The Housing Roadblock that Could Kill the Recovery


By mili   Follow   Mon, 4 Feb 2013, 9:38am   1,263 views   21 comments
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http://www.thefiscaltimes.com/Articles/2013/02/04/The-Housing-Roadblock-that-Could-Kill-the-Recovery.aspx

The recently-tightened mortgage lending standards have been widely cited for preventing a faster turnaround in the housing market. But the bigger culprit may be the slowdown in construction loans for builders.

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  1. bmwman91


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    1   10:06am Mon 4 Feb 2013   Share   Quote   Permalink   Like (3)   Dislike  

    mili says

    The recently-tightened mortgage lending standards

    The fact that "FICO of 580 and 3.5% down" is considered "tight" is the real indicator of how pathetically weak our economy is as a whole. Anyone that is actually paying attention knows that the second the government stops pumping billions of dollars into the economy, specifically housing, it will crash. It's obvious that the government WON'T stop doing just that because the consumer masses just can't seem to resist more debt, but it is a precarious system nonetheless.

  2. edvard2


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    2   10:15am Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    When we bought, the lending requirement were extremely strict. It used to be that if you had a 500-580 FICO score that you were good to go. Seemed to me from our experience that you probably needed to have a 700+ score when we were looking.

    Not sure about the rest of the country, but in the Bay Area a good chunk of those buying likely have high credit scores and large down payments. The problem is the cliche' that there's no inventory.

  3. bmwman91


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    3   10:21am Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    edvard2 says

    When we bought, the lending requirement were extremely strict.

    Did you get a private loan, or one from the FHA? Banks most definitely require 20% down, high FICO and a solid income history. My comment was in regard to the FHA's requirements.

  4. edvard2


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    4   10:31am Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    It was private. At least when we were looking, unless you could put down at least 20% down and at least 20% over asking, there was no way you would get the house. I haven't really paid super close attention, but I've heard its worse now. In that case an FHA loan would have been useless.

  5. bmwman91


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    5   10:37am Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    edvard2 says

    It was private. At least when we were looking, unless you could put down at least 20% down and at least 20% over asking, there was no way you would get the house. I haven't really paid super close attention, but I've heard its worse now. In that case an FHA loan would have been useless.

    Got it, I should have clarified in my first post that the FHA (which is behind 90%+ of loans when combined with the 2 big GSEs) basically has "no" standards. Banks are lending with the standards that they are SUPPOSED to be lending with.

    Yeah, as far as I can tell there is basically a $750k floor on house prices in the Silicon Valley (which happens to be the max you can borrow from the FHA on 3.5% down). Anything cheaper than that either has something seriously wrong, or has only been listed for 3 days and will end up selling for more. Based on friends that are in the market and my visits to open houses, everything in the $750k - $1.2M range is mobbed with would-be buyers with no chance in hell and being acquired by folks with a LOT of cash that are putting down 50-100% in cash. As of now, there are a lot more people with that kind of cash than there are decent houses available.

  6. edvard2


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    6   10:48am Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    My RE agent from time to time says howdy and according to her the market is still really, really tight, which actually isn't that great for her because there's less "product" to sell in general. When we looked there was an average of 80 homes for sale at any given time. As of now, there's around 30-40, so about 50% in reduction in overall inventory. So naturally that means more competition and thus why there's probably more all-cash, or high-cash buyers. All I know is that if I were looking now, I'd probably stop and forget it because it sounds pretty nasty out there.

    I am hoping that the inventory situation will solve itself i the Spring. As a homeowner, it would be better in my opinion if there was more stability and less rollercoaster price fluctuations. The way things are going now is unsustainable.

  7. Call it Crazy


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    7   10:53am Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike (1)  

    bmwman91 says

    The fact that "FICO of 580 and 3.5% down" is considered "tight" is the real indicator of how pathetically weak our economy is as a whole.

    bmwman91 says

    It's obvious that the government WON'T stop doing just that because the consumer masses just can't seem to resist more debt, but it is a precarious system nonetheless.

    They're doing the same with car loans... use to be 700+, then 600+, now it down to the 500's and sub-prime loans again...

    The only way to keep the economy moving is to load up the "sheep" with debt for houses and cars that they can't pay back...

    What could go wrong with that plan???

  8. bmwman91


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    8   11:12am Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    edvard2 says

    I am hoping that the inventory situation will solve itself i the Spring.

    Me too. My friend, a mortgage broker, says that the GSEs will be putting a very large number of foreclosures, that they have been sitting on for a few years, onto the market this month. We'll see...sounds too good to be true.

  9. edvard2


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    9   11:37am Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    After the experience we had, the situation I quickly realized was that at least when we bought, there was no shortage of foreclosures or short sales anywhere. The problem then and maybe now is that those houses might as well have been off-limits. They were not only difficult to access, but more often than not simply bought immediately by all-cash investors, many of which were then flipped. The true bottom of the housing prices for the typical home buyer then, and perhaps now, was only what was accessible after investors merely re-dumped the former foreclosure back on the market. We certainly saw no shortage of foreclosures and short sales for sometimes incredibly low prices, as in 250-350k. But none were ever remotely accessible.

    So whether the dumping of foreclosures on the market will help is anyone's guess. I am just making a guess here, but my gut feeling is that this year many homeowners who might have wanted to sell last year but didn't because the market still kind of sucked will now "wake up" and inventory will recover, which might tamper down some of the craziness out there now. On the other hand the craze for housing in the BA seems as out of control as ever, so even a large amount of inventory might not curb that appetite.

