Good for you Guy!

Good for you, Guy!

BTW, there is an interesting write up in the Rocky Mtn News about Nevada and its role in the upcoming prez election. Included within the piece is a whole section about the local housing market. Sad, actually.

http://bit.ly/BYA9c

Congrats Guy -

But the substance of the article is really a subject I want to introduce to the group. So with your permission…

For some time I and others on this blog have been of the opinion that at least in the mid to higher price segment of the SFR market, there has been a “Mexican standoff” [who’s going to blink first?]. This belief presumes there are a hoard of ready, willing and able buyers out there sitting on the sidelines waiting for prices to drop so they can strike.

Turns out that may NOT be the case. And the reason? There are essentially no mortgages available in the marketplace unless you fit into a very, very small class of borrower, or you’re willing to be extorted by a hard money lender.

Basically if you’re looking for a conforming loan on a purchase of $2.5M, you probably don’t need mortgage assistance so the subject is moot. However for essentially everything else in between, good luck!

You can check with whomever you want in the mortgage industry [and I’m relying upon information from some of the largest direct lenders still in the marketplace (Citibank, Bank of America, Chase Bank, Wells Fargo Bank)], but I think you’re going to discover that very few borrowers [those you would think are the most qualified] can actually qualify for permanent
financing principally for two reasons:

1. They have >4 outstanding real property mortgages [something that’s NOT that uncommon for purchasers of SFRs >$1M]. Since April of this year, most direct lenders’ guidelines have changed and now borrowers like these simply don’t qualify, PERIOD;

2. The ONLY income these lenders will now consider for loan qualification purposes, is what is actually declared on income tax returns, and for at least the last two years. And if you’re generous on your use of deductions; or have invested in vehicles that shelter income otherwise subject to taxation; you’re shooting yourself in the foot mortgage qualification wise. So notwithstanding the fact borrowers can document all their income, lenders will no longer consider a very large chunk of it if it’s: insufficiently seasoned [i.e., it hasn’t been an income source for less than five years (like short term deeds of trust)]; and/or, didn’t come into existence [and for this reason wasn’t included in your 2007 income tax returns] until recently.

You can have the necessary downpayment; credit; assets; and, documented income; yet be unable to qualify for the reasons I’ve outlined.

And if borrowers like these can’t qualify, very, very few can. The net effect is that if essentially no one can qualify for a new purchase money mortgage of $800K or more, it means that in the price range we’re talking about, SFRs simply AREN’T going to sell unless:

1. Assumable financing exists;
2. The seller is in a position to carry back part/all of the purchase price;
3. The seller agrees to participate in a partial/full trade in lieu of cash; or,
4. The buyer has all cash.

So while many of us are sitting on the sidelines waiting for delusional sellers to get real, in truth and in fact it’s probably not going to make much of a difference because even if it were to happen tomorrow, virtually no one could secure the funds.

It reminds me of the saying, what would happen if they declared a war and no one showed up?

Sorry; part of my post got deleted so it makes no sense [I wish we could see/edit our posts before they appeared in print]. What I meant to say was that if you’re making a purchase of $2.5M, you probably don’t need a mortgage so the subject’s moot. However for essentially everyone else in between, forget about it.

Sorry for the confusion.

Smarten, well put and insightful. Hard to argue with that!

I agree with smarten regarding the so-called “pent up demand” argument. While there certainly are a fair number of individuals waiting on the sidelines for prices to fall, their numbers pale in comparison to sellers and inventory as a whole. And, as smarten has pointed out, the tough lending environment dictates many aren’t able to purchase even if they so wish.

We can go further to revisit the fact that “homeownership” (I prefer the term homedebtorship) reached an all time high during the bubble, subsequently decreasing future demand. There are no good reasons to believe that the enormous inventory overhang, and the resulting decline in prices, will work themselves out anytime soon, especially considering the lending environment.

Lastly, as smarten has accurately pointed out, someone shopping for a $2.5 million house doesn’t need a mortgage. These are cash buyers. Unfortunately for sellers, the numbers of these buyers pale in comparison to the inventory available. I always find it quite humorous when a listing agent will add in the listing notes, and for any house: “Prefer all cash buyer” or something along those lines. What seller wouldn’t!?

Smarten brings good points. Here’s another: in the past years, the goal of “home ownership” has driven people to buy when they should otherwise not have. But now, I am seeing in my personal world many decent wage earners/families simply choose to rent versus buy. Its as if a sea change is occuring and the young family 30-40 year olds are rebelling against the fallacy that home ownership is always superior to renting. So, ‘demand’ might not pick up as drastically this next time around as there are people who are now quite content to quantify their risks and increase their flexibility by renting.

Anecdotal of course, but coupled with lending difficulties, massive overhangs of inventory, likely increasing taxes in the coming years, and a huge populous of retirees coming down the pike, and one could make a serious argument that the single family market will be tepid at best for the next 5-10 years, not months.

You two need to cool it. This site is about reno real estate. A lot of people value this site but the last few comments are uncalled for.

On another note, when is the july sales data coming out guy and diane?

First Time Buyer–there is detailed and very up to date information on the ArrowCreek golf course situation on Ron Bell’s website renohomestalk.com–then click on ArrowCreek. The situation looks dire unless they can get over 200 people to agree on changing their memberships and possibly paying an additional 10k per year to keep the golf course afloat. I hope they can figure it out…

thanks future buyer!! I hope they figure it out as well, it would be a shame to let the golf course go back to desert.
Thanks Diane for the report, always very interesting!