Market Watch
This month’s Market Watch is about mortgage financing and how it affects the housing market. We all know that our country suffered a terrible recession just a few years ago. Although we don’t hear as much as we used to no one disputes that the primary cause of the recession was mortgage loan defaults caused by lending standards that were far too lenient. The Federal Government, primarily through Fannie Mae and Freddie Mac not only loosened lending standards but in many instances mandated, through the guise of the Community Reinvestment Act, that mortgages be extended to unqualified buyers. In addition to being the biggest single cause of the recession Fannie Mae and Freddie Mac sustained billions of dollars in losses on these loans. Since that time, lending standards have been made much more stringent. In my opinion, the pendulum swung too far one way and has now swung too far the other way. In addition to lending standards other restrictions and rules are inhibiting lending. The HUD disclosure, which was 3 pages, is being “simplified” to 8 pages, for example. The National Association of Realtors estimates that as many as 20% of potential buyers are being prevented from entering the housing market by unreasonable lending standards. Regulators are currently planning and implementing even more rules and restrictions. Clearly these are not only unnecessary, but are becoming oppressive and hurting the housing market. Although no one wants Fannie Mae and Freddie Mac to lose money that is no longer a problem. Last quarter Fannie Mae and Freddie Mac combined made over $8 billion in profits. Lending standards already in place are more than stringent enough to generate a profit for these lenders. Further restrictions will slow the housing market, reduce lending and reduce profits because fewer loans will be extended.
Our local market had another acceptable month. This calendar year has been remarkably consistent and through July we are up 6.6% in closed units and up 2% in median price. Inventory levels are better here than in many parts of the country. Interest rates are still unbelievably low. These rates will not last forever. Buyers continue to remain selective about the condition and maintenance of properties they are considering. If you are selling make sure your property is neat, clean and well maintained. Call me if you would like some tips on preparing your house for sale. You can reach me on my cell phone 812-499-9234.
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