Some very positive signs for 2008
By Michael Mapes, The Responsible Mortgage Lender.Com
There have been some very interesting developments that I'd like to share. These developments have given us some very positive news as well as some clearer signals about how the mortgage market and housing market will look in 2008. I want to leave you with two very important points
- There are some very important signs in the capital markets that the liquidity is returning for "prime" mortgage loans and bonds.
- These positive trends in capital markets liquidity are being muted by continued concerns over the housing market, the broader economy, and the concerns over the soundness of the financial system - we should not assume the worst is over.
Capital Markets Liquidity
Over the past several weeks, we have seen very encouraging signs that capital markets liquidity is returning. Prime quality loans and bonds are now trading with much greater regularity than during the August and September spreads. Currently about half of the widening that took place has been regained.
I'd like to reiterate that the market is looking for Prime quality loans right now, however there is limited interest in Alt A loans and even less for Sub Prime Quality loans. However, the fact that investors are buying these types of loans at all is a very encouraging sign. The reason for this is that the investors that are currently buying Alt A and sub prime are very knowledgeable and have a much deeper understanding of mortgage loans and the risk associated with them. This should be viewed as extremely encouraging for everyone.
One last point that I would like to make is that since the steep decline in the Jumbo volume is happening across the country and continues regardless of price or tightening we need to look for the cause of this. The most likely cause of this is the "media effect". The overall health of the real estate market is the single most important factor affecting the outlook of mortgages and the capital markets affecting 2008.
Supply and Demand
While it appears that the sting of the liquidity crisis is past us and is losing strength, it is giving way to the longer term realities. That is that the housing market will have a much bigger and longer term impact on our industry. The feed back loops between reduced capital liquidity, tighter lending standards, declining home prices, increasing defaults and the inevitable stresses to the economy as a whole are fueling a storm that will likely lead to the largest housing market correction since the Great Depression. Conversely this will be one of the biggest challenges to our financial system has had to endure in many years.
Defaults
The credit performance of the 2006 Alt A loans and sub-prime loans continues to be miserable. 2007 sub prime and Alt A loans are actually performing much worse than 2006. The rate of delinquency is much faster and with greater regularity than any one thought possible.
The story is housing as a whole is one of increasing supply with a decrease in demand. This factor alone is and will continue to drive prices down. While housing starts and new permits are declining-which helps lessen the supply, sales of new and existing homes continues to decline which results in a build of supply.
Excess supply combined with falling demand means more home price declines, higher defaults and greater losses are still to come. Estimate right now are that home prices between now and 2009 are for a 10-15% decline.
While I do not want to leave you with doom and gloom that parts of this article suggests. There are tremendous opportunities in the market place, interest rates are very favorable for a good housing market and new and creative uses for prime products are being introduced every day. With that said it is a great time to buy and sell a home contact your local realtor today.
Michael Mapes can be reached at 757.599.1810 ext 225 or on the web at http://www.theresponsiblemortgagelender.com/
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