“The housing recovery will start in three to six months”.  “Housing prices will bottom out by the third quarter of next year”.  “Existing home sales have increased this month, the first sign of recovery”.  Blah Blah Blah!!

Since January of 2007, almost every “expert” I read or listened to would echo similar verbiage to the quotes listed above.  From every respected independent Economic Study Group, to Government Accounting Offices,  to Chief Financial Officers of every major financial institution……WERE ALL WRONG!!!

Every month for two years now, we’re “3 to 6 months away” from the housing/banking recovery.  From the Wall Street Journal, to the Economist, to MSNBC Business wonks, to the Bloomberg , Forbes and Kiplinger folks.  No one predicted this.  The brightest business minds in the world, smarter than most of us when it comes to the market variables and where they will lead us, can take credit for their forecasts or predictions.  That said, I can confidently spout my own prediction, since the worst I can do is mirror the “experts”.

AS SOON AS BANKS START LOOSEN UP LENDING GUIDELINES, THE HOUSING RECOVERY WILL BEGIN.  Slowly but surely.  I’ve been saying this since March of 2007:  housing will continue it’s downward spiral as long as the supply of lending keeps decreasing.  It was the supply of easy and cheap money that created this bubble, and it’s the lack of easy money—literally any money—causing our housing prices to further cascade at levels not seen since the Great Depression.

MARCH 2007: Sub-prime Mortgages Gone (20% of all loans in 2004 & 2005)

SEPTEMBER 2007: Alternative (“Alt-A”) Mortgages Gone (65% of all loans in 2004 & 2005)

OCT ‘07—TODAY: Tightening up on guidelines-daily- on the only loans left—> FHA & Conv 30 year fixed.

Being on the front line of lending (the supply side of real estate — the buyers), it didn’t take a Rocket Scientist to figure that if you cut out 85% of the buyers, your housing market tanks!!  Add the 90,000 homes for sale in the valley (double what is normal) and you get—presto—housing implosion.

Think about it, ironically, the banks probably doubled their potential losses last September by the cutting off lending, in the effort to shield themselves from those vary losses.  So when anyone says to me, “we should be OK in a few months”, I ask, “what do you base this on?”  Their answer is usually based on either optimism, or some expert they heard in the media.  So many of my real estate associates echoed their National Association of Realtor economists, who up until a couple of months ago, were as wrong as any entity out there.  I pray for a quick recovery, but since I’m allowed my own opinion, I’m entitled to this prediction:  we bottom out between August and October 2009. 

Well, the big development, coming out just today, was that Fannie Mae has chosen to relax it’s standards to allow conventional financing up to 97% even in distressed sales market.  The affect of this new change is that for the past few months, most borrowers had to have a minimum of 5% and many lenders even insisted on 10% down.  Now that Fannie Mae has said they will once again purchase mortgages with conventional financing and only 3% down, borrowers are not forced to get an FHA loan if they are looking for minimum down payment.  That allows them to avoid the 1.5% FHA “funding fee” that must be charged on FHA loans.  Obviously, these borrowers will still have monthly mortgage insurance but they are allowed higher purchase prices than FHA allows.   All in all, a good Loan Consultant can still help to guide perspective borrowers into the right choice for them.

The other big piece of news today was that Consumer Confidence has dropped to a low not seen since the Carter administration.  This is most likely due to the fact that consumers at large feel that there is still more difficulty coming in the economic markets. 

My summary??  Rates are still really good.  The thing that is stopping most borrowers is that there is now a shortage of ‘niche’ programs that fit borrowers that do not fit conventional guidelines.  While I understand that many programs should not have been so easy, I think there needs to be a balace that can accomodate those that are not conventional but still good credit risks.  Until we begin to see some of those programs coming back, difficulties will continue. 

If I can be of any help to you, please do not hesitate to call/email me!!