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| Financing Trends |
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The Uptown real estate market slowed significantly over the last year along with the rest of the market in the country. Consistent with the change in the economy, the real estate market has been impacted by the loss of "wealth" that has occurred in numerous markets. One noticeable difference in the real estate market is the shift that has occurred in how people finance their homes. Since 2006, 371 major lenders have gone out of business for reasons ranging from bankruptcy to governmental take-over(typically due to near bankruptcy conditions). The tightening of the credit markets has resulted in fewer loan programs being available to individuals looking to purchase a home. The result has been a significant shift in how people are purchasing their homes.
One major shift that has occurred over the last year has been the selection of FHA loans as a means of financing. FHA wasn't a very common means of financing pre-2008 financial melt-down. Few buyers needed to finance through the Federal Housing Administration because there were 90-100% financing options available to nearly everyone. When the 90-100% loan products evaporated, the FHA 96.5% loan (previously 98%) became the best loan product on the market. FHA has more flexibility with income, credit, and reserves than conventional products available today allowing easier leveraging. Up until recently FHA would only loan on condo units on a case-by-case basis unless a complicated process of certification was achieved by a community. Now, FHA has tightened requirements to loan almost exclusively on townhomes and houses. Even with the tighter requirement on condos, there was a substantial shift from conventional loans to FHA financing in the Uptown condo market in 2009(pre-change in rules). The table below shows the number of transactions in the Uptown increased by 16%.
Another significant change in how people have selected to finance their home has been a decline in the number of cash purchases of homes. It is probably little surprise that fewer people are wanting to write $200-400K checks to purchase a home. The decline in the stock market as well as the rise in unemployment are just two factors that have influenced the decline in the number of cash purchases. The table below shows the number of transactions total as well as the number of cash transactions that have occurred in 2008 and 2009. As a percentage the change is only 4% less than 2008 but in the number of transactions, it is a marked difference.
The implications of these shifts could be more substantial it might seem on the surface. Having loans available for purchasers is essential to achieving healthy market conditions. Since the FHA has tightened their requirements on multi-family dwellings, there are few high LTV products available for buyers who are interested in purchasing a home. There are some exceptions out there through institutions like BB&T and SunTrust. For the most part though, the days of 5% investment in purchasing a condo appear to have gone the way of the dinosaurs. The problem facing the Uptown market (which is 90% condo) is attracting buyers who are willing and able to get the financing needed to purchase a condo. |
