Undoubtedly the demise of the stated income/subprime loan will hurt the local Las Vegas area real estate market.
Read the following:
More products have gone belly up since my post in February and the impact is becoming more clear. There are going to be winners and there are going to be losers in this market. Here are my lists:
The Losers:
- Sellers who have no equity because values are declining with the growing short sale and foreclosure market. Competition to reduce prices is ongoing because banks need to reduce inventory and minimize losses. Inventory (competition) is rising daily. Jumbo (over 417K I believe) sellers will really feel pain.
- Buyers who need Jumbo, Stated, 100% or Credit Risk loans. Buyers who also bought in new construction projects (like high rises) years ago and speculated on easy money to remain at the time of their close.
- Real Estate Professionals who specialize only in the resale/new construction residential markets.
- People who bought in the last three years and who were expecting to refinance a loan. Declining values are preventing appraisals from coming in the amounts they need to refi.
- Investors who bought high, hedged on a quick flip and are experiencing severe negative cash flow
- Renters will experience a significant rise in rental rates as potential buyers are priced out of their potential purchase. Economic conditions and steady population growth point to this all the way around.
The Winners:
- Buyers who have a significant amount of cash down, fall within FHA or VA guidelines, can pay with all cash, can fit within a conforming loan
- Real Estate Professionals who have great mortgage product knowledge, realize what markets are booming and can adapt
- Investors who have capital and are prepared for a long hold
- Landlords will be able to make more money in a rental market that is under incredible amounts of pressure due to supply/demand.
Back awhile ago Tom Burris and I would hang in a mortgage forum designed for people to understand credit. I remember people coming in and wanting to wait for "prices to go down" before they buy using that 100% (sometimes stated) product. I remember giving generic advice regularly to buy if you can afford the payments. I would explain even if prices go down, you are speculating that rates are going to stay the same. I always used the example that if prices go down 10% and rates go up 1% you are paying just about the same payment.
Well, here we are and now we are seeing the prices go down (not quite 10%, YET) and we are seeing rates skyrocket for 100%, jumbos, stated, (non conforming products, etc).
Las Vegas workers & real estate will suffer. We have so many regular people in need of (and can afford) the stated product of yore: self employed and tip compliance workers ~ those people who were waiting, anticipating, speculating on lower prices ~ can no longer afford the home they have been dreaming of. Now they have to save and ride out the foreclosure/short sale storm and just wait for these products to come back ~ or ~ save money for a large down payment and adjust tip compliances and tax write offs and be patient to be able to qualify for a conforming loan on paper.
Until then, I strongly believe the winners will smile and the losers will be hurting.
This too, shall pass, let's hope quickly.
All the Best,
;)
;)
