The year 2011 was another year of record low interest rates and hopefully, the bottom of the market as far as “loan options” for borrowers are concerned.
The low rates come from the hand of the Fed and its policy against the chronic slow growth of the national economy, which we can call the “Right hand.”
“The Left hand” is puppeteering much of the economy with new regulations on whose and which criteria borrowers will have in the future in order to qualify for a home loan.
Unfortunately, the Right and Left hand are sometimes working against each other and it can have a profound effect on the market and the people inside.
It does not matter if you live in the Sun Region or any other place in the United States we all probably agree that this economy will not turn around until we have reached stability in the housing market.
Since the market crash in 2007, and accelerating in 2009 with the conservatorship of Fannie Mae and Freddie Mac, the loan requirements have gotten tighter and tighter.
Last year, we saw the end of the $729,000 loan limit in the Sun Region and we are now sitting on a reduced maximum loan of about $625,000 for borrowers trying to use the low down payment programs provided by the Government.
This loan limit change will impact the affordability index to buy in our area for some time until values either diminish further or another loan program comes along to serve this demographic.
The following is an example how a single regulation change can effect a market:
The difference to a buyer purchasing a house is putting down 3 percent on a loan up to $729k versus 3 percent down on a loan amount of $625,000.
The difference, for the time being, is going to depend on into which neighborhood the buyer/borrower will buy.
The secondary factor is that higher value neighborhoods will attract fewer buyers and thus be under market pressure to be reduced in value. On the other side of the coin …
What about the borrower who has not qualified for a refinance because there was a period of unemployment in the family over the last two years and now the maximum loan amount has been reduced and the borrower has an adjustable rate mortgage in which they are stuck?
We just put another short sale on the market down the road.
Stability in this housing market will happen when people are able to stay in their homes with a reasonable fixed rate mortgage.
As many as one in 15 homes in the Sun Region have some form of adjustable rate mortgage tied to it.
Most of these people cannot refinance because of the regulation changes like the one described above.
With the much-anticipated increase in interest rates or “inflationary period” that is to come, what is the most likely outcome?
We are in a unique position here in the Sun Region.
Most of the regulations that are determined are based on National Averages and numbers.
We do not get much sympathy in Washington with our large loan amounts compared to the rest of the country. Though the same criteria were used when we got the increases in the key loan limits almost 10 years ago.
Let’s hope in this election year that we get some effective programs that address the weakness of the current regulatory environment. The silver lining is that the worst of it has already happened.
Matt Murphree is a past president of the Seal Beach Chamber of Commerce and the owner and founder of Home Loan Online.
