Friday, August 3, 2007

Rising Rates + Stricter Lending Standards = Fewer Qualified Buyers

Take heart, my real estate flogging friends.

There IS still a pool of prospective homebuyers still out there.

Ah, and then finally - a valuable nugget of common sense and operational wisdown from Wells Fargo and Wachovia banks!:

"Raising rates and imposing stricter standards on some of their most creditworthy borrowers as slumping demand in the mortgage bond market chokes off funding."

"Making it tougher for the most creditworthy borrowers to get mortgages may worsen the two-year-old housing slump and threaten U.S. economic growth by reducing the number of people who can buy houses or how much they can afford to pay."

This means that fewer people in Orange County, and the state of California for that matter, will qualify for a home mortgage loan at all. Those that manage to qualify for a mortgage loan, given the inconvenient median gross income in Orange County of $75,000 per annum, will not be funded to buy homes in the $500K to $750K range. It's highly questionable whether the average Orange County resident (local renter or new arrival) will be able to fund even a $400,000 home.

This begs to question who is going to show up with an "S" on their chest and buy up the rising inventory of OC homes priced in the stratospher of $550 to $800K?

And where will these lending restrictions leave sale prices?

There's only one direction.

Down town.

And if one considers the May 2006 numbers, there were only 495,000 licensed real estate agents in California (one real estate agent for every 52 adults in the state). The self-proclaimed "competitive industry" is going to get a whole lot more competitive. We're talking stifling competition.

It's no longer who you know in that PDA roladex. It'll be who you know who has liquid money in the bank, a steady job for over 6 months, a good-to-fantastic freaking credit rating - and this other little annoyingly absent pre-requisite called "an interest in buying a home right now" during this shittiest of real estate markets ever known.

Assuming realtors find that qualified, and more importantly, informed but motivated, prospective homebuyer, how much home is he/she qualified to purchase? How does that match up with the inventory list of homes and their actual for-sale prices?

Not well, one must admit.

On the other end of the equation, OC homesellers are expecting a little something too. Not much really, just their $300,000 markup on the home sale transaction. I mean, afterall, they earned it. They deserve it. And when they bought the house from the realtor a few years ago, that realtor promised it.

The greed. The deception. And the revulsion, once the rancid truth rears it's ugly head.

Sure, you can lie some of the time. Just not all of the time. Sometimes you need to say the truth to maintain credibility and stay in business.

Orange County Realtors, just say it: "It's not a good time for me to take your money right now. It's not a good time to buy a home. It's better for you to wait."

You can say it.

They know.

It's all coming to a head.

What a wicked web have we woven!?


Anonymous said...

So---duh---not a great time to get licensed, Huh?
My motivation: to actually help first-time buyers with decent jobs and decent credit scores purchase houses in Orange County. Am I just dreaming of doing what you seem to be saying is impossible in Southern CA in 2007?
I have purchased and sold houses in all kinds of markets all over the country during the past 25 years. Not resorting to sub-prime mortgage hokum but seeking out and finding reasonable mortgage options. Those win/win situations profited all of the parties involved. I was not the realtor just the seller or the buyer. So, you are saying that doesn't currently exist? We currently own in Mission Viejo. I hope to assist my son & daughter-in-law and others like them in achieving realistic home-ownership. Is this a pipe dream?

Markus Arelius said...

Nobody is happier than I am that you are making lots of money selling homes to first time home buyers in Orange County - and that you're helping your own personal next generation become long-term "homeowners" (not long-term homedebtors). Congratulations and success to you in that endeavor. My point is that most in Orange County, the median earners, the majority, won't be able to partake in that happy transaction. Not because it's impossible. Not because they don't want to. Hell, anything is possible, but buying 10 ton SUVs, having $5K to $10K on a credit card debt, and pulling down $75k to $80k are incompatible with such a notion. All I'm saying is look around. 80% of the residents earn $75K per annum gross, yet the single family home prices every where you look are over 10 times that amount and inventory is piling up. Sometimes you need more than just a dream and a pipe. I stand by my assertion that the well of prospective home buyers in OC is going to dry up more quickly than many want to believe or accept, even in affluent, credit rich OC.
If you're thriving, then good for you.