The Sky is Not Falling
By Dan Hendricks
If mainstream news media is your only information source, you may
believe that today’s housing market is a “sky is falling” proposition.
While today’s market is certainly challenging, a little history and
wider information net provides some unmistakably positive signs.
The housing market is very cyclical. In the mid-1970s and in the
early-1980s and 1990s, housing production and sales dropped by more than
60 percent in a matter of months. In all cases, the market bounced back
to post record gains. The median price of a new home in 1991 was
$120,000. In August, the median price was $225,700-up 88 percent!
History’s lesson is that down housing markets invariably turn upward.
And the “down” of this market is nowhere near the down of previous
markets
Without question, a substantial number of Americans face the pain of
foreclosure; a disproportionately high number of them are sub-prime
borrowers with adjustable rate mortgages (ARMS).
FOUR STATES TO BLAME
A closer look at the credit crunch, though, is instructive. According to
the Mortgage Bankers Association (MBA),
Nationally, more than 85 percent of sub-prime borrowers with ARMs are
paying on time every month. In fact, according to the MBA, if not for
the increase in foreclosures in these four states, we would have seen a
nationwide drop in foreclosures in September.
More than 97 percent of prime borrowers- the bulk of the mortgage
market- are up to date on their payments.
37 percent of all single-family homes are owned debt free-without any
mortgage-and homeowners nationwide have built up more than $11 trillion
in equity.
For most existing homeowners, the fact is their homes will be worth
significantly more than they paid for them once the market begins to
recover - a process that is expected to begin in 2008.
“Nationwide credit crunch” is also a misnomer that needs to be
addressed. Outside the sub-prime arena, mortgage markets are functioning
normally. While underwriting standards may have been tightened,
credit-worthy home buyers should have no problem in finding a
conventional, conforming mortgage.
Mortgage financing for borrowers with solid credit remains available for
a conventional loan limited to $417,000, and rates remain near historic
lows at just above 6 percent.
The current housing price correction is helping to restore
affordability. Prices have leveled off, or even declined in some areas,
making this the best time to buy.
ECONOMY’S BRIGHT
Past down markets in the housing industry have largely been mirrored by
a struggling national economy. By most accounts, though, today’s
economic outlook is much more positive.
The
Daniel M. Hendricks is executive director
of the Home Builders Association of Greater
