Top Ten Reasons the Real Estate Market Could Crash Soon
I am for sure more confident in the bubble! Why? The bottom line is, the low job creation at the same time sales are skyrocketing are saying that it MUST come to an end. Good jobs are not being created at an alarming pace. Therefore, prices have to crash
Below, was my original post:
Yes. I am a happy guy! But sometimes, I just have to be realistic. Crash? Those are harsh words, I know, but in this case there are so many stupid and utterly preposterous decisions made that are politically or emotionally produced that make no sense. Politicians and bureaucrats sometime forget about the actualities and realities of the people and/or a specific transaction. They listen to focus groups that they pick, lobbyists or the person that screams the loudest instead of people that do the job for a living.
Here now are the top 10 reasons that real estate market could fail soon, in no particular order:
10. Rates are dropping. What? Aren’t rates dropping a good thing? Actually, no. The market is telling us based on macroeconomic reports that the economy is not cooking and jobs are not being created to make people buy homes. The only good news that will come from this is that those that forgot to refi, especially the HARP2eligible, will be able to get better rates. Speaking of HARP, it’s being reported that new FHFA Director Mel Watt may waive the eligibility date!
9. Robots CNBC did a report called “Robots Rising” highlighting the fact that robots will continue to take over human jobs. Simple. No job, no house to buy. The crappy liar loans of the past decade are gone. Guess what, you actually have to qualify for a loan now!
8. 43* No, it’s not about a home run record. It’s the magic arbitrary number that the people at the CFPB (Consumer Finance Protection Agency) felt would be the maximum debt ratio for mortgages under the Dodd-Frank Qualified Mortgage rule. So let’s see. There are no more no docs, no more option arms, practically no more interest only rules, but they felt that 43% of your income should be the maximum for your mortgage payment plus other qualified debt.
Why the asterisk? There was a 7 year “exception” to that rule if your loan got approved in the Fannie Mae or Freddie Mac computer system with a higher ratio than 43. Sounds great, right? Here’s the problem. If a lender gets a computer approval for more than 43% and makes the loan, Fannie or Freddie can come in an audit the file. If they find that there was one T not crossed, they can claim the loan is NOT QM exception compliant, make the loan worthless on the secondary market and possibly make you buy it back.
So, that leads to the big boys in mortgageland, the banks and the big mortgage bankers along with the brokers the only ones left in the business since the small/middle sized mortgage bankers would be killed if they stated having to buy loans back.
What does that mean? Higher rates to compensate for the lawyers they will have to hire to protect them against the 30,000 auditors that work for the agencies. Or, it could mean that less and less companies would be interested in being in the mortgage business resulting in loss of jobs all over the country and more people unemployed.
It also comes down to decisions made by who I will call Mister 43*, Raj Date. We will hear about him later!
7. 580 Credit Score with 3.5% Down and 50% Ratio Yes, folks, the same CFPB that decided on 43 has let the FHA do 3.5% downs with 580 credit scores and 50% ratios! Talk about disaster! What will happen is that more and more and more deals will go FHA and because of the low scores, there will be defaults. Inconstancy in underwriting standards where the people with bad credit get high loan to value loans and the person with great credit and a lot down may not get a mortgage at all. Oh, and I don’t want to forget, FHA has lowered just about all the maximum loan amounts around the country shutting out many potential homebuyers (and refinanciers). DUMB
6. Flood Insurance You think the mortgage market makes no sense, let’s talk about the federal flood insurance program. In 2012, a bipartisan bill passed both chambers and was signed off by the President giving a blue print on restocking FEMA with much needed funds. They just went through Katrina, Sandy and other natural disasters and were running very low on funds. But the unintended consequences amounted to people that owned $75,000 homes going from paying $400 a year to $15,000. No, you did not read that wrong. From $400 to $15,000. It’s an abomination.
There is now a bill in the Senate that will be voted on soon to move all this back a few years (I am sure there will be some amendments). But the Tea Party whackjobs like Senator Toomey are trying to railroad it even though many of his fellow Pennsylvanians are being affected and have told him so. People of ALL parties along with real estate professionals are outraged and incoherently confused by the word no from these Congresspeople.
There is a massive grassroots effort under way to knock some sense into these morons. Visit http://stopfemanow.com for all the details. But, if people can’t pay for their insurance, they will lose their homes, values will plummet in all 50 states and there will be more renters and less sales.
5. Overregulation Let me say, I am not a Republican who advocates for change based on the “small businessperson” chant. But, this time, I am telling the good people of Washington to stop. Stop making it outrageous on people to own a business in the real estate field. In the last few years, they have overreached on mortgage brokers only to limit their income, made appraisers beg and do deals for far less dollars than they should be making and they have forced real estate agents to lose deals and money because of the way rules have been placed on vendors. I could spend hours on this, but I urge the CFPB to find a reality based platform to deal with the issues instead of theory from people that were never involved in the business itself.
4. Non-QM loans The architect of the Qualified Mortgage rule, Mr. 43, Raj Date, who left the CFPB after the announcement was made to start his own firm to deal with Non-QM loans is now finding that this is not as easy as he once thought. The sophisticated investors in mortgage backed securities have not come over to his way of thinking. So, all the Non-QM (I called them the new Sub-prime loans) mortgages may not come to pass. So, let’s eliminate more buyers, hence, down go values
3. The Fed Tapering is happening. The Fed is still buying a lot of Mortgage-backs. but, they failed the country in their leadership by implementing the aforementioned changes to mortgage and appraisals and helped to slow what could have been a faster, stronger, more favorable real estate market recovery.
Now, they have handed their policies and their people over to the CFPB with a pat on their asses telling them to go get ‘em! The flavor of lunacy has not left their heads and their over buying of treasuries instead of mortgage-backs was just plain silly.
2. The Stock Market These last few days of a selloff really does mean something. The market does not think the economy will kick butt and corporate profits will slow and then the value of stocks will diminish and people will not be able to sell as much stock to buy homes. Simple.
1. Consumer Confidence If you ignore the other 9 above, this is the Grand Poobah of them all. You can’t get your favorite character from Goodfellows to put a gun to someone’s head and force them to buy a house (Sorry, Joe Pesci). People buy homes because they feel secure in their job and want to plant roots. That’s the generic majority.
And yes, there are the “stupid” markets such as San Francisco, New York City, the westside in Los Angeles, but for a place that is dependant on regular W2 jobs from large companies, this can be the killer.