First, the bad news: on Dec. 26, 2007, the most recent S&P/Case-Shiller Home Price index revealed the 10th consecutive month of negative annual home value returns and the 23rd consecutive month of decelerating returns. Nationwide, foreclosures are increasing and financial institutions are writing off billions of dollars of sub-prime losses leading the A paper lending market to continue to tighten their underwriting guidelines. A weaker than expected jobs report at the beginning of January also put pressure on the financial markets.
While the overall market continues to mull all of the negative reports relating to housing and mortgages, we must recognize some underlying positives that will continue to provide support to the housing sector: continued relatively strong consumer confidence and declining long term interest rates being closely monitored by the Federal Reserve Board. Both personal income and spending rose nicely in November and by significantly more than anyone expected. The Fed continues to be pragmatic and understandably incremental as it steps down interest rates without moving so quickly as to cause rapid inflation. How far they will continue to cut the Fed Funds rate remains to be seen but bond market guru Bill Gross of PIMCO predicts we could see a return to the bottom levels of 2003.
The government has also stepped in an attempt to quell the mortgage and housing woes. There are two recent legislative pieces of note. The first is a freeze on teaser rates for some sub prime borrowers whose interest rates are set to adjust to significantly higher figures in the near future. A deeper analysis reveals this is more for the benefit of the financial institutions than the borrowers. The other legislative change is a revision of the tax code confirming that a “short sale” is no longer a taxable event. This means any borrower who has debt forgiven by a lender no longer has to pay income tax on the forgiven amount. This could encourage some potential defaulters or foreclosure candidates to seek a short sale acceptance from their lender.
While the current mortgage and housing market situations play out, what should one do? First, it’s officially a buyer’s market and may be an excellent opportunity to acquire real estate. For those who already own property, we at CenTek are suggesting our clients position themselves for a potential refinance as interest rates continue to move down. If you have any type of ARM (such as 5 year or 7 year fixed ARM), we encourage you to take a moment to review your current loan or to call us to confirm when your next interest rate adjustment will occur. For many borrowers whose original loans were written in 2003, this could be your adjustment year. Now is the time to familiarize yourself with when and how the rate adjusts so that we can analyze all possible options with you. With tightening lending guidelines, maintaining a strong credit history and being able to document a minimum of 6 months total living expenses in liquidity are keys to a successful transaction.
CenTek Capital Group is one of the most innovative and established financial sources in the real estate finance market, providing a wide array of real estate financing. We have many new and unique products for all borrowers and properties. Please feel free to contact us at your convenience to review any real estate financing scenarios. We are pleased to handle transactions of all sizes and complexity levels and are always available to answer any questions.
Happy New Year to you and yours from everyone at CenTek,
Gloria Shulman, Curtis Cohen, Justin Bayle, Ted Kachadorian, Bashar Hamad, Nathan Jensen
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