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From lending to construction, a home sales story makes sense

A couple of residential housing developments this week — along with routine economic releases about new home sales and pending sales coming out Wednesday and Thursday — make now a good time for another look at home sales and construction in your market.

First, as you probably have heard, the Obama administration is out with more changes to its refinancing program aimed at helping underwater borrowers.

Obama mortgage news

CBS MoneyWatch broke down the new mortgage finance rules. Image from CBS video.

The new Home Affordable Refinance Program will be available to people who have made timely mortgage payments for six months, regardless of their financial situation, as the New York Times reported, and will reduce fees and allow lenders some immunity for problems with the original loans.  People with substantial equity in their property won’t be eligible for the refinancing help, however. | Ilyce Glink of CBS MoneyWatch broke down the details: New Mortgage Rules Offer Help for Struggling Homeowners

It’s rather ironic that lax lending standards are blamed for the real estate bubble that burst so cruelly in 2007 or so, and now the latest attempted antidote appears to be … relaxing lending standards.  This Christian Science Monitor editorial articulates some concerns that would make good interview questions to pose to executives at local lending, real estate and appraisal companies — what’s the balance that can avoid another bubble yet break the gridlock in the current market? And here’s another critical take from Toronto’s  Globe and Mail.

Some industry group representatives say the relatively narrow program — it doesn’t do anything to help foundering borrowers, only those in good standing, and it doesn’t spur new home sales — is too little.  Again, try to localize this by getting some data from area lenders — of the outstanding mortgages on their books, how many would qualify?  And how much would an average mortgage payment drop at the new interest rate?  Will that free cash do much to help the regional economy, and how much will the borrowers’ process of getting back “above water” on the loans be accelerated?

If you can’t get actual data or anecdotal examples from lenders, gather some information from real estate agents, appraisers and home owners to create some hypothetical scenarios.  Say, for example, that someone owes $175,000 at 6.25 percent on a condo now valued at $125,000.  How much will dropping the loan to 4 percent (or current rate) save them, and how much faster will they be at a break-even point on the loan.  Then what?  Are such borrowers expected to move and migrate more, if they dont’ have to pay out of pocket to unload their real estate?  How will the refinancing program help your local economy?  Ask the experts.

One group that won’t benefit much by the new plan are home builders and all of the related trades and materials suppliers.  Althought home builder sentiment has gained in recent months, and some publicly traded firms have received a stock-price bump as building activity has ticked upward, that industry still is crawling out of a hole that saw 2009 post the lowest home-construction figures since records began being kept in 1959.  I know of lumber yards that have gone out of business, electricians laid off for lack of work and furniture stores now vacant due to the virtual halt to home construction.

With such ramifications for the fortunes of the home building industry, you might want to make time Wednesday from 2-4 p.m. EDT to attend the National Association of Home Builders fall construction forecast and webinar.  Registration is free for journalists and the program includes three forecasting gurus as well as a moderated question-and-answer session.  According to the agenda, the speakers will talk about where markets are (and are not) improving, how home prices are shifting, credit and lending.  If your beat is even remotely tied to residential real estate — retail, careers, employment, economy, manufacturing — you’ll probably want to tune in.

About the Author

Veteran financial writer Melissa Preddy served as a business writer, editor and columnist for The Detroit News from 1995 to 2008, is a Michigan-based freelance journalist. She now works as a writer and editor for a medical research unit of the University of Michigan Medical School. Follow her daily posts. | E-mail: Melissa Preddy

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