Ability Realty

WOW!!  What’s going on?!!  Two of Tucson’s major lenders are no longer providing loans and are preparing for bankruptcy.   Another has borrowed 11.5 billion dollars to stay afloat.  Why is this happening?  Well, I think there are many reasons.   Since this is My blog, I am going to give you My thoughts.

The reasons were several:

• There was too much easy credit for buyers who were not qualified for loans during 2004-2006.  
• A steep rise in housing prices through 2005.  During that time I wrote one offer for $11,000 over the asking price of a just listed home.   There were 17 offers that day and our offer was one of the 16 thrown out!
• A ready market for the loans that were purchased by investors and many put into portfolios and sold in groups as securities. 
• Low interest rates.  By the way, interest rates are still low

In late 2005, prices stopped increasing and everyone thought it was just leveling off.  But, as you all know, prices did not remain level.   They slowly began to slide downward.  Today it’s not uncommon to see prices $25,000 lower today than we saw six to twelve months ago.   Here is one of the major problems.  Many people who bought in the last three years can’t sell their homes without coming out of pocket to get it sold.   They have discovered that their loan is now more than they can sell it for.

All the buyers who bought homes via 100% financing or an ARM (Adjustable Rate Mortgage) are now in trouble as they can’t sell.   They can’t refinance as their home currently will not appraise for what is owed.  There are also many investors who bought to flip and suddenly have hit the brick wall and can’t get the house sold.   

As prices come down, I feel the buyer’s are waiting on the sidelines for the market to bottom out.  But, where is the bottom?  “Let’s just wait until we are sure.”   But, how can you be sure?  Fewer homes are selling in both the new and resale sectors.   More homes are coming on the market. 

Sellers are slow in reducing their prices.  They remember when the house down the street sold in one day and at $8,000 more than the asking price.   I call it the “good old days” syndrome.  The danger for them is in following the market down instead of getting ahead of the market and selling their home before the downward trend passes them by.  Sellers are listening to friends, neighbors and other “experts” who are convinced they know more than the Realtors who are closely in tune with the market.   Sellers want to blame their agent.  “They didn’t advertise enough.”  “They didn’t hold enough open houses.”   In truth, as the seller refused to lower the price, it wasn’t long before they were left high and dry and still their “experts” advice was what they listened to.   They didn’t want to paint the back porch or take out the dead tree in the front yard or remove the three kinds of wallpaper you could see from the front door.

I am hearing on some of the talk shows and reading on the Internet that the Federal Reserve should not bail out the big investors.   What are they thinking?!!  We are in a bad slump that stands a good chance of getting worse . . . a lot worse.  The domino effect can have far reaching consequences.   Here is just one example: Think about all the appliances that will not be bought in the next six to twelve months because of fewer homes being purchased.   Who gets laid off?  The Maytag repairman is one of the lucky ones.  Think of all the builder trades that will be forced to let people go.   If you think about it, you will find many areas where good people will be hurt.  Just think of all the people who lost jobs with the two lenders in Tucson.  Some have made it back into the lending profession with other companies, but are some of those companies considering cutbacks?  Are there other companies that will go under?   I sincerely hope not!

I’ve talked with home inspectors, termite/pest control companies and escrow officers as well as lenders and all of them have seen deep cuts in their business.   My next door neighbor is a painting contractor.  He told me his business is way down and he is getting calls from other painters looking for work.

Tell me what you think.

The Federal Reserve lowered the discount rate by ½ percent; but, this is mainly for loans between banks and is not much help to us.   They have to do more!!  They will drag their feet as they are afraid of inflation.  If I could tell them anything it would be : WAKE UP AND DO ENOUGH TO MAKE ENOUGH OF A DIFFERENCE  TO GET US ALL THROUGH THIS!!!   The country does not need a year of struggling.  I question whether they are in touch with the real work-a-day world. 

If all the people who can’t sell their homes go into foreclosure due to poor loans, we will have entered an arena where recovery could be slow.    My advice would be if you don’t need to sell, don’t!  If we can reduce the number of homes on the market, maybe we can end the downslide and begin to return to normal with slow healthy value increases.   I DO NOT WANT ANOTHER 2005!!

Rest assured, there will still be money available for loans but you better have really good credit with a FICO score of 680+ and a minimum of 10% down payment.   Don’t count on seeing lots of too-good-to-be-true loans and okay low FICO scores.  They will be history. 

If you can’t qualify now, you need to start saving and repair your credit to raise your FICO scores.  Spend smartly.   Pay cash.  Reduce your credit card debt.  And make your payments on time.

Live within your means and watch out for the financial sharks.  If it’s too good to be true, it probably is.   If you are a buyer, save and repair.  If you are a seller who needs to sell, price it right.  Find a Realtor who will tell you the truth and not just what you want to hear.   Be prepared for further price reductions and try to get ahead of the trend!

The foreclosures are just beginning to hit the market and, believe me, it will really pull down prices.  I did a Broker Price Opinion for a company recently and, in my research I found there were 209 properties in that zip code that were in the foreclosure process and will be on the market in the near future.   209!!! And that is just one zip code.  And there are more coming!!  At present in Tucson there are over 6,000 now!

I hope I have given you things to ponder.  There’s much more I could say but this is enough for now.   The new MLS statistics are out and I will get those up soon.

Please email me with any questions or comments.