As we all know we've been hammered everyday about the economic conditions we face. It's funny though how, when speaking about mortgages, the media fails to talk about government backed loans. They only talk about Fannie and Freddie but leave out Ginnie, which backs FHA securitized loans.
We still have financing available for first time homebuyers and marginal credit loans through financing with FHA, VA, and USDA rural housing loans. When talking with prospective buyers I keep hearing how "scared" people are to make a move. After I explain some of the conditions in the market and why the stock market is so volatile they settle down and understand what is happening with market dynamics.
The automobile industry used to be the main driver of the economy and signaled the dominance of manufacturing in our economy. Well now the main driver is housing. Yep that's right back in 2001 after the 9/11 attacks government was reluctant to impose regulation on the only part of the economy that appeared to be thriving, the red hot real estate market. Now we are facing the problems that all the credit default swaps, collateralized debt obligations, and other derivatives, that have caused problems for the banks and institutions that had them on their balance sheet.
We are in a flushing out phase and it will end, just not immediately. The Housing Recovery Act of 2008 made great strides to modernize FHA and come out with a tax credit for first time homebuyers in order to get them back into the market. Lets face it we need the first time homebuyers back in to purchase bloated inventory so we can start the domino effect again.
I want to explain a little bit about what is going on in the credit markets. I believe through education, you can ease your prospects minds with important information and convert more leads into sales.
Lets start with the credit markets. Credit markets are vital for individuals and businesses who need to access credit in order to purchase goods and services, make payrolls, expand business operations, make capital expenditures, school loans, and more.
The most important spread being watched right now is the LIBOR/OIS Spread. This is the spread between dollar LIBOR (london inter bank offered rate) and the Overnight index swap rates. This is a good indication of the willingness of banks to lend to each other. To give you a comparison before the credit crunch the LIBOR/OIS spread was 11bps (bps mean basis points which is 1/100th of a percent, example 11 basis points is .11% - 100bps is 1%.) The higher the spread the less likely banks will lend to each other. This week it closed at an a staggering 331bps but dropped from 341bps, which means we are seeing slight improvement.
Now what about all the selling? Well with the craziness in the market and Hedge Funds, investment vehicles for the wealthy, are deleveraging their positions and being forced to sell due to redemptions from their wealthy clients. Hedge funds are down about 19% ytd (estimate), some hedge funds after fees return 20%-26% annually. Hedge funds make their money in the stock market, credit markets, and derivative markets but in some cases borrow heavily to invest and hedge their bets. That's fine and dandy in an economic boom but in a slowdown like this they must sell and deleverage their positions causing downward pressure in the markets and then also selling on the down side, short selling, put options, etc, to keep from losing money from long, bullish positions, which causes more downward pressure. Not to mention mutual fund clients are selling their positions to meet growing redemptions from their clients as well. Thus creating the volatile environment we find ourselves in.
If you had some extra money laying around right now would be the best time to invest in real estate, and stocks pounded and are now undervalued.
The moral of the story, educate your clients in contrary to what is being splattered on the media, we are in election time and some news stations with political agendas are attempting to make this look like this is all the Bush Administrations fault and are attempting to make it sound so HORRID. Both parties failed to take action but many attempts were made but shot down by democrats in Congress. Right now is the best time to buy a home and with the Treasury recently being given 1.1Trillion dollars in buying power to purchase mortgage-backed securities (the main driver of mortgage rates) we should see some easing in the rate volatility here shortly as well.
If I can help with anything feel free to call or email me. Stay positive, do your homework on the market, this kind of thing happened in 1987 as well but how soon we forget.
God Bless!
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