Monday, November 17, 2008

Credit Crunch: Now with Extra Crunch

Over the summer we experienced a restriction in lending guidelines that moved most jumbo mortgages to a minimum of 20% equity requirement. Now the dominoes have really started to fall and within the last week we have seen many of our investors move to a minimum of 25-30% equity either for a refinance or a purchase loan in most major markets.
Remember these are for true jumbo mortgage borrowers above the conforming loan limit with stellar credit, ample savings and substantial provable income. What's the impact? I would expect to see continued price pressure on the luxury market as buyers wake up to an even more restrictive lending environment. It will continue to tighten or rates will increase(to compensate for risk) until the loans perform and the foreclosures slow. We still have lower down payment niche programs available within various markets but we fear that major moves by national investors will force others to tighten as well in their regional market. If you are considering refinancing I especially encourage you to evaluate your options now.

Tuesday, November 4, 2008

Get out and Vote.

I am writing this on Election Day, and I have been mulling over what it must feel like to go to bed and realize that you may be the next President of the United States. Pretty cool. If you win, you get great perks: a couple of 747’s, a nice house with plenty of staff, great travel, and a huge advance on your memoirs in 4 to 8 years. Unfortunately, whoever wins today will assume office at a calamitous time, when the financial underpinnings of the world economy are terribly fragile. However, a little closer to home, the next President will also have a significant impact on the future of the real estate industry. The way he and Congress navigate the credit crisis, tax policy on capital gains, and address a crumbling infrastructure will be simultaneously precarious and vital to our nation's future. I hope we, as a people, make the right choice. After all, we deserve it after two years of listening to the longest presidential campaign in US history!

Monday, November 3, 2008

The Great Housing Bubble Book

The Great Housing Bubble is a fantastic resource for anyone looking to understand why home prices fell. The writing has exceptional depth and detail, and it is presented in an engaging and easy-to-understand manner. It is destined to be the standard by which other books on the subject will be measured. It is the first book written after prices peaked, and it is the first in the genre to detail the psychological factors that are arguably more important for understanding the housing bubble. There have been a number of books written while prices were rising that used measures of price relative to historic norms and sounded the alarm of an impending market crash. Economic statistics and technical, measurable factors show what people did, but they do not explain why they did it. The Great Housing Bubble analyzes not only what happened; it explains why it happened.

The author of The Great Housing Bubble, Lawrence Roberts, works in the real estate industry, and he lives, Irvine, California, the center of both the housing bubble and the subprime universe. Irvine's residential real estate market witnessed one of the most dramatic increases in prices of any market in the United States. His unique location and his position in the industry make him uniquely qualified to discuss the housing bubble.

The Great Housing Bubble is an easy read. It was developed section by section through a series of posts on the Irvine Housing Blog. With the feedback provided by 3,000 daily proofreaders, the writing is clear, concise, and accurate. Much of the work reflects the collective wisdom of this large and diverse community. However, the book is also a fully researched and supported academic work. Statistics used in the work are cited, and conclusions are drawn from academic literature and documented in an extensive bibliography and end notes. These academic research papers are used to support the author's arguments and lift the work from a series of unsubstantiated opinions to a collective, unbiased, and widely accepted view of the housing bubble.

The Great Housing Bubble concludes with a series of recommendations for preventing future housing bubbles. There are both regulatory and market-based solutions. These include changes in standard appraisal methodology, the revamping of our current system of loan standards and documentation, and a call to regulate the sales tactics of realtors. These solutions are carefully explained, and although they would be difficult to implement politically, if these proposals were adopted, future housing bubbles would be very unlikely.