Housing Market 2011: A Spirited Dialogue
I couldn't agree more that it's a renter's market first and foremost. It's certainly not a seller's market, as you're experiencing first-hand. So I stand by my point that it is a buyer's market, if you can afford to buy. Conventional financing requirements are tight with regard to LTVs, meaning you'll need a hefty down payment. However, FHA still provides loans for as little as a 3 percent down payment. You still need the requisite stringent credit and income factors.
Not sure that I agree with looking for an agent that doesn't need the money and thus may not be as motivated as a seller or buyer to negotiate the best possible deal. Consumers don't want to be a drop in an agent's bucket and deserve to work with someone who approaches their job as more than a hobby. Your point is well taken, though: Finding an agent that trumpets fiduciary responsibility over a paycheck is ideal.
I surely hope you can find an agent who knows more about real estate than you, otherwise why bother with the expensive commission model? As we know, technology and third-party providers have made it easier than ever to locate and research property on a very comprehensive local level. Paper-pushing and contract ratifications can be handled for far less cost by an actual attorney. An agent really has to bring something extra to warrant their paycheck in my opinion.
This brings me to your question about why, if at all, real estate and mortgage professionals have to be separated. When I ran my mortgage brokerage, I also had a real
I'd actually argue to allow both professions be dual-licensed. Making this mandatory isn't likely, but it would bring that something extra in the form of a comprehensively educated real estate/ mortgage professional. It certainly wouldn't hurt.
Back to the so-called conflict of interest between a real estate professional originating a mortgage or vice-versa for the same transaction. Somehow this is deemed to afford one party with to much power and control over the entire transaction, which is ironic considering that dual agency in real estate is still allowed in many states. It comes down to morals and ethics, which were severely lacking evidenced by rampant fraud thats been uncovered like peeling back the layers of an onion. A relatively simple system of checks and balances would work to effectively mitigate issues here.
Both industries need to take a look at the root of their compensation models, which are tied to the value of the home for a real estate professional and tied to the amount of the loan and interest rate for the mortgage professional. More specifically, clearer access to personal performance history from real estate professionals and the true cost to acquire a loan for a mortgage professional are two very important metrics that are still danced around too much for the consumer to make a confident decision on the quality and value of services being offered.
Unfortunately, these topics are still considered taboo and are met with extreme prejudice by members of each respective profession. However, under extreme conditions like those we are just beginning to experience, I'm hopeful this mindset will change for everyone's benefit.
My sense is that 2011 may be a "lost year" for real estate, both consumers and professionals, as the changes that are coming are (a) too rapid, and (b) too big. I think most consumers will be left reeling, and very few professionals, whether mortgage or real estate, will be doing anything more than rearranging the deck chairs on the Titanic.
What do I mean? We've been bearish on the real estate market in 2011. That 20 percent drop that some of the smart money are pricing in, is organic -- meaning, with business as usual. I spoke today with a longtime real estate agent, one who knows what she's doing, in California. She thinks that her area is facing a minimum of 8 percent drops in price, due to the shadow inventory starting to come on the market.
But consider two very real, very possible external events. I mentioned one of them already: the mortgage interest deduction. I happen to think the new Congress, filled with Tea Party members, will be extremely hesitant to have subsidies like that. Since they don't like taxes, I imagine the mortgage interest deduction will be sacrificed for the sake of lower across-the-board tax or spending cuts.
The second event is really somewhat esoteric, but I think it's even more likely than the MID scenario: foreclosure reform. Take a look at this video, for example, when you're sufficiently bored. It's a congressional hearing on the subject of foreclosures. Note how the congress-critters on both sides of the aisle, liberals like Conyers and conservatives like Lamar Smith, appear to agree with the lawyers and the law professor who think the entire foreclosure industry is irretrievably broken, and seem to brush aside the repeated boilerplate assertions of the guy from American Securitization Forum, which represents institutional investors.
The whole topic is too big and too complex to go into here, but my concerns, after watching that, and reading up on the issue from both sides, are that the entire infrastructure underlying contemporary housing finance is suddenly looking very shaky indeed. It looks to me that lenders and finance guys, in an effort to streamline their operations, basically evaded a whole bunch of legal requirements that might be annoying red tape but are nonetheless very much on the books as law. There is no question in my mind that we're going to see massive class action lawsuits from homeowners who have lost their houses, from lenders, from title insurance companies, from subsequent purchasers, and against just about everybody involved.
This whole set of issues, of standing to foreclose, of Mortgage Electronic Registration System (MERS), of securitized mortgages, of robo-signers, of enormous systemic fraud at the very heart of the industry, of problems with title because lenders wanted to avoid the hassle of having to register mortgage transfers and assignments, etc. etc. is a timebomb. And unlike the mortgage interest deduction issue, there isn't a whole lot that a lobbyist can do about it in the short-term. Courts will hear those cases. Lawyers will bring suit. State officials are going to get involved; I just read that the Attorney General of Arizona is suing Bank of America for mortgage fraud.
The problem is, while these questions remain outstanding, I just don't see how smart guys running mutual funds and pension funds are going to want to put money into mortgages. The capital available to the mortgage market is, I think, about to dry the hell up in 2011 -- not that these past couple of years have been any sort of boom times for private capital funding mortgages. Imagine it getting worse. If you can't foreclose, then your "secured" loan is basically unsecured debt, entirely dischargeable in bankruptcy to use just one example. What investor is going to put money in when such uncertainty exists as to whether they could get even a penny of it back if the borrower defaults?
It's cool that NAR is trying to keep mortgage money flowing, meeting with guys like Freddie Mac. But with such legal and regulatory (or legislative) uncertainty going on, I'm really skeptical that any private lender will keep pouring money into the mortgage market. Furthermore, given the mood of the incoming Congress, to think that Fannie and Freddie will have the ability to keep using the Treasury as their piggy bank for funding mortgages requires optimism that I don't have.
The year 2010 will end with about 4.8 million sales, at lower price points. The NAR says that a "healthy" market has about 5 million sales. I expect 2011 will be closer to 4 million sales than 5 million sales, because of all this big macroeconomic and legal turmoil leading to drying up of capital, way higher lending standards, way higher loan-to-value (i.e, higher down payments), and higher interest rates. And prices? I imagine they'll be lower too.
Here's what I'm wondering: Given all of this, I feel that 2011 is definitely a good time to sell, not a good time to buy, unless you can negotiate some sick discounts and plan on holding the house for a good long time (or you're an investor planning on renting the houses out at escalating rents). How many mortgage people, how many title people, are on top of big issues like these? Because I can tell you that the average agent has no idea about any of this. The consumer, of course, is even less informed. It really looks like we might have a case of the blind leading the even more blind.
Am I being too gloomy here? Can you point out some signs of hope? Some reason for optimism in 2011? And if not, how do we fix this?
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