My New Blog

Unfortunately, we live in a sound bite society. We get our news in bits and pieces oftentimes, just a sentence or a couple paragraphs at most. Also our news is oftentimes extremely biased; even if the bias is only that, bad news sells better than good news.

The following items are from a speech given by the Chief Economist for the National Mortgage Bankers Association in September of 07. Viewing this information from the perspective of a Real Estate and Mortgage Broker in Eugene, Oregon I find it predominantly comforting to know that our local economy may actually benefit from some of the effects of the sub-prime mortgage market meltdown.

“What continues to drive the national numbers, is what is happening in the states of California, Florida, Nevada and Arizona. Were it not for the increases in foreclosure starts in those four states, we would have seen a nationwide drop in the rate of foreclosure filings. Thirty four states had decreases in their rates of new foreclosure and the increases were very modest in the states with increases, other than those four,” Doug Duncan.

“So the foreclosure problem in this country is really a story about seven states. The biggest foreclosure problem is in Michigan, Ohio, and Indiana. These are predominantly manufacturing states. Since 2001 Michigan has lost over 300,000 jobs.”

“The other four states are California, Florida, Arizona and Nevada. In each of these states There has been significant overbuilding. 25% of the foreclosures in the states are on properties that are held by investors who were speculating. California and Florida have been hit the hardest.”

“There are special circumstances driving conditions in those four states that will likely make things worse:

• Declining home prices make refinancing of these adjustable rate mortgages difficult, particularly if the borrower originally put down little if any down payment. Home prices have dropped in all four of these states.
• The root of the home price problem is that the inventory of new homes available for sale in the Western Region hit an all-time record high at the end of the second quarter. In addition, Florida continues to see a major supply of condos and other new homes on the market.
• These four states have a disproportionately high share of investor loans, or loans to buyers who do not plan to live in the house. As of June 30, the non-owner occupied share of defaulted loans (90 days or more past due or in foreclosure) was 32 percent in Nevada, 25 percent in Florida, 26 percent in Arizona and 21 percent in California, compared with 13 percent in the rest of the nation. These investors are much more likely to default on their mortgages if they see the value of their investments falling due to falling home prices.”

“Therefore, the problems in these states will continue, and they will continue to drive the national numbers, but they do not represent a national problem.”

“35% of the homes in the USA do not have a mortgage. 98% of the mortgages in the USA are performing. Only 9% of all these mortgages are sub-prime. 75% of all sub-prime mortgages are performing. In the other 43 states, foreclosures have fallen in 2007 from 2006,” Duncan said. This last statistic was as of his comments in the fourth quarter of 2007

Some of the silver lining to the national real estate market is that 30 and 15 year fixed-rate conforming mortgages have dropped allowing homeowners with average or better credit and equity in their home as well as a stable financial situation to benefit from refinancing or purchasing property.

Another benefit that we are seeing in the real estate market is the increase in performance of rental properties. Individuals that just over a year ago could qualify for 100% financing that were buying houses instead of renting are now back in the rental market with no expectation of the sub-prime mortgage products reappearing anytime soon, many of these tenants will remain renters for some time.

I recently heard a commentator on a television news broadcast saying that we have the highest foreclosure rates since the Great Depression. That comment made me sit up and take notice. But once I started researching the statistics I realize that they got my attention with the fact that wasn't just a little bit overblown. Considering that the current foreclosure rate is somewhere north of 1.69% is pretty bad especially for those people that are being foreclosed on. But also remember that in the Great Depression of the 1930s it was 25% of all homeowners that lost their homes to foreclosure. This market is nothing like the Great Depression. I think CNN owes me an apology for scaring the c&@p out of me and all the other viewers that though that the fact would be relevant.

The slowing pace of appreciation in the Lane County housing market is starting to attract investors back into the market as many of these investors were priced out of the market over the last several years. Also, investors from California, historically move their investment dollars into the Northwest when California has experienced unstable or declining real estate prices. As long as the national news continues to scream about the sky falling in the real estate market and mortgage markets and as long as Americans are willing to be swayed by the latest sound bite instead of the actual statistics the recovery from our current situation will be slowed.

I am not a ridiculously optimistic person when it comes to investing my money or my clients, but I am also not going to miss the opportunities afforded to myself and my clients through this current market. If there's one lesson to be relearned. It is don't over extend yourself financially, make wise investments, don't buy into the hype and look before you leap. Yes, I know, that's more than one lesson but I think the same idea is embodied in each one.

2008 is going to be an excellent year for wise investors and homeowners, who make prudent decisions and look for the opportunities that this market has created.