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There has been a lot of talk on here about how terrible foreclosures are and how rotten the sub prime lending market has been for
our industry. I've read a few posts from people who have pointed out that statistically foreclosures aren't really that bad and one post that stated that the sub prime mortgage market is actually performing better than it was anticipated that it would when a lot of these programs were being structured. I'd say that the chicken little crowd is winning over the rosy picture people about 4 to 1.
So, which is it. Is the sky really falling or is this all a bunch of hooey? Like most things, to me, this one falls in the middle.
Yes, foreclosures are a bad thing and while up until now, they haven't been running all that much ahead of the historic averages, there are storm clouds on the horizon. Price appreciation has slowed down or stopped in many parts of the country combined with ARM adjustments coming due to form, if not a perfect, then at least one hell of a storm in the mortgage market. Add in the fact that, while they might still be performing better than they were anticipated to, that some of the programs that lenders came up with were probably on shaky ground from the get go. These programs (Specifically, I'm talking about stated income loans for people who already had bad credit - I mean, what the hell were those folks thinking?) and you have an even
bigger storm brewing.
The chicken little crowd definately has something to crow about. That said, the housing market is HUGE! It's also built on very stable ground. The fact of the matter is that people have to live somewhere. Short of a major population decline, nothing is going to change this fact. According to the Federal Reserve Bank housing formations in the US are expected to continue to grow as the population continues to grow. Did housing prices get away from them selves? Maybe, but the market will correct itself similar to how the stock market corrects itself from time to time. After the correction, which I think is going on right now, home prices will start to rise again.
I liken this crises to the Savings and Loan Crises of yesteryear. You couldn't turn on the tv without seeing a story about how the financial sky was falling and how the banking industry was going to collapse in on itself. Neither of these things happened though. People learned that some of what they were doing was indeed not all that smart (the whole foundation of the Savings and Loans was flawed in that they were borrowing short and lending long, which if you go back to your Econ 101 class, you'll remember, that's not a good thing to do).
The same thing is going to happen here. Yes, some of the sub prime lending practices went too far and needed to be reigned in. That's happening as we speak. But the housing markets and lending markets will weather this storm. As a mater of fact, some will come out of it stronger than ever. Those are going to be the people who keep their heads about them and seek out the opportunities that are presented from the chaos.
Bob Mitchell
ValueList Real Estate Services, Inc.