Q: There doesn’t seem to be an end in sight to the housing slump. By the time the market hits bottom, won’t housing be down and out for the count?
A: Housing has always been a very cyclical business. In the mid 1970s and the early 1980s and 1990s, housing production and sales dropped by more than 60 percent in a matter of months. During those cycles, we confronted and overcame many of the same problems we face today – large numbers of unsold homes, skeptical and reluctant consumers, tight credit markets and shortages of money for certain borrowers, declining home values, and prospective buyers who had difficulty selling their existing homes. The important thing to remember is that over time the market corrected and we rebounded to production and sales levels that beat or matched the records of the previous cycle. Remember, those who purchased a home in the early 1990s during the last big economic and housing downturn came out as big winners. The median price of a new home in 1991 was $120,000. In August 2007, it was $225,700 – up 88 percent. The message here is that housing is a very tough and resilient industry. We will be back – stronger and better than before.
Q: Hasn’t the subprime crisis cut off the flow of mortgage money for qualified borrowers?
A: Mortgage money is still available at a very attractive price for credit-worthy borrowers. Outside of the subprime arena, the mortgage markets are functioning normally. The vast majority of home buyers are seeking conventional, conforming mortgages at or below $417,000. These loans are purchased by Fannie Mae and Freddie Mac, both federally chartered organizations. While underwriting standards may have been tightened for all loans, credit-worthy home buyers should have no problems in finding conventional, conforming mortgages at very attractive rates – slightly above 6 percent for fixed rate, 30-year loans.
Q: With the nation in a foreclosure crisis, why should I be looking for a new home?
A: More than 97 percent of prime borrowers – the bulk of the mortgage market – are up-to-date on their payments. Most foreclosures are concentrated in the once super-heated markets in California, Florida, Arizona and Nevada and the upper Midwest states of Michigan, Ohio, Minnesota and Illinois, which have been hit hard by job losses, plant closings and depressed local economies. In fact, in 34 states the foreclosure rate actually DECLINED. And the Mortgage Bankers Association reports that if not for the increase in foreclosures in four states – California, Florida, Arizona and Nevada – we would have seen a nationwide DROP in foreclosures in September 2007.
It’s also important to remember than 37 percent of all single-family homes are owned debt free —without any mortgage – and home owners nationwide have built up more than $11 trillion in equity that provides a good cushion against any decline in values. Also, a high number of defaults on loans to date have been among speculators or investors who were looking for quick profits and subsequently walked away from their investments when the housing market cooled.
Questions answered by Matt Moroney, Executive Director of the Metropolitan Builders Association.
