We’ve gone through the up’s and the down’s, this past year in the Real Estate industry.
The thing is, for those of us in the cash flow and real estate professions–it doesn’t matter because at the end of the day…. Guess what?!!? Financing still drives real estate transactions! That dynamic will never disappear. But it will forever change, as the market and the players adapt to the reality of doing business in these turbulent times.
Those in the know recognize that the next few years may present some difficult challenges. They also realize that what is happening now presents a whole set of special opportunities. These survivors understand that although the glass appears half empty, the reality is the glass is half full–and rising.
Disaster Preparedness?
Financial planning is an unnatural act?.?. The brain is wired to make us undervalue long-term goals and exaggerate the cost of short-term sacrifice. Yet studies show that people who do even a little investment planning had twice the results of those who did almost none.
While the pundits address the details and try to analyze what the end result will be, my purpose here isn’t to add to the doom and gloom, but to acknowledge what is happening, to try to make a little bit of sense out of it, and to offer solutions in the middle of the violent storm engulfing the real estate and capital markets.
In this blog, I will show you how to create “win, win” scenarios that allow us to stem the tide and mitigate the damage while getting paid for doing so! Copy that, Captain?
For some, things will get worse before they get better
There is no question we are in a dicey economy right now. The Federal Reserve Board responded to the market turmoil by pumping close to $136 Billion into the nation’s banking system to “promote the restoration of orderly conditions in the financial markets.”
Other central banks around the world had already been doing the same thing! The Fed stated that “financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward.”
They also added “although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably.'”
That is the other side of the coin, and likely a harbinger of things to come, which are likely to get worse, before they get better–to what degree remains to be seen.
Determined investors can help turn things around
But for now the housing sector is in the throes of an overall malaise, and it will continue to be in turmoil for some time. Regardless of what happens next, cash flow and real estate professionals who are determined to succeed can, both individually and collectively, help restore the marketplace one transaction at a time.
Until now, sellers could take comfort in the fact that there was little precedent for a real estate downturn occurring in the absence of an economic one. But the improbable is now a reality, though many believe that the economy is simply “going through a correction.”
So far, the market’s psychology has changed more than the fundamentals have. However, a number of indicators seem to point to deeper, more long-term issues.
Massive layoffs in the lending industry and construction industry are already in full force and have began spreading to the private equity sector, hedge funds, and several other capital markets as well.
House of Blues?
Meanwhile, most housing market indicators have pointed to negative territory. The volume of home sales has fallen in many markets; housing inventories have stretched to a nearly eight-month supply; and new-home builders are reporting big losses.
An increase in delinquencies among mortgage borrowers has resulted in big spikes in foreclosure filings around the nation, unleashing a flood of vacant houses on the market.
Oddly enough, the “whipsaw” going on in the capital markets as investors go in and out of US Treasury bonds, may very well keep conventional mortgage (prime home loans of $417,000 or less) rates in a tolerable range, at least through the next few months.
Now, the segment most at risk is luxury homes. The “jumbo” category (home loans exceeding $417,000) is probably a bigger impediment going forward, than mere psychological or fear factors.
Unable to resell their jumbo mortgages on Wall Street, lenders are already making far fewer mega-loans. Those that are making them, are charging much more in interest. That has spooked investors and dried up the secondary market for mortgages (even those of sterling quality) that don’t fit in Fannie Mae or Freddie Mac purchase parameters.
The mortgage industry meltdown, while not yet a full-blown credit crunch, has definitely led to a massive liquidity squeeze, meaning it’s much harder to get a loan these days for all but the best borrowers.
Too many houses; too few buyers -> Yep yall -> A buyers/renters market
Borrowers, for the most part, now must put more money down, document their income and assets under tighter scrutiny, have fewer dings against their creditworthiness and show conclusively that they can afford the payments.
With credit much tighter today, the refinance option is off the table for many. Tightened lending restrictions eliminate potential buyers from the market, reducing demand even as more supply hits the market due to big jumps in foreclosures and builders finishing up projects initiated before the slump took hold.
As mortgages become more expensive, and financing becomes more difficult, buyers won’t be able to bid as much for homes, while sellers are seeing growing competition from each other.
At this point the number of home sales has dropped a lot more than housing prices, though that may be somewhat explained by the fact that home prices generally trail declining sales in a down market.
Though declining prices have been sporadic until recently, short-term prospects for any reduction of inventory is poor, and motivated sellers may have to slash prices to move properties. The shakeout has already begun.
The end of the rainbow!
It means tremendous opportunity for those who practice ethical, creative investing techniques built on win, win principles and crafted around solving problems fairly for both sides of the transaction. For the Now & Later….as I say 😉
For us, it does not matter how the market shakes out. For now, we know, “They can’t refinance it, they can’t sell it, and/or they can’t afford it.” And though we can’t solve the problem for everybody, we have solutions to help many people stay out of difficulty and assist many of those who are in trouble, but don’t even know it yet.
Those who understand the full scope of real estate financing and realize are many more time-tested options for successfully completing transactions than just the more common “I Sell/You Buy” fee simple transfer will not only survive, they will thrive!
It really is that simple……..
Carla Barnes
EOTM Real Estate Group
www.eotmrealestategroup.com
Feel free to submit all your mortgage/real estate related questions and I promise to respond within 48 hours.
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