Debt Free

Get ready for what could be a bumpy ride in the housing market. As subprime lenders get the jitters from their money losing ways, those jittery feelings are showing signs of bleeding over into the not so subprime market as well. A good friend of mine, with great credit, who’s in the process of buying a new home, was quoted loans with 5% down. He was quoted the 5% down payment figures even though he showed only average income for 2006. 

That was two weeks ago. Now it‘s getting to be closing time and lenders are balking at the 5% figures quoted earlier. The reasons given for their trepidation are the mortgage market problems leading the business news of late. They may require him to pony up another $30,000 for the down payment. It all points to the importance of keeping on top of your credit score and history. Imagine the problems if he’d fallen into the subprime category!

Millions are in the subprime category, unfortunately. The result will be up to a million potential buyers, by some estimates, that will be unable to secure home financing. Even more optimistic analysis points to the evaporation of 250,000 – 350,000 buyers from the market. You know what that means, even if you flunked Econ 101. Lower quantity demanded will equal lower prices and longer time on market for sellers. If the mortgage defaults feared by the lenders actually come to pass, that will put foreclosed properties on the market in record quantities. Foreclosed properties, and those in pre-foreclosure, tend to fetch less than top dollar in the market.

If the market does become rife with foreclosed properties at low prices that will only increase the downward pressure on home prices. Some experts predict a 6-8% drop in certain areas, such as California and Florida. Others are seeing something on the order of 1-3%, if any at all. It depends upon weather the foreclosures actually materialize, and if so, how many. It could add up to investment opportunities for those of a mind to try foreclosure investing. It could also spell trouble for those who’ve got to sell their homes for some reason. This could take much longer than we’ve become accustomed to, and likely won’t bring the money that would’ve been seen in the last few years.