The biggest question going forward: What impact does the mortgage meltdown have on the broader housing market as we head into the key spring selling season? Here's my advice for interested parties ...
Home buyers: Recognize that tighter mortgage standards reduce your buying power. For example, you may have to come up with a larger down payment to qualify for a loan. That’s especially true if you have a lower credit score. Stated income financing and some higher-risk ARMs may also be tougher to find.
Home sellers: You may have to be more flexible on pricing. You’re already competing with a near-record number of new and existing homes on the market. Now, you have to worry about potential buyers not being able to obtain mortgage financing.
Homeowners: If you’re stuck in a loan you cannot afford, contact your lender. You may be able to negotiate a loan modification, where your lender willingly changes the terms of the mortgage to make it more affordable. Another option is a short-sale, where your lender allows you to sell your home for less than you owe and forgives the remaining debt.
Investors: You simply have to understand that the housing bust will not go away overnight. Central banks the world over are pumping money and liquidity into the market to try to support housing but ...
That excess money will not make all those empty homes disappear. It will not keep bad-credit borrowers from defaulting on their home loans. And it will not help if banks, spooked about potential loan losses, decide to cut back further on mortgage lending.
Bottom line: I think we’re looking at a long, drawn out, housing market downturn that lasts at least through 2007 and likely into 2008 as well.