The real estate market has changed fundamentally over the past several months, culminating in the recent landmark federal legislation - the housing law and the Federal Reserve predatory lending policies. At one time, I made the statement that anyone could buy a home as long as everyone involved was willing to make necessary concessions.
These concessions might include a seller second, seller paid closing costs, higher interest rate, and sometimes waiting for a few months.
The statement that anyone could buy a home was based on loan programs that had lowered credit requirements, documentation requirements, and equity requirements.
The larger economic impact of opening home ownership to almost everyone, regardless of qualifications was that the market heated up - increased demand brought about increased supply and increased prices.
To accomodate even more of everyone, to help everyone purchase more house and to pay for the higher prices from the heated market, specialty programs that focused on lowering payments were developed. Interest Only, Negative Amortization, Pay Option adjustable rates.
We did not leave out investors - 100% loan to value, stated income, unrestricted number of properties, unrestricted acquisition rates.
The increased buyer pool combined with diminished equity requirements and easy payments acccomplished the results that would be expected - inflated prices and increased supply.
Robert J Shiller compiled detailed data and produced a graph, below, that demonstrates to me how home values have historically increased relative to the increase in population. The statistics are cited in his book Irrational Exurberance.
With the easy money lending beginning in the late 1990's and continuing through 2006, the buyer pool was exponentially increased, much more rapidly than the increase in population. This rapid increase in the buyer pool, accomplished by removing the restraints of sound lending, produced the unsustainably inflated real estate market that is undergoing an historical correction.
To come out of this market it seems to me that we need to build back the buyer pool, but this time with sound lending practices that include credit and budget planning, and equity requirements.
Robert J Shiller's chart of home prices compared to inflation and population growth.
Notice the general home price increase in proportion to the polulation, with fluctuations from normal economic cycles and external events. Notice the extraordinary spike that corresponds perhaps to the buyer pool being artificially increased by riskier lending practices.
Will new lending trends restrict the pool of qualified buyers excessively, such that the correction goes beyond what should be predicted by the above charted values relative to the general population?
Richard Smith
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.
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Richard Smith Conventional, FHA, FHA 203k, HUD $100 down purchases, VA, Jumbo VA, Rural Development, Jumbo, FannieMae Homepath, Home Equity Line of Credit (HELOC). |
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Richard, to your last question, I would imagine so. When there is no money to lend, the everything comes to a standstill. 2010 is the magic year. So do everything you can right now to be ahead of that curve!
Bo
Bo,
You did well to understand that last question. Reading it over, I am not sure I understand it.
Maybe it warrants a rewrite after church. :)
Richard