3 reasons the next recession won’t lead to a housing collapse

 Real Estate Market  Comments Off on 3 reasons the next recession won’t lead to a housing collapse
May 132019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Some pundits have suggested we’re staring at the beginnings of a new recession fueled by the housing market. Not so, says Ralph DeFranco, Global Chief Economist for Arch Capital Services. He says current housing trends bare no resemblance to conditions that existed prior to the Great Recession.

A recession is inevitable at some point in the future, but DeFranco says it should be less severe for the housing market than the 2008 recession due to three factors:

  • He estimates the current market is underbuilt by 1 million homes;
  • Homebuyers are more cautious; and
  • The quality of loans originated since the Great Recession is much higher.

Conditions were exactly opposite before the Great Recession.

DeFranco also noted that big price drops during recessions are the exception rather than the norm. In the five recessions since 1975, home values have declined only once. Moreover, the current housing inventory shortage likely would soften the effects of a recession on the housing market.

Interest-only mortgages make a comeback

 Loan Programs, Residential Mortgage  Comments Off on Interest-only mortgages make a comeback
Jun 262015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

One of the more notorious loan products back before the housing crisis was the interest-only loan. Homebuyers who wanted a larger home, but couldn’t qualify for a traditional mortgage, would use an interest-only program because of the lower initial payment, and some lenders were approving the loans based on that lower payment. When the interest-only period ended, borrowers would face a sharp payment increase when their payment started to include principal reduction.

But interest-only loans are not inherently dangerous. In fact, they can make sense in some cases. For example, the product could make sense to a starting doctor who is confident his income will rise in the future. At the end of the interest-only period, the payment shock wouldn’t be difficult for him to handle. Or consider the case of an investor who wants to allocate her money to higher earning assets. If her investment horizon is shorter than the interest-only period, she’ll never see the payment shock.

Today, the program is making a comeback, but unlike pre-crisis, today’s lenders require that the borrower qualify at the payment that would apply after the interest-only period ends. It’s a very conservative approach that will prevent many from using the product, but in today’s market, safety trumps utility.

Are we heading for another housing crash?

 Real Estate Market  Comments Off on Are we heading for another housing crash?
Jun 252015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The recent run-up in home prices has led some to speculate that another bubble is forming. And bubbles tend to end spectacularly, like the 2008 housing crash. What are the chances of another crash?

The biggest difference between today’s housing market and the pre-crisis market is the level of leverage. Before the crash, mortgage debt amounted to 63% of real estate value. Today, that leverage rate is down to 44%. Thus, the market today should be more insulated from a rapid decline in prices.

Much of the decline in mortgage debt is the result of the elimination of delinquent debt through foreclosures, short sales, and other mechanisms. It also appears to be the result of the elimination of most of the no-money down payment loan programs that ruled in the pre-crisis era.