North Sound Property News

I received the following email from one of the lenders I work with yesterday morning:

As you may be aware, our industry has taken some big hits in the last week or so.  Many lenders and investment companies are taking a look at their portfolios and loan programs.  Some companies have ceased business altogether and others are tightening the requirements for financing.  We are seeing the biggest restrictions in financing with the “higher risk” loans such as 100% financing, Stated loans, and No Ratio products.  Many of these products are not being offered anymore, and if they are, the interest rates and requirements are considerably higher to compensate for the risk involved.

It is very important that any buyers you have that were approved on a certain program a week or more ago, double check with their lender that their program still exists with no new surprises.   

For the last week or two, I’ve heard the refrain “we’re in historic times.”  I’ve heard it referred to as a “meltdown” in the lending markets.  I’ve heard it compared to the 1992 S&L crisis.  One thing is for sure.  The lending world is changing from day to day, and hour to hour.  Guidelines are subject to change overnight and yesterday’s pre-approval letter could be totally worthless today.

 So, what’s a buyer to do?

First of all, don’t panic.  Although a large number of buyers have been affected by the recent changes, most notably in the subprime and jumbo markets, by no means is it affecting the majority of buyers.  The majority of homebuyers are still using conventional type loans, which are actually BENEFITING from the changes in the lending markets.  Just last week, rates on Fannie Mae conforming 30-year fixed rate loans dropped by almost half a percent.

This is not an across the board smack-down to mortgages, it’s the repricing of risky loans.  If you are a good credit risk, if you have money to put down, if your debt-to-income ratios are good, then lenders want your business.  This is still an apt description of most buyers.  We haven’t moved to a completely conservative lending environment, but things are trending away from “anyone with a pulse can get a loan.”  This is a good thing. 

But what about home prices?  Why buy today if the market is about to tank?

Well, one thing about real estate is that it is local.  Some markets may tank, others will come through this period with little negative effect.  I happen to think that the Seattle area in general, and the Northsound areas of Edmonds, Mukilteo, Everett, Bothell, Mill Creek, Mountlake Terrace, Lake Forest Park and Kenmore in particular, will weather the storm better than most places.  These are desirable neighborhoods, many with features such as views, excellent schools and good commutes to major employment centers.  Because they are desirable, there is always greater demand to be in these areas, and these factors tend to insulate a market from price declines.

In a more general sense, the local economy is doing very well, we have lots of people moving to the area and a limited supply of housing.  What rentals there are, tend to be older stock and fairly expensive–in recent years prices have increased at a rate of more than 10% a year. Vacancy rates regionally are down around 4%.  So, it is still more attractive for many people moving to the area to buy a home rather than rent one.

One thing I think the current lending conditions will do is slow down appreciation.  I think this is actually what the Fed wants to see and is a major reason why Bernanke is holding steady with rates.  He doesn’t want to see our recent run-up in appreciation continue because of the effect of housing on inflation overall.  So, if I had to guess I’d say the days of 15% yearly appreciation are probably over, at least for a while. 

This is where we go back to the history books and look at how real estate is supposed to behave–5 to 8% appreciation for an asset like real estate is a historically good return.  I think things could be a bit flat for a few months while things sort themselves out, but the data I am seeing indicates prices will probably remain stable.  Sales will be slow, but I don’t expect we’ll see big, across-the-board reductions in price.   At least not here in the North Sound area.

This is all good news for today’s buyers–and better news for tomorrow’s buyers.  Slower appreciation translates to more affordability.  In the long-term, affordability will make it possible for more first-time buyers to get into homes of their own, and that translates to a healthier, more stable market in the future.  

On a more tactical note, for those who are currently in progress with a home purchase or who are thinking about making one in the near future, here are a few tips for navigating this now-more-turbulent process:

1. Ask your lender to run your loan through two lenders.  You don’t want to get to the closing table and find out your lender can’t fund because they’ve gone out of business that morning.
2. Lock your rates as early as possible. In the current environment, rate reductions are probably less likely than rate increases. We’ve had some nice surprises with “cream-puff” conforming loans recently but it’s probably better to be safe than sorry.
3. If you have a transaction in process, check in with your lender regularly.  You need to be kept abreast of what is happening with your loan so you can make smart decisions.

About the Author: Sandy Kaduce is Associate Broker of Gallery Homes Real Estate. She serves buyers and sellers in North King and South Snohomish counties. She is 2009 Board President of the Mukilteo Chamber of Commerce, as well as Vice President of Site Selection for Habitat for Humanity of Snohomish County. For more information, visit Sandy on the web at www.sandykaduce.com! Read more from this author