Crash? Don’t be alarmed. Don’t sell your business, but realize that the economic structure and outside occurrences can shape a real estate market.
I am a normally upbeat guy, but I do like realism. We have to step away from being happy all the time to an honest view for our clients — both sellers and buyers.
Here are the top reasons that the real estate market could fail soon, in no particular order:
11. Rates are dropping. What? Aren’t rates dropping a good thing? Actually, no. The market is telling us based on macroeconomic reports that the economy is not cooking and jobs are not being created to make people buy homes. The only good news that will come from this is that those who forgot to refi, especially the HARP2 eligible, will be able to get better rates. Speaking of HARP, it’s being reported that FHFA Director Mel Watt may waive the eligibility date!
10. Robots. CNBC did a report called “Robots Rising” highlighting the fact that robots will continue to take over human jobs. Simple. No job, no house to buy. Also, 3-D printers are all the rage. Instead of ordering a part for your car that has to be manufactured by someone, you or your mechanic will just hit “print” and voila, you have your part!
9. 43*. No, it’s not about a home run record. It’s the magic arbitrary number that the people at the Consumer Finance Protection Bureau (CFPB) felt would be the maximum debt-to-income ratio for mortgages under the Dodd-Frank “qualified mortgage” rule. So let’s see. There are no more “no docs,” no more option ARMs, practically no more interest-only rules, but they felt that 43 percent of your income should be the maximum for your mortgage payment plus other qualified debt.
The crappy liar loans of the past decade are gone. Guess what, you actually have to qualify for a loan now!
Why the asterisk? There was a seven-year “exception” to that rule if your loan got approved in the Fannie Mae or Freddie Mac computer system with a higher ratio than 43. Sounds great, right? Here’s the problem. If a lender gets a computer approval for more than 43 percent and makes the loan, Fannie or Freddie can come in an audit the file. If they find that there was one T not crossed, they can claim the loan is NOT QM exception compliant, make the loan worthless on the secondary market and possibly make you buy it back.
So, that leads to the big boys in mortgageland, the banks and the big mortgage bankers along with the brokers — the only ones left in the business since the small/middle-sized mortgage bankers would be killed if they started having to buy loans back.
What does that mean? Higher rates to compensate for the lawyers they will have to hire to protect them against the 30,000 auditors who work for the agencies. Or, it could mean that fewer and fewer companies would be interested in being in the mortgage business resulting in loss of jobs all over the country and more people unemployed.
It also comes down to decisions made by who I will call Mister 43*, Raj Date. We will hear about him later!
8. 580 credit score with 3.5 percent down and 50 percent ratio. Yes, folks, the same CFPB that decided on 43 has let the FHA do 3.5 percent downs with 580 credit scores and 50 percent ratios! Talk about disaster! What will happen is that more and more and more deals will go FHA and because of the low scores, there will be defaults. Inconstancy in underwriting standards where the people with bad credit get high loan-to-value loans and the person with great credit and a lot down may not get a mortgage at all. Oh, and I don’t want to forget, FHA has lowered just about all the maximum loan amounts around the country shutting out many potential homebuyers (and refinancers). DUMB.