If this doesn't show you we have a credit crunch going on, and if you don't think prices will continue to drop drastically for housing in South Florida, than you have overloaded on too many sippy drinks with Lawrence Yun at the NAR:
To understand how the credit crisis is hitting home in South Florida, consider the plight of Teresa and Hoover Encalada. The couple found a two-bedroom condo they loved at the Plaza on Brickell. At $434,000, the price was right. Their credit was good.
Friday, they got the bad news: The lender wants 45 percent down on a five-year loan with an initial interest rate of 7.8 percent. Now Encalada, a 39-year-old administrative assistant, and her husband, an Ecuadorean banana grower, are waiting on a second bank offer requiring only 40 percent down before they proceed.
Existing home prices in South Florida have fallen 20 to 30 percent over the past year, putting once-unaffordable homes within the grasp of buyers -- if only they could qualify for a loan at reasonable rates.
Just how tight have the credit markets become you ask? From the same story . . .
Credit markets have gotten so tight that in many cases it is impossible to qualify for a loan with less than 20 percent down. Compounding the problems of financing, especially with condos, is the dearth of PMI, or private mortgage insurance, which is required for down payments below 20 percent.
''For every broker and developer, the biggest issue in 2008 is a lack of mortgage financing. The pendulum has swung this year to the other side: No mortgages to anybody, unless they're Boy Scouts and Girl Scouts,'' said Craig Studnicky, president of International Sales Group, an Aventura firm that specializes in marketing new condos.
The Encaladas thought they'd have no problem. At most they planned to put 30 percent down, leaving enough money to buy new furniture. ''Now, I can only get the place,'' Teresa Encalada said.``Furniture and improvements will just have to wait.''
Gone are the days of easy credit. With home values on the slide and new capital tight, lenders are sometimes asking for extraordinary terms.
p.s. Rock's Top Tip #1 on How to Swing a 40% Downpayment . . . and still be able to outfit your newly purchased overpriced home: If your "deal" goes through at 40% down and you can't afford furniture, just remember, a board and two cinder blocks is a bookcase. And since you live in Florida, near orchards, steal some shipping crates to use for tables and chairs. That "Early Orange Crate" look is sure to wow the neighbors!
Why do these loathsome lenders licking at your loins lust for larger downpayments, you ask?
Now even solid borrowers are facing stiff guidelines. Lenders want buyers to put some skin in the game, and with home prices in many markets still sliding, they want an extra safety margin. The problem is exacerbated by the billions of dollars in ailing mortgage securities on the balance sheets of many financial institutions that hamper their ability to offer new loans.
Real estate brokers, developers, and mortgage brokerages are watching closely as the Bush administration and Congress hammer out a $700 billion bailout plan with hopes it will stabilize U.S. banks so they can keep extending credit to businesses, home buyers and other individuals to keep the economy flowing.
By moving bad debts off their books, the banks would be in position to raise new capital and make new loans. Studnicky said his firm is seeing more people shopping for condos, but the deal-breaker often is they can't make the hefty down payment required or lack the credentials needed to meet rigorous new borrowing standards.
As Bill the Cat would say, "Aaaaaaaaack!" These lenders not only want your Sons and Daughters in their scout uniforms but now they want more "skin" from you? Why would anyone buy a house times such as these when banks are bankrupt and only Porno Loans are available?
There's got to be some good news. Surely prices coming down mean we can afford to buy, yes?
About 46 percent of single-family homes for sale in Miami-Dade and 62 percent of condos for sale are less than $300,000, according to Ron Shuffield, president of Esslinger Wooten Maxwell in Coral Gables. In Broward, 49 percent of the single-family homes on the market and 78 percent of condos are listed for less than $300,000.
SHORT ON CASHThe problem, Shuffield said, is buyers at the lower end typically are less able to put up a substantial down payment. FHA mortgages are available for as little as 3 percent down, but they're only available to select buyers.
As a result, inventories of homes on the market are still swelling in Miami-Dade, although they have dropped a bit in Broward.
In a normal market, where supply and demand are in equilibrium, the housing inventory amounts to a six- to 12-month supply, based on recent sales. Miami-Dade has a 32-month supply of single-family homes and a 41-month supply of condos, while Broward has a 20-month supply of single-family homes and a 29-month supply of condos, according to South Florida Regional MLS listings data.
''We've just never dealt with so much inventory and never dealt with so much fear in the market,'' Shuffield said.
Loans are harder to get, and Realtors are still trying to put lipstick on shantys which used to cost $100,000 ten years ago, and which are still selling for $400,000 after a $300,000 drop.
You can fool the impatient. But you can't fool the serious buyer with cash who knows this is only the third inning of an extra innnings game.
Save your money. Buy some gold. Buy some cheap dividend payers and reinvest those dividends at these cheap prices for companies which sell necessities you'll always need: JNJ, ED, PG. You know the drill. If the market tanks, double down on these best of breed companies. If it goes up because the sods in Congress actually perform a bailout, you'll still be ahead of the game.
Meanwhile, hide your wife and kids and don't be bending over you car out front while you wash it. Lenders are looking for you to show 'em some more skin, and if you're bent over, you show willingness to the Sharks from FIRE Island.
Caveat emptor,
Rock
1 comment:
You cannot feel the pain up here in Miami, unless you spent some time looking for a lender.
Like your articles explain, loans are harder to get than ever before.
However, I only see prices falling for a few more years. I am optimistic the market will bottom no later than 2011. But, like you, I don't ever expect to see prices double every few years during the Housing Bubble.
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