    I have many friends who have waited for years- like we did- to buy and as of now can't buy. I hope things will get better for people like them because like I said, if we had waited another 6 months its likely we too would be unable to buy anything now.

  10. bmwman91


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    10   1:17pm Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    I guess that the crazy-bug is still biting the SFBA then. I am still amazed at the irrational exuberance on display all over this place. It certainly was not like this prior to 2000, at least in RE. There was the tech bubble exuberance, but that began less than 20 years ago.

  11. gbenson


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    11   2:11pm Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    bmwman91 says

    says that the GSEs will be putting a very large number of foreclosures, that they have been sitting on for a few years, onto the market this month.

    If they were going to do that I would expect them to hold off until a seasonally adjusted high point (May-August). It would be to their benefit to keep supply tight right up until then. Sell as many as they can through summer and prices will dive again in fall/winter, but everyone will write it off as a seasonal downard adjustment.

  12. bmwman91


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    12   3:30pm Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    Well, from what I was told, February is the month. Something having to do with contractual obligations back when they were bailed out.

    If the bears are lucky, it will initiate a cascade of bank inventory sell-offs as everyone races to not be the guy stuck holding the bag. If the bulls are lucky, it won't happen at all. We'll just have to see.

  13. David Losh


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    13   5:18pm Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    bmwman91 says

    Well, from what I was told, February is the month.

    That might be possible, but I think next year, or the year after is what they have figured. I'm pretty sure it's 2014 which is what the Fed gave for low interest rates.

    There was something about a statue of limitations, or some such thing that put it seven years out from 2007.

    However, I don't think any one expected what we have going on today.

    Real Estate agents are gah gah over multiple offers on short sales. Banks have got to be thrilled, and I read this morning 2014 is supposed to be the very best year for banks.

    I think you may be confusing the contractural obligations for holding those bulk purchases by hedge funds. As I recall they are obligated to hold those for five years which will be 2016, or 2017.

  14. David Losh


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    14   5:29pm Mon 4 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    I personally think we can have a recovery without housing.

    There are plenty of housing units out there, and what we in the United States, and Canada forget is that we are the only place on earth where every one gets a lot of dirt when we buy housing.

    If we are talking about full employment there is always something more to be done. I just think that post WWII housing driven recovery is a pipe dream.

    The real nightmare is the amount of debt associated with our housing. That has become a global concern in most urban centers across Europe, and Asia.

    Because of the mounting mortgage debt, and less ability to repay, sorry, even at low interest rates, I think at some point banks will pull the plug, or buyers will refuse to sign.

    As fewer loans are made, because of high pricing, there will be less incentive to push up the price of housing. Even if housing stalls, or contracts, that will leave another group of underwater loans to add to the last batch.

    I think we will see a soft landing for housing prices, but I for sure don't see housing as a major part of an economic recovery.

  15. inflection point


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    15   8:23pm Mon 4 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    I think the inventory is already starting to emerge, at least in Fremont.

    I saw quite a few homes for sale. I also noted that their a many more rentals available than this time last year.

  16. HEY YOU


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    16   1:40am Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    bmwman91 says

    Well, from what I was told, February is the month. Something having to do with contractual obligations back when they were bailed out.

    If the bears are lucky, it will initiate a cascade of bank inventory sell-offs as everyone races to not be the guy stuck holding the bag. If the bulls are lucky, it won't happen at all. We'll just have to see.

    A broker & an agent I know have said that there may be a lot of new inventory in March. We'll see. I'm ready to make more low ball offers.

  17. chemechie


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    17   7:02am Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    David Losh says

    The real nightmare is the amount of debt associated with our housing. That
    has become a global concern in most urban centers across Europe, and Asia.


    Because of the mounting mortgage debt, and less ability to repay, sorry, even
    at low interest rates, I think at some point banks will pull the plug, or buyers
    will refuse to sign.

    I agree - I think the 'housing recovery' seen in some areas of the country is because of the easy money loans with GSE backing - if you look for loans that are not government backed, you need 15 to 20% down and are looking at 5+% interest rate for 30 year fixed; FHA loans are below market rates due to their government backing. The banks have negligible skin in the game, so they don't care if you can pay it back or not.
    I have recently done 2 non-GSE backed loans; the rates, qualifications, and down payments are more stringent.

  18. ELC


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    18   7:44pm Wed 6 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    bmwman91 says

    The fact that "FICO of 580 and 3.5% down" is considered "tight" is the real indicator of how pathetically weak our economy is as a whole.

    Three years tax returns no matter the FICO score is TIGHT. TIGHT AS SHIT.

  19. JodyChunder


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    19   7:47pm Wed 6 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    Yeah, lending standards are tight; it's like threading a needle through the eye of a camel.

    At least out here, you can be sitting high on the hog in yer own 2000 sq ft chunk of paradise for as little as 800 bucks down and a FICO (which is bullshit anyway) of 600.

  20. ELC


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    20   6:15am Thu 7 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    mili says

    The recently-tightened mortgage lending standards have been widely cited for preventing a faster turnaround in the housing market. But the bigger culprit may be the slowdown in construction loans for builders.

    My antivirus program detected a threat at the link provided. Be careful.

  21. ELC


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    21   6:18am Thu 7 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    bmwman91 says

    Did you get a private loan, or one from the FHA? Banks most definitely require 20% down, high FICO and a solid income history. My comment was in regard to the FHA's requirements.

    Are you saying FHA doesn't have strict income requirements? That's what makes lending tight. Everything else is workable.

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