The Mortgage Meltdown and the Raleigh Real Estate Market - Part 3 of 3
August 29th, 2007 Categories: Mortgage and Finance
In Part 2 of this series I discussed the impact of the mortgage meltdown on clients wishing to buy a home in Raleigh and surrounding areas. Today’s final installment will cover what this means to the average Raleigh home seller. I will also attempt to address the reaction of financial markets to the mortgage meltdown and speculate on whether we’re done, or if there is more bad news to come.
Selling a Home in Raleigh
The Raleigh real estate market is very good right now. Forbes magazine reports that Raleigh is the #1 seller’s market in the country. Well prepared, professionally marketed Raleigh homes that are accurately priced are easily selling in 4-6 weeks. Some even quicker. Let’s talk about why the ability of Raleigh home buyers to obtain financing changes things for sellers.
If you’re selling a home in Raleigh, the effects of the changes in the mortgage industry on you is much more subtle that it is for home buyers. The agent you choose to represent you and how up-to-date he or she is on this topic has become critically important. Home sellers and their real estate agents must now look at the financing terms on offers in a very different way.
Section 5 of the North Carolina Offer to Purchase and Contract will now require closer scrutiny to know if an offer to purchase your home is a good one, or not. Talk about good timing! This form was actually revised in July 2007 and now makes following the progress of a borrower’s attempt to obtain financing much easier. Unfortunately, the new form is not mandatory until November 1st.
I’ll be doing an article on the changes to our forms in the next few weeks, but for now just know that regardless of which form is used, any disclosed condition that is marginal should be a red flag. Buyers who are not being encouraged by their agents to deal with a well known and trusted lender, or who have not been recently qualified may not know they cannot obtain the home loan they need to complete the purchase of your home.
A good, recent pre-qualification letter must be submitted with all offers. By the way, pre-approval would be better. Much better. Pre-approval means that the buyer’s financial position has been more carefully considered and documented by the mortgage lender and all that remains is final underwriter approval and successful appraisal of the property. On the other hand, pre-qualification simply means that a credit check was performed and the buyer gave the lender a believable story. Consider requiring pre-approval on all offers.
The bottom line for Raleigh home sellers is that they and their agents must very closely examine the financing information disclosed in section 5 of the offer and ask plenty of questions if anything is unclear, or looks suspicious.
You might also be thinking that the pool of possible home buyers is reduced because some are now unable to obtain financing. Marginal buyers will be shut out of the market. The good news is this is a very small group. The Raleigh real estate market does not seem to be slowing down as a result of this. It’s really a matter of risk management for Raleigh home sellers now more than anything else.
Is the Worst Over?
The financial markets have reacted in large part with fear to what has gone on in the past months. Mortgages are bought and sold in secondary markets and many business entities own various pieces of them. The investment community has been selling and avoiding companies with known exposure to risks from mortgages. No surprise there.
I believe that once the mortgage origination industry can demonstrate that the new rules have mitigated the future risks, investors will once again turn their attention towards the lucrative secondary markets. The question is how long will this take?
I think we will live with the current conditions for a while. And for all of us here in the Raleigh real estate market, we will be okay with this as long as we exercise caution where necessary on both the buying and selling side.
Expect a lot more detailed questioning from your real estate agent and mortgage lender. Questions are good. They get people talking about possibilities and making better choices. Realtors upholding their fiduciary duties to clients have been asking questions all along. It’s just more important now than it was before.
Related Articles
The Mortgage Meltdown and the Raleigh Real Estate Market – Part 1 of 3
The Mortgage Meltdown and the Raleigh Real Estate Market – Part 2 of 3
Hi Bob,
We certainly have seen quite a few changes with the “mortgage meltdown” starting at the end of 2006. We have seen a tightening of the credit standards but what does that really mean, well I’m glad you asked. As a loan officer when it comes to people with past credit issues I am not so much concerned about scores as I am about the credit history. FHA is not a score driven product so people with low credit scores can still qualify for a mortgage with an interest rate of 6.5% 30 year FIXED RATE payment with a base loan amount up to $202,825…not to bad. With seller concessions most people can still get in with little to no money out of their pocket. All of the lenders that responded to this article have a plethora of solid mortgages just waiting for you to take advantage. There is a lot of bad news in the media about the mortgage business but how it affects you the consumer is the important question. Do not let what you are hearing keep you from starting your journey to home ownership or keep you from moving up to your dream home.
Todd R. Auffhammer
Again, well stated. I think it is especially important to point out how luck all of us are here in this area. Buyers and Sellers should follow your suggestions above. I’m confident that this over-hyped “mortgage mess” will fade over the coming 4-6 weeks. Things will quiet down and the Raleigh market will continue to perform well. Keep the good info coming!
Bob-I really appreciate the information you have been getting out there on the current state of the real estate and financing markets in our area. While this phenomenon has definitely had an impact here, i think the “fear” factor has subsided some and the reality has set in. What is the “reality”? Anyone thinking of buying a home should start the process with a reputable real estate agent and lender. AS a client, you want to work with someone that will work with YOUR best interests at heart. There are several first time home buyer programs out there that allow 100% financing. Not as many as before but if you sit down with your Real Estate professional and your Mortgage professional, you can still formulate a plan to achieve your dreams. Don’t let this financial mess that has occurred, scare you away from working towards your dream. We live in a great market that will continue to grow and thrive.
Thanks again for the great insights Bob.
I think one of the good things that will come from all of this is that it should re-enforce that buyers and sellers should be working with qualified realtors and mortgage lenders. It always amazed me when people choose their realtors and their mortgage lender based on who was going to give them the best deal. A person is going to either purchase the most expensive item they own to date or sell the most expensive item they own to date and base their decsion on who is the cheapest. That just blows my mind! I personal don’t make any purchase based on who is going to give me the best deal but who is knowledgable and understands the business and who I feel will take the best care of me and my family. I think that a lot of buyers and sellers will go through a lot of headaches in the near future because they made their choices based on the best deal scenerio.
Working with qualified realotrs and lenders will make the process much smother and especially in times like we are experiencing currently.