Following the downturn in the housing market, lenders started requiring Buyers to come up with more money up front, have higher credit scores, prove their income, and provide all their pertinent paperwork in order to get financing—quite different than earlier this decade when subprime mortgages were rampant and buyers were able to purchase homes deemed unaffordable by today’s standards with little more than a good credit score.
For sellers these days, the standards are different too: today's sellers must be patient and maybe lower their asking price, because the balance of power has swung strongly to buyers. Many REALTORS®, mortgage brokers, economists, and home buyers across the country say they’ve noticed a shift in attitudes that they expect will last for years to come.
How are we seeing this trend affect the local housing markets?
Traditional sellers today are finding that the number of offers received is not nearly as high as those received on REO properties (foreclosed homes that have been repossessed by the bank), which often receive multiple bids. Buyers today have a tendancy to belive that they will be getting a better deal on a foreclosure than on a traditional sale (a sale where the homeowner is selling their home and is not facing any financial distress).
The negotiation process also differs between traditional sellers today and traditional sellers during the height of the market. According to one REALTOR®, if a house is not being shown, then it is overpriced. The record number of foreclosed homes on the market gives buyers even more leverage.
Resulting from the credit crisis, lenders now often require much more paperwork and thoroughly review borrowers’ credit histories, bank statements, tax returns, and job histories. The average mortgage applications today starts three times thicker than what it was at the start of the housing boom, and often gets thicker as the process moves along. Out of the subprime mortgage debacle lender's underwriting policies have shifted to the ultra conservative and we are now seeing very clean transactions fall apart at the last minute due to uncertainty of the borrower's ability to repay a mortgage.
It is not uncommon nowadays for closings to take 60 days. One reason is because of the adoption of the Home Valuation Code of Conduct (HVCC), which often results in appraisers evaluating homes in areas they are not familiar with and often using comparables that are inaccurate. This has caused delays in closing sales, and in some cases, undermining sales because appraisals are coming in too low.
Just about everyone in the real estate industry agrees that another dramatic boom-bust cycle isn’t going to happen again anytime soon. Most practitioners expect that the new lending regulations and a different consumer mind-set will help real estate return to a more traditional cycle where we won't witness double digit annual appreciation. This doesn't mean that real estate is no longer a viable investment, remember, a home's appreciation still accounts for the majority of a family's accumulated wealth.
