Technorati Tags: Mortgages, Big Questions
Author: Tom Vanderwell (page 2 of 8)
Mortgage Officer
Okay, a couple of things that this chart assumes:
- That from 1975 to 1999 was “normal” enough to indicate a statistical trend. I think the case could be made that it was.
- That we’re going to eventually get back to that trend line. I think a case could be made that we will.
- If both of those assumptions are indeed correct, then we’re heading into a scenario where we have quite an adjustment to go through in terms of a drop in peak housing values until we are back into range with that statistical trend.
What do you think? Tell me why you think he’s wrong……
Tom Vanderwell
Values Have Dropped Only 25% of the Fall Needed to Reach Trend «
PRICE TRENDS / WAR OF THE WORLDS (Part 4): Property owners nationwide have lost only one dollar for every four dollars they can ultimately expect to lose on their home.
The good news according to the leading data series issued by the United States government is that prices have only fallen 6 percent. If you are a homeowner, you are wealthier than you knew. The bad news is you still have three dollars to lose for every one dollar which has already been lost.
The total projected fall from the Federal Housing Finance Agency (FHFA) “All Transactions Index”, which begins in 1975, shows a peak-to-trend fall of 27%. Since prices are 6% lower by this measure, prices must still fall an additional 23% from today for prices to revert to trend.
The assumption built into these estimates is that prices in the years 1975 to 1999 advanced at a typical rate. A trend line was generated to the present based upon that 25-year period. The chart depicts the divergence of the trend established from 1975 to 1999 and the actual prices recorded from 2000 to 2009.
The FHFA prediction of a total fall of 27% is far less than the total fall of between 49% to 60% predicted by Case-Shiller. Based upon the four data sets reviewed in the last few weeks (see summary below), we can estimate a total fall of between 27% to 60% from the bubble top to Read more
Time to take a look at the second installment in the 7 things series. If you recall, last time, we looked at the fact that, in a rapidly changing market like we are, 6 months ago is ancient history. What someone paid 6 months ago…… Well, just read about that at 7 Things – Part 1.
So what’s Part 2 about? Here’s what I wrote last time:
2. Don’t worry so much about what you paid for your house. Instead, look at the difference between what you can expect to sell your house for and what it’s going to cost you to buy the new one that you want. I expect you’ll find that those are much more important numbers (unless you end up without any equity, in which case you don’t sell).
There are a couple of things that I think still hold true and one big thing that I think doesn’t hold true any more. First the things that hold true:
- If you are selling one home to buy another, the most important number is not what you paid for the existing home, the most important number is the difference between the two homes. If the value of your home has fallen by $40,000 but you’re in a situation where you can buy a newer home with less maintenance and 1000 square foot bigger for a “net” difference of $20,000, then it might very well be a good deal.
- If your family situation has changed (i.e. – We got married and are expecting our second set of twins in the last 2 years! – Yikes!) then what you paid for your house doesn’t matter. I’ve got a client who is negotiating on a house where the seller has to sell within the next three weeks but they are “hung up” on what they paid for the house. If you need to do something, don’t worry about what you paid for your house, just focus on what the financial and logistical aspects and make the move. I’m working with Read more
I had coffee yesterday with a long time friend of mine who works for a local title company. We were talking about a variety of things, including some of the new stuff I’m working on on the web.
The topic came around to the $8,000 First Time Home Buyer Tax Credit. He said to me that he’s had 3 different Realtors tell him that on December 1, the value of all of their listings is going to drop by $8,000 each.
Let me say that again, on December 1, each of the houses that they have listed is going to drop in value by $8,000. Why’s that? Because the first time buyer credit is going away.
Now let’s look at a couple of things (according to this story):
- It’s called a FIRST TIME HOME BUYER tax credit.
- According to these Realtors, it has inflated (or kept up) the prices of homes by $8,000. So does the buyer benefit or does the seller?
- Somewhere less than 50% (according to the last stats I’ve heard) of the buyers qualify for the tax credit.
- But 100% of the buyers are paying paying $8,000 more.
- And the government is paying $43,000 for every additional sale we’re getting.
Now, do you really think that it’s such a good idea any more?
Oh, and in reality, the prices of the homes aren’t going to wait until December 1 to drop. Realistically, if you haven’t signed a purchase agreement by Halloween, it’s going to be very difficult (but not impossible) to get the deal closed by the end of November.
All is not as simple as it seems.
