payment. (Ameridream ,Nehemiah and others)
|
Today, most of the 100% options have gone away. Also, the programs like Ameridream ,Nehemiah and others have gone away.
|
Types of Buyers |
During these years, the market was ripe for first time buyers as well as buyers that were upgrading their homes.
|
Today, most of the home sales are for first time buyers, the upgrading buyers are concerned about the sale of their current home and in many cases they owe more than the balance of their loans.
|
Lenders use of Credit Scores |
During these years, many programs either did not use credit scores or underwriters accepted letters from consumers to justify the approval of a loan.
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Today, many lenders have credit scores minimums that are cast in stone. Having been in the industry for years, I believe credit scores should only be a tool and not the rule. I have seen people with acceptable credit scores that in my mind have not earned the right to obtain a loan and others that have credit scores below the minimum that are more deserving of a loan.
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Appraisals
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Because home prices were rising, lenders and appraisers had little problem obtaining the values needed to make loans work. There were also some cases where lenders only used appraisers that inflated the values on the homes they appraised and underwriters accepted those appraisals.
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Because of all of these factors the number of homes being sold have decreased giving the appraisers fewer comparables to use. Also, because a lot of the homes being sold are distressed sales the sales prices are lower. Finally because of abuses in the past, underwriters are double and triple checking the appraisers work. Also, rules have been put into place that limit lenders and loan officers from picking appraisers. |
Employment | Employment was stronger than it was today and some buyers used overtime to qualify. Borrowers that had histories of changing jobs was acceptable because employment was stronger. |
Today, some underwriters look at overtime and borrowers that have histories of changing jobs or short employment periods with a cautious eye.
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Consumer Confidence |
Confidence in employment, the economy and rising home values was strong.
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Today, consumers are not confident that a home they buy today will not drop. They are also not confident that they will be able to afford the mortgage payment. Because of this and they already have a place to live, so they are waiting.
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General Mindset |
In the past loans were looked at with the mindset of how can we approve this loan.
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Today, the mindset is why shouldn't we approve this loan.
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Does this table show why we are now dealing with the weaker housing market? I believe each of these items contribute to the total. Share your ideas on what can be done to turn the trend around.
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