It seems like every day someone comes up and asks, "how long is this real estate downturn going to last?". This is a good questions, and none of us has the crystal ball to forecast the future, but some of the experts are giving us some ideas on where they see the market going.
A few weeks ago, one of the officers of the Mortgage Bankers Association at a conference in Denver, CO put some current conditions in perspective. And, to fully understand where we are today, we need to look at history, especially in the past few years. And, to most that read this, this is not news, as you have seen this current condition develope over the past few years.
In the 2004 to 2006 time frame, real estate values started going up rapidly, especially in fast growth areas like California, Arizona, Nevada, Florida, and parts of Texas. With the availability of financing, new home construction booms were commonplace, and within a short period of time, the new home inventory started drawing buyers from older homes, and almost overnight the used home prices started going up. The available equity cash to existing homeowners made buying a new home much easier, and the "boom" took off. Concurrent with this home-buying rush, financing of all sorts was made available to buyers that in more traditional times would have been marginal qualifiers for a home loan. And, with the amount of money available, lenders brought a whole menu of loans to buyers, including the adjustable rate mortgages, whereby after a short period of time the amount of the monthly loan payment would increase. The ARM's became very popular, for they not only allowed marginal buyers to buy a home but they also allowed the buyers to keep their payments low so that they could continue to buy other things to maintain their accustomed to life style. These ARM's were usually set up for an initial 3 year or 5 year term, whereby the initial payment would remain the same for a 3 or 5 year period then increase to a higher payment level. The justification for this was that the buyers home would continue to increase in value, so the home would be worth more on the open market in the coming years than it was at this point thus justifying the higher payments. The lenders tried to make this concept clear and understood to all involved, so this is not a "blame someone" situation.
Well, 3 years later these adjustable payments started going up, and shock set in for many. Complicating this entire national picture came the downtown in the economy, which was impacted by the huge number of new homes built nationally that, all of a sudden, were not selling. The housing market directly and indirectly impacts so many related industries that the slowdown in housing started a ripple effect. As mortgage payments went up, jobs started being lost, and a "double whammy" set in....a higher payment and a job loss. This was a formula for disaster, and this is exactly what has happened.
Now, we are being told that the peak of this increase in the number of 3 year ARMS that will call for payment increases will come in the fall of 2010. This is to say that between now and next fall, we will continue to see an increase in both short sales and foreclosures that are affected by the above, and then in the next few years following next fall we will see the 5 year ARM adjustments kick in. Not a good picture. Right now we have a huge inventory of both short sales and REPOs...so we will probably see this number increase. With the exception of mortgage modifications by many lenders, not much can be done. This is especially concerning if the economy does not start on a growth mode and jobs are both re-instated and created. Could be a long 3 or 4 years for many.
Thanks for reading, and comments will be appreciated.
Comments(5)