Tom Vanderwell
Technorati Tags: $8, 000, First Time Home Buyer Tax Credit
Approximately a month ago, I was getting a client approved for a mortgage with mortgage insurance and while going over the details of what we needed to document the deal, the customer deadpanned to me, “Where do I go to get the bloodwork done?” My response, “Nah, we don’t need that —- yet.”
The report below is actually from England but it now appears that the government is going to start requiring mortgage lenders in England to ask questions about how much their borrowers spend on tobacco and alcohol.
Now, if you ask me, I think that tighter restrictions in terms of downpayments, debt to income ratios, credit scores, job histories, cash reserves, etc. all make sense. But whether my neighbor spends more or less on alcohol than I do, I can’t see what substantive difference that makes in our ability to repay our mortgages. (Hint – I’m not the one who spends more on alcohol.)
The pendulum is swinging too far in the other direction in some areas and not far enough in others.
Tom Vanderwell
Homebuyers face questions on alcohol and smoking under new mortgage rules – Times Online
Homebuyers could be forced to provide detailed information about the amount of money they spend on alcohol each month to qualify for a new mortgage under a new clampdown on reckless lending.
In a sweeping review of the mortgage market published today, the Financial Services Authority (FSA) said lenders needed to be far more rigorous about their financial checks of potential borrowers.
It said lenders should delve deeper into homebuyers’ personal spending including the amount they spend on alcohol and tobacco.
Spending on shoes, clothes and childcare could also be assessed under a new, industry-wide “affordability test”.
At present, the FSA does not prescribe rules about assessing a consumers’ ability to repay a mortgage and practices vary from one lender to the next.
Technorati Tags: Mortgages, Alcohol use
Here’s what I wrote about item #1 on the list last time:
6 months ago is ancient history. What your neighbor sold his house for 6 months ago doesn’t matter. What the seller was asking for the house 6 months ago doesn’t matter. What matters is what the market will support today.
So, how are things the same and how are they different? A couple of things that need to be discussed:
How are things the same?
- What happened 6 months ago is still ancient history. Since I wrote the first piece, Fannie, Freddie and FHA have tightened up their appraisal guidelines and they will no longer allow an appraiser to use a sale that is more than 90 days old unless they have no other comparables and can write a 5 page essay of why they need to use that one.
- I can’t tell you how many times over the last 12 months, I’ve heard people say, “3 years ago, the seller bought the house for $100,000 more than what I’m paying the bank for it. I’m getting an awesome deal!” My first response is, “Maybe.” Maybe you are getting a deal. But maybe the seller bought it at the peak of a bubble in the market and paid way too much and now things are just adjusting down to the market. Maybe it’s not down to what the market will really absorb for the house and if you tried to sell it next year, you’d end up selling it for less than you paid for it.
- “They just dropped the price by $50,000!” This is a great deal! Maybe, but then again, I can put my house on the market for $650,000 and then offer to give you $100,000 off the asking price. Is that a good deal for my house? (Hint – my house is still WAY overpriced at $550,000 – but I’ll sell it to you for that.)
So what is different? A couple of things are a bit different from last year:
- The First Time Home Buyer Tax Credit/Buyer Frenzy – If you are any where near the radio/newspaper/any mortgage lender or Realtor, you’re Read more
In July of 2008, I wrote a piece as a guest post on Paul Kedrosky’s site, Infectious Greed. I called that piece The Top 7 Things Every Home Buyer Should Know. The piece got a lot of “press” and actually got me interviewed by the New York Times. I was talking with the reporter who I’ve gotten to know at the New York Times about a month ago and we realized that it was almost exactly a year since he had ran the piece, “Considering the 7 Year Plan.” He made a comment at that point, “It would be interesting to see what, if anything, has changed over the last year in your opinion of what a home buyer needs to think about.” I agreed and decided at that point to do that.
So this is the introduction to what will be a 7 part series over the course of the next week or so. I’m going to take each item, one by one, and look at what my view was in July of last year and then factoring in what I think has or has not changed over the last 15 months.
Here’s a hint for you – out of the 7 parts, I think that we’re going to find that at least 3 or 4 of them have changed substantially.
I’ll have the first one up in a day or two.
Thanks for listening in/reading what my thoughts are…..
Tom Vanderwell
Technorati Tags: 7 Things Home Buyers Should Know
and on Zillow’s Mortgages Unzipped Blog and on the Straight Talk About Mortgages. I was asked that question the other day and the answer I gave surprised the person who asked it. I found that intriguing, so I thought I’d share both the question and the answer.
