Pretty bad. It’s pretty bad already. It’s gotten to the point where you can’t pick up a newspaper—The Sun included, thanks to me—and not see something on the gloom and doom it’s been causing.
What happened was lenders just got too casual about qualifying borrowers and ended up extending loans to people who just became unable to pay them off. Downpayments of zero became common, regardless of your income. No-doc loans—that is, loans where you just stated your income and didn’t need to prove it to the lender--also became the norm.
To this add the fact that a lot of people took out adjustable rate loans knowing they would have to refinance them down the line. That time has come for many and it’s more difficult for them to find a lender.
Now, not everyone is affected by this meltdown. If you have a long-term mortgage and you don’t need to refinance, you’re OK. Also, if you plan on buying something and you have great credit and can afford a downpayment of 10 or 20%, you have nothing to worry about.
Those put in a squeeze include those who don’t have a full downpayment, those who cannot prove their income with tax returns and those who have to refinance immediately. Also caught in a squeeze are former employees of Countrywide Savings, a huge lender who just laid off most of its New York staff.
The boss at Countrywide is not too optimistic, In fact, Angelo Mozilo, its CEO, predicted the mess will result in a recession.
Real estate values drop
Now because credit is more difficult, there are fewer potential buyers out there. As a consequence, real estate prices are generally dropping. During the second quarter of this year, home sales fell in 41 states, while prices were down in a third of the country’s metropolitan areas. According to the National Association of Realtors, the group that released this information, this is the worst real estate downturn in 16 years.
Nonetheless, the Association saw some cause for optimism in its data. Prices were up in 97 of the 149 metropolitan areas surveyed compared with the sales prices of a year ago.
That represents gains for 65% of the areas surveyed, an improvement from the first quarter of this year when only about 55% of the metropolitan areas reported price gains from the same period a year ago. In the fourth quarter of last year, less than half of the metropolitan areas reported price gains.
Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming-out in the last quarter of last year.
The Fed, which has been resistant to dropping interest rates, finally relented and dropped rates a half a point. Immediately, the stock market responded. The fact that they did reduce rates, and also its willingness to do so, are positive signs.
What does all this mean to us in Montauk? Brokers say that prices have not dropped and homes are gone as soon as they are put on the market. Who knows? I know that despite the mortgage mess, the sun still comes up every morning and the birds still wake me up.
Nick Deane is a Senior Loan Officer with Buyers’ Choice Mortgage Group and can be reached with your mortgage questions at 917 576 6408. Nick also owns, along with his wife Claire Dowling, Nick’s on the Beach in Montauk. Claire is an Associate Real Estate Broker with Pospisil Real Estate in the Plaza in Montauk, and can be reached with your real estate questions at 668 5200. |
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