Inundated by a constant barrage of bad news over the past 12-18 months, the average consumer has really taken it on the chin. With soaring gas prices, rising unemployment, and price declines in the average consumer's largest investment, their primary residence, it has certainly been a rough ride. The cherry on top for the consumer's pain is the significant reduction in availability of consumer debt - whether for a house, car, or credit card for everyday purchases. Just when the consumer needs the liquidity most is when it has become least available.
However, as painful as navigating through this recessionary environment has been for most, it was necessary to force people to reset their expectations and rely less on leverage, and live more within their means. The days of easy money (from consumer debt) made it all too easy for the average consumer to extend themselves well beyond what was reasonable or even responsible. Sure, pain at the pump hurts, but for those who have lived at or below their means and managed a tight household budget, the extra money that now needs to be allocated for fuel costs should be generally manageable.
Most of the customers we are working with now are either all cash, or nearly all cash. They generally feel fully insulated from the current economic environment, and they can fully afford the significant investment they are about to make in a luxury custom home or million dollar home - and rightfully so. I certainly would not advocate that you have to pay all cash for a residence to afford it, but resetting the capital market to more manageable financing structures that requires real cash downpayments and payments that are affordable over the term of the note makes a lot of sense.
Certainly, the mortgage industry will always be critical to the health of housing, and here's to hoping that all in the industry do their part to help consumer's understand what they can afford, and put them in financing structures that support that affordability. Such discipline from all parties to the transaction will help prevent future speculative bubbles and be better for all in the industry over the long term.
Comments(1)