With the spring market upon us, real estate professionals are starting to get a bit giddy. We need to remind ourselves to remain impassive to the hype bouncing around on Twitter and in the Blogosphere. Home ownership is still in a bind the likes of which the country has not seen, and new homeowners need to counseled carefully.
"Nearly 61% of option ARMs originated in 2007 will eventually default, according to a recent analysis by Goldman Sachs, which assumed a further 10% decline in home prices. That compares with a 63% default rate for subprime loans originated in 2007. Goldman estimates more than half of all option ARMs outstanding will default". (Source: Wall Street Journal 2/06/09)
•Over the last 12 months the rate of deterioration in jumbo prime has exceeded all other product.
•Deterioration rates for foreclosures are highest for jumbo prime and Option ARM product.
•These two products represent only 6% of outstanding mortgages based on loan count, but 17% based on unpaid principal balance
(Source: Lender Processing Services 2/09)
According to the Center for responsible lending, “…the numbers are getting worse: 6,600 new foreclosures a day; one every 13 seconds…”
What’s a person to do?
Start by looking critically at your housing situation. Are you in a spot where renting consumes your assets at an inordinately high rate, and does assuming a mortgage, taxes and maintenance expenses make sense based on the equity upside and other factors?
Then look at your employment outlook. Do you see a clear path for you and/or your spouse, even allowing for a possible downsizing or layoff period? Do you have self-employment income that can fill some of a possible gap?
One other thought is to consider your life stage. Are you in a locale where you can see yourself “settling” for at least 5 years? That would be my minimum right now, barring a company transfer which generally involves some sort of subsidy to ease the pain of selling at a loss if needed. If you feel strongly that you’re “here to stay”, then owning starts to make sense.
Most importantly, in my opinion, is to be as clear-eyed about your financial outlook as possible and make decisions based on real numbers, not hopes. For many, this is going to be a great year to convert cash into real estate. Sharpen your pencils!
If I can be of assistance in helping you think through your Lancaster County home purchase decision, even if you’re not sure you’d like to buy yet, please call me. I have financial resources that can of great service to you. As a real estate professional it's my job to be a valued resource for my clients, and avoid the hype by sticking to fundamentals.