Why do I write on these blogs? The person who asked it reads a lot of what I write on these blogs and other places, so they know that even though writing comes rather easy for me, I do spend a lot of time on it.
Here’s my answer:
- I write on these blogs because the mortgage world can be terribly confusing and I want to try to help educate people, and that’s true even in the best of times.
- I write on these blogs because sharing my understanding and knowledge of what’s happening and what it means helps to elevate the professionalism and expertise of the mortgage and real estate professions.
- I write on these blogs because we are in horrendously confusing times and the full ramifications of what’s happening won’t be truly felt for decades.
- I write on these blogs because there are a lot of people who have experienced and are going through severe financial disruptions and need someone to help them understand what’s going on.
- I write on these blogs because the economy is going through what I believe we’ll see to be “seismic shifts” in consumers attitudes toward credit, saving, investments, banking, and real estate. I’ve based my entire mortgage career on helping people manage their money wisely and making solid decisions and this is a logical extension of that.
The person who asked the question was surprised at my response. He said, “I would have guessed that the reason you write on these is to write more loans!”
Have I written more mortgages that I wouldn’t have otherwise? Yes. Is that why I’m doing it? Nope.
And that brings me to the main point of this post. I’m working on something new. Let me explain:
- There are a lot more facets to people’s financial condition than just mortgages.
- There’s a lot of people who are struggling to understand what’s happening Read more
Okay, it’s hard to believe but tomorrow morning is the first Friday of the month again. Where has the year gone? In some ways it has flown by and in other ways it seems like it’s been about two or three years. Know what I mean?
Any way, tomorrow morning is the jobs report that shows the statistics for the month of September. I’ve had a lot of people asking me what I think it’s going to show and what I think it’s going to do to mortgage rates. I’m going to lay out what I think are the four most likely outcomes and their potential impact on mortgage rates. At the end of the piece, I’ll put my “projections” on which one is most likely to occur.
The Jobs Report Comes In Better Than Expected – Remember, it’s not so much the actual number as it is the difference between market expectations and the actual numbers. But, if the jobs report comes in better than expected, here’s what I expect will happen:
- People will feel better than they did about the prospects for a recovery in the economy.
- People and institutional investors will move money (lots of it – how much depends on how much better) from the bond market and cash and put it into the stock market.
- The stock market will have a very nice upward swing.
- The bond market and mortgage backed securities will suffer from the movement of money.
- Mortgage Rates will go up.
The Jobs Report Comes in about as expected – status quo, mediocre, we just sort of limp along. If that’s the case, I expect we’d see a “non-reaction” in the markets.
The Jobs Report Comes in Worse Than Expected – a little bit worse, but not a huge amount worse. If that’s what happens, here’s what I expect:
- People will feel worse about the prospects for recovery in the economy and we’re Read more
From now through October 31, 2009, I’m offering a copy of Straight Talk About Mortgages – the Book available for free!
Why? Because I want to. That’s reason enough for me, how about you?
Click here to download your copy:
Straight Talk About Mortgages The Book
I’d like to ask two favors in return for a free copy:
- Once you’ve had a chance to read it, let me know what you think of it. Just send me an e-mail at tvanderwell@straighttalkaboutmortgages.com.
- Take a minute, think of someone you know who might be thinking about buying or refinancing their house and send a copy of the book on to them.
Thanks, enjoy!
Tom Vanderwell
Okay, so far this morning, the market has reacted in a very volatile but not significantly changed manner to the jobs report. Essentially the jobs report came in pretty much where the market expected.
So, did I call it wrong by recommending a shorter term lock and a long term float guideline yesterday? I don’t think so for a couple of reasons:
- We’ve passed the major economic hurdle for the next few weeks without any news that is going to significantly lower rates. Between that and the fact that the new Reg Z rules essentially require locking in your rate at least 1 1/2 weeks before closing, it makes sense, if you are closing soon, to grab a rate and be done with it.
- One of the “big guys” at PIMCO was on CNBC this morning talking about how this is a “sugar high” rally that is based on inventory and cost control and stimulus funding (isn’t that what stimulus is supposed to do?) but that it won’t last. When reality hits, the stock market will adjust and the adjustment won’t be pretty. That has two potential options: 1) It would force money into the bond market driving down rates, or 2) It could cause money to jump to cash (remember last fall?) and everything would be really ugly. So I expect there is still some lower rate potential in the next 60 to 90 days.
Have a good weekend!
Thanks!
Tom Vanderwell