Market Trends and Condition

A New York Times article this week speaks to the reasons buyers and owners wanting to refinance are being turned down for loans. Some are the ones we’re used to, like credit scores, but scrutiny is the highest it’s been in decades, so getting a mortgage requires planning.

1.Insufficient income – while minimum income requirements for mortgages have always been an important factor, lenders are more careful than ever about verifying income, and they want to see a couple of years of history at the least. A gap in employment history in the last two years can get a borrower rejected out of hand.

An article this week at Cleveland.com tells the story of a couple who agreed to pay $218,000 for a home in the area, and were ready to close and move in. That’s until the appraisal came in at only $202,000. The seller would only knock off $4000, so the couple had to increase their down payment to fund the difference. They considered themselves fortunate to have had the extra cash to keep the deal moving.

The percentage of Americans who owned their homes has seen its biggest decline since the Great Depression, according to the U.S. Census Bureau.

Read the whole story from CNN:

http://money.cnn.com/2011/10/07/real_estate/home_ownership/index.htm?iid...

Make sure you understand the significance of the following line from the story:

Number of vacant homes grows by 44%

The other day I saw a hard money lender advertise loans at 80% of ARV. But much to my amazement, today I saw another hard money lender offering 80% of ARV when just a couple of months ago he was making loans at 65% of ARV. His rate was 80% of ARV, 1.5 points at 15%. Does the fact that hard money lenders are loosening up their lending requirements to 80% indicate that they are comfortable with valuations at his level? I have always believed that market rents would provide a floor for pricing. The rental market is strong and many deals can be found that are cash flow neutral or even positive cash flow without much trouble. However, in relation to institutional financing, hard money is relatively short term. Thoughts?

CNNMoney ran an article this week with that title. Their understanding of the “flip” strategy, or at least their treatment of it in this article overlooks some facts, but let’s look first at what they had to say.

• “Sales of homes to investors have dropped by more than half over the past five years.”
• “The number of those investors who quickly sell off those homes – the flippers – has fallen even faster.”
• “This July, investors flipped only 50% of their purchases, down from 75% a year earlier. They held onto the rest to rent.”

CNNMoney reports that new home sales were down again in August, the fourth month in a row for declining sales on the new home side. This certainly doesn’t give builders any incentive to do any speculative home building. New homes sold at a seasonally adjusted annualized rate of 295,000 in August, a 2.3% drop from the revised rate for July of 302,000.

Bad as it may sound, it was better than expected. Economists had forecast a rate of only 293,000 for August, so the improvement over the forecast was 0.6%. Sales, weak as they were in numbers for August, were still 6.1% above the same period a year ago. The annualized rate then was only 278,000.

http://money.cnn.com/2011/10/04/news/economy/Bernanke_congress/index.htm...

The widely followed S&P Case-Shiller Home Price Index, reporting with a 45 day delay, has just released July’s numbers for 120 major cities. While prices are down around 4.1% from a year ago, they rose on average 0.9% in July compared to June. This represents the fourth month in a row with increases.

S&P spokesman David Blitzer states that this could be the start of a trend and a recovery, but that there can be no confirmation of that without a continuation of increases at least through the end of the year. Adjusted for seasonal differences, the 20 city Case-Shiller index was flat month-over-month. For some cities, the index is indicating surprising strength, examples:

Home prices are unlikely to recover before 2020 and mortgage defaults will persist for years, says a survey of bank risk managers out Friday.

Read the whole story here:

http://www.cnbc.com/id/44735283

http://money.cnn.com/2011/09/30/news/economy/double_dip_recession/index....

Looks like all the more reason to do well in REI investing.