The One Year Anniversary of the "Credit Crisis"

In August of 2007 we knew that changes were occurring in the mortgage industry. What we didn't know was that while the owners of our company were on vacation, various investors and lenders would simply stop funding approved, ready to go loans. Leaving us here to desperately try to explain to people why suddenly they actually weren't buying or refinancing a home after all.

Like any good employee would do, we called the owners and whined, "Everyone is mad at us, what should we do?"

And like anyone with thirty years of experience in the field, on vacation with their family, would respond they said, "Everything will be fine."

The combination of perspective and Disneyland has an unbeatably calming effect, evidently.

And alas, they were right, as one year later we're all here to tell the tale, though it's still unclear if the worst is over.

Here is an interesting article about the beginning of the end of the mortgage world as we'd known it for several years.

And here is a terrific analysis of the various financial sectors that have been affected and the invasive steps the government has made (and is poised to make) in order to stave off a recession.

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New Tax Incentive for First-Time Home Buyers

The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers. To qualify for the credit, a home must be purchased between April 9, 2008 and before July 1, 2009, and buyers must meet income restrictions. This tax credit combined with still relatively-low interest rates and house prices at a 5-year low make now a great time to enter the real estate market for the first time!

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Tightened Restrictions and Rising Interest Rates

In light of all of the problems being had by Fannie Mae and Freddie Mac, interest rates have risen rapidly in a relatively short period of time. Just last winter 5.375% was the going rate for a 30 year fixed loan and this week -- 6.75%. In the past interest rates have been in the double digits, so there isn't a lot to complain about yet, but I suspect a lot of people are wondering why they didn't refinance when they had the chance.

In other industry news Fannie Mae has changed its guidelines in order to prevent intentional foreclosures. You've probably already heard that guidelines have tightened so that anyone who has had a foreclosure in the previous five years will not be eligible for conventional financing. So some people have been tricking the lender.

What they do is they purchase a new home stating they will live in the new home and rent out the current home. This helps people qualify because it's more difficult to purchase a rental property, but it used to be relatively easy to convert an existing home into a rental. You could use the proposed rent on your current home to offset the mortgage payment and thereby more easily qualify for the new loan.

So what people were doing is buying the new cheaper, more affordable home under those guidelines and then once the new loan closed, simply walking away from the other house. As a result, you can forget about converting an existing house into a rental with ease (which used to be a great way to slowly build up a real estate portfolio - because you could buy each new house with a mimimal down payment and owner-occupied interest rate), because now everyone will have to both provide a rental agreement (meaning you'll have to rent your house out before you own the new house you'll be moving into) and also you'll have to be able to qualify with both payments.

I'm not as pessimistic as some of the news about FNMA/FHLMC -- they're government agencies and as you know the government takes care of its own (and big corporations), so most likely it's only a matter of time and this will change again.

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Home Improvement Goes Green

Portland, Oregon is regarded as one of the greenest cities in America. As a Portland real estate professional, new home buyers often ask, “What’s available for environmentally friendly homes?” To my surprise, green architecture doesn’t seem to be catching on very quickly with Oregon homes. Yes, there are a few projects popping up here and there, but the majority of newly built homes for sale are following many of the same old environmentally unfriendly guidelines.

My response to Portland, Oregon residents and new home buyers is this, “Get into the house you like and make environmentally friendly improvements on your own.” When your financial situation is right, pull some equity out of your home to make some green improvements. Why wait a decade for Portland real estate builders to go green, when you can get started with your current home? The following are some easy tips for making your home and lifestyle green:

• Have insulated windows installed to conserve heat.
• Buy energy efficient appliances and replace your desktop computers with laptops.
• Have your yard landscaped in a way that conserves water and requires less maintenance.
• Have an advanced climate control system installed.
• Have skylights installed.
• Go to home depot to get water saving showerheads and fluorescent light bulbs.
• Call PGE to get on their renewable energy program.

There are a couple hundred more tricks for making your house green. These are some of the more feasible ideas that generate the greatest results. Some of these tips are less extreme, whereas many of these tips can be made affordable by refinancing your home and using some equity. As a bonus, green improvements aren't just good for the environment, they save you money too!

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Analysts See a Housing Market Rebound

According to this article, due to the combination of fewer new houses being built with an increase in the number of buyers who can afford to buy one (lower prices = greater affordability), within three years we should see a bounce back of the housing market. Lower prices create greater demand which creates higher prices. Good ol' supply & demand - never fails.

On the other hand interest rates are steadily increasing (up to about 6.25% for a 30 year fixed today) and if that continues, this forecast might be a bit optimistic. (So as to not lose perspective, rates were 6.125% a couple of years ago - we just had a nice dip this past winter.) As federal attention shifts to bringing down the price of oil, the bond market could continue to suffer and who knows how high rates will go. The increase in rates could offset the attractiveness of home ownership for buyers in certain areas so we'll see how things go.

In the meantime, here is an interesting analysis of what has been happening in Portland's market. We haven't suffered as badly as some, with any luck we'll snap out of it sooner too!

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