Because I am in the mortgage banking and real estate business, I am often asked, "When will this market turn around." My optimistic answer is typically 12-18 months; which I have been saying for the last 12-18 months. I am not talking about appreciation, but simply a flat market. That would be worth celebrating.
Here's what needs to happen. Home prices need to stabilize, and they will not stabilize until lending guidelines loosen. Lending guidelines will not loosen, until home prices stabilize.
Since the government intervention, guidelines have choked off mortgage banks ability to lend; at least lend to most people. In an attempt to stop losses and prevent future losses, they have restricted or eliminated all mortgage programs that we considered the least bit risky, mortgage programs that had a higher than average default rate. In doing so you eliminate a large cross section of borrowers/buyers, thus reducing demand. Once demand drops, prices have to follow. Now "good" borrowers begin walking from their homes that are terribly upside down, driving values down further. Now so called "good" mortgages start defaulting, and the guidelines tighten again. It is a self fulfilling prophecy.
The government needs to bring back down paymnet assistance for FHA buyers, or create a 100% FHA program. Throw in risk based pricing to pad the increase risk of default. Bring back "stated" income loans (income not verfied) for self employed borrowers with high assets and good credit. Increase the allowable number of financed properties back to 10, instead of 4 which it was just reduced to; allowing investors to buy up some of these distressed properties. Or if you think that is a bad idea, lets just keep doing what we have been doing. In no time at all home values will have fallen so low, you will not even need financing; you will be able to afford to pay cash.
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