Undoubtedly the demise of the stated income/subprime loan will hurt the local Las Vegas area real estate market.
Read the following:
- Las Vegas Mortgage Industry: Jumbo Rates up Big by Rey Gallegos
- Goodbye My Friend Stated by Matthew Blum
- Search Subprime on Active Rain
- Escrow 911: Subprime Fallout and the Potential Impact on the Las Vegas Valley Rebound by lil ole me last February!
- Help! My ARM is Adjusting and I don't have the Equity to Roll in Closing Costs by Tom Burris
More products have gone belly up since my post in February and the impact is becoming more clear. There are going to be winners and there are going to be losers in this market. Here are my lists:
The Losers:
- Sellers who have no equity because values are declining with the growing short sale and foreclosure market. Competition to reduce prices is ongoing because banks need to reduce inventory and minimize losses. Inventory (competition) is rising daily. Jumbo (over 417K I believe) sellers will really feel pain.
- Buyers who need Jumbo, Stated, 100% or Credit Risk loans. Buyers who also bought in new construction projects (like high rises) years ago and speculated on easy money to remain at the time of their close.
- Real Estate Professionals who specialize only in the resale/new construction residential markets.
- People who bought in the last three years and who were expecting to refinance a loan. Declining values are preventing appraisals from coming in the amounts they need to refi.
- Investors who bought high, hedged on a quick flip and are experiencing severe negative cash flow
- Renters will experience a significant rise in rental rates as potential buyers are priced out of their potential purchase. Economic conditions and steady population growth point to this all the way around.
The Winners:
- Buyers who have a significant amount of cash down, fall within FHA or VA guidelines, can pay with all cash, can fit within a conforming loan
- Real Estate Professionals who have great mortgage product knowledge, realize what markets are booming and can adapt
- Investors who have capital and are prepared for a long hold
- Landlords will be able to make more money in a rental market that is under incredible amounts of pressure due to supply/demand.
Back awhile ago Tom Burris and I would hang in a mortgage forum designed for people to understand credit. I remember people coming in and wanting to wait for "prices to go down" before they buy using that 100% (sometimes stated) product. I remember giving generic advice regularly to buy if you can afford the payments. I would explain even if prices go down, you are speculating that rates are going to stay the same. I always used the example that if prices go down 10% and rates go up 1% you are paying just about the same payment.
Well, here we are and now we are seeing the prices go down (not quite 10%, YET) and we are seeing rates skyrocket for 100%, jumbos, stated, (non conforming products, etc).
Las Vegas workers & real estate will suffer. We have so many regular people in need of (and can afford) the stated product of yore: self employed and tip compliance workers ~ those people who were waiting, anticipating, speculating on lower prices ~ can no longer afford the home they have been dreaming of. Now they have to save and ride out the foreclosure/short sale storm and just wait for these products to come back ~ or ~ save money for a large down payment and adjust tip compliances and tax write offs and be patient to be able to qualify for a conforming loan on paper.
Until then, I strongly believe the winners will smile and the losers will be hurting.
This too, shall pass, let's hope quickly.
All the Best,
Realtor®
Nevada Realty Solutions - Your Dream, Your Investment, You\'re Home!
8942 Spanish Ridge Avenue
Las Vegas, NV 89148
direct: 702-580-1783
fax: 702-995-8237
Renee@ReneeBurrows.com
http://www.ReneeBurrows.com
Not all 100%... the MyCommunity type programs are still quite affordable... great programs
anything 100% should now pretty much expect to be Full Doc...
Hi Renee, You look lovely today:) And you have brains as this is a very well written and right on post. We should have ALL seen this mortgage "thingie" coming from a mile away. I can't count how many closing I sat in over the last few years just shaking my head at some of the terms buyers were getting on mortgages. And just knowing they would be in foreclosure in less than a year. Some of the buyers were there in less than 6 months. I know some that NEVER made a payment. What the heck were they thinking?
But like you stated...this too shall pass.
Sharon: I hate to say this but our market moves on greed. People who bought at the height to do a quick flip and now have a painful negative cash flow hold, people who were "waiting", investors who are now pouncing. Greed makes the world go round I guess?
David: Unfortunately most workers here are in the leisure and hospitality industry which relies on tips and then self employed. When they rely on tips they are subject to tip compliance. They can adjust their tip compliance to what they make but they lose there also by paying higher taxes. There are still great programs out there for those that fall within the program guidelines.
BB: Why thank you! On the flip side: I found some of the programs incredible and affordable for those that bought within their means also. The investors who funded these programs are losers too. Should have mentioned that :)
Hi Renee - good post and you're right on about the list that you wrote about the losers and the winners. And this too shall pass. History continues to repeat itself, and these types of loans will be back, again as they've come back before. They'll be re-packaged and maybe the guidelines will be tightened up somewhat, and then they'll be relaxed again, and all will repeat itself all over again, just as it has before.
Ann
Renee,
I would like to think I'm one of the agents that is well informed about financing and is adapting to this changing market. AR is the most significant factor in my education to that end and you are part of that.
Thanks,
Wow, you guys have a LOT of people working on tips. I can see a big affect on your market.
You can't have your cake and eat it too..... so, if you make $X, then you need to tell the IRS.
Thanks for the links
Renee,
What an excellent post!!! It really outlines the winners and losers!
Ann: Exactly!
Fran: I have learned a ton from AR and actively working in this market. Every escrow I have had(save one) has almost crashed and burned this year due to this market correction. Luckily all were saved :)
Tom: Thanks for stopping by and you are welcome!
Rey: Fun way to put it together huh?