The Real Estate Pit And The Mortgage Pendulum

The Real Estate Pit And The Mortgage Pendulum

News headlines bombard us daily about the plight of the real estate market and it’s wide reaching effects on the economy. You’ve read the stories of record numbers of foreclosures, the sub-prime mortgage fiasco, and declining home prices and sales. There is even talk of a recession.

What we all need to remember, however, is that most news reports that you read are based on national housing information. As you may know, real estate is local and not every area of the country experiences what is presented by governments, associations, and media. Although it is true that the housing market is in trouble just about everywhere in the country, the severity of conditions vary by area.

Out here in the trenches of Richmond va real estate and surrounding counties, which can be considered typical of many areas, we have seen home prices fall and properties are lingering on the market for months and months. Yes, things are not good for home sellers here, but we are not facing armageddon, either. Houses are still selling and home buyers are still buying homes. It is just taking longer to sell homes and the profits made on home sales have come down, but that is because the prices of houses where highly inflated just two years ago.

We’re starting on the path of a corrected market. This is the case in many metropolitan areas such as Richmond. But, before we will get back to a normal real estate market, the momentum of the housing pendulum will cause the market to swing towards the other extreme from what we saw two years ago and put a deeper gash in the housing market before it swings back to equilibrium. The question remains - how deep will the pendulum’s arc slice into the heart of real estate and how fast will it swing?

Things could get worse for both home sellers and home buyers before they get better from what I am seeing out here in the neighborhoods and tracking the market. Sellers are facing even longer selling times because of additional foreclosures hitting the market and job relocations. Home buyers are having a harder time qualifying for mortgages because of the sub-prime loan problems. It’s a mess, no doubt, and we cannot really be sure how painful it all can get for those having to sell or buy a home.

You can probably make as good a prognosis of your local conditions as any of the real estate pundits, maybe even better, from just knowing a few stark realities. In order to survive the cuts from the pendulum, sellers need to be realistic with their profit expectations. Your opinion on what your house is worth is inconsequential. You will have to accept what buyers offer or not sell. Home buyers are the market, not sellers. And right now, buyers have the upper hand. They have more choices than ever.

And this brings us to the root of today’s housing market woes. For sellers, the pressure from more homes coming on the market, exacerbated by the sub-prime complexities, will force them to lower prices if they have no choice but to sell. Home sellers will also have to wait even longer for their home to sell. I have seen sellers who just break even on the sale of their homes and some make very little profit, depending on how long they have owned their home. There are way fewer home buyers these days. There is more about this at http://www.VirginiaRealEstateNetwork.com, a website with free information and resources that is helpful to both buyers and sellers.

For home buyers it may seem that this is their heyday and super bargains are in the offing. To some perhaps, but to many, the mortgage pendulum is severing their ability to qualify for a mortgage that would have been readily available to them prior to current day, preventing them from buying a house or qualifying for refinancing.

Although the Fed has made a big cut in interest rates and President Bush has approved the bailout of certain foreclosure situations, there is still one part of the equation that is keeping the housing market from stabilizing - tighter mortgage criteria by spooked lenders is preventing many ready and willing buyers from qualifying for home financing.

As often happens when a crisis appears, those in control tend to overreact and enact regulations that send the pendulum swinging to the end of it’s opposite arc before settling somewhere in the middle as natural forces slow it down. Because several large sub-prime mortgage lenders filed for bankruptcy and the number of foreclosures is climbing, most, if not all, mortgage lenders have tightened up on their lending practices to the point where many buyers can no longer qualify for a mortgage who normally would have. And I don’t mean the high-risk borrowers that are now defaulting on their mortgages.

Before the real estate market gets any better, the mortgage pendulum needs to swing back down without creating a deeper gash in the availability of financing for more home buyers. Until banks and other lenders relax their criteria, the actions of the Fed and the White House will not have a significant enough of an impact to turn the housing market around. If the rate of the number of houses offered for sale continues to grow and the pool of able home buyers does not keep pace, conditions in the dungeon will only get worse as the pendulum comes ever closer with each swing.

Ciao for now,Bernie Rosellen, Your Agent In The Field Please keep in mind that my statements above are based on my personal experiences and observations around the neighborhoods of central Virginia. Some statements may not reflect fully the situations, regulations and laws of other states nor apply in all areas, so please see what applies in your state (my disclaimer to keep me out of Realtor Jail).