Out on a Limb

We enter the next decade with a lot of uncertainty in the real estate market. A big concern is that there are big changes coming in the mortgage industry, which will affect a buyer's ability to qualify. FHA guidelines are changing to reflect their concern over running out of reserves. They have proposed increasing the down payment, which is one of the big attractions to FHA. They have also proposed making the qualification guidelines with regards to the FICO score more stringent. This will affect many potential borrowers, especially in today's economic climate. Also they are making condominium complexes qualify for FHA financing and those rules are very tough, limiting the number of investors in a subdivision and limiting the number of FHA loans in a subdivisions. The scary part of that is that a subdivision that does not qualify for FHA approval is at a real disadvantage and is competing for a narrower buyer pool. It also means that FHA has determined that they have a larger default rate in condominium subdivisions and they are looking to limit their exposure. These changes are something we will keep a close eye on and we will keep you informed. Another upcoming change is that has real potential for disaster is the government getting out of buying mortgage backed securities. This requires a lengthy
explanation but the shorter version is that when the mortgage industry collapsed , no one would buy our mortgages on the secondary market because they had been burned and they felt
the risk was too high. The banks initially originate the loans and some keep them in their own portfolio but the vast majority are packaged together according to underwriting guidelines and sold on the secondary market through Fannie Mae and Freddie Mac. With no one to buy them, the money dried up until the government stepped in and said that they would buy them. Well, come March they will no longer be buying them. They say they are out of money or it may just be that they feel the market has improved enough and the time is right for the banks to step back in and start selling them on their own. At a minimum I would expect to see rates bump up in an effort to attract outside inventors to buy. Worst case is that no on e buys them and once again loan money becomes scarce. This is serious threat to the health of our market. and according to powers that be, could result in shrinkage of possible 10%! That is a big one to watch and we will keep an eye on it. Lastly, the foreclosure mess. Yes, we are a fishing boat in the fog and somewhere out there is a cruise ship bearing down full steam ahead. It may hit us, it may not, but it is there, and it is coming. (Sorry about the bad analogy but it took me a while to even come up with this one). We have seen foreclosure activity drop off (in our area not nationally) and what does come on gets absorbed. The powers that be say another wave is coming and I have seen LOCAL numbers that confirm that BUT the question now is if our local market is strong enough to absorb what comes. If so, the impact will be minimal but, if not, then we will see inventory climb which will slow down our recovery. Those are currently the big three potential impacts on our market place. I say currently because tomorrow could bring some fresh challenges; I do not think so but then who knows. That being said I am totally optimistic about the new year. I think our numbers will continue to improve and I think consumer confidence will continue to grow. I look for our market to start early and it is a smart move for our clients to get out in front especially given the uncertainties mentioned above. The lower price ranges will continue to lead in activity but it will continue to filter up through the rest of the marketplace. It is an exciting time full of challenges and opportunities and as it continues to unfold I will as usual keep you informed.