Let's Play Monopoly

The Sky's NOT Falling!
Oh my! I guess last year's sales were the WORST since about 2001. Woe are we. We only
had the 5th best year on record for sales, or so.

Remember the "expert" prognosticators just a couple of years ago? They were claiming simultaneously boom AND bust from about 2000 to about 2005. Some were saying: "this can't last...the end is near...," while others countered with: "there is no end in sight, the economy is healthy and we're in a global economy..."

An old maxim that I was told when I first got into the business 30 years ago by a very successful broker who had the same amount of experience I now have was: "you know, so-called economists have predicted 30 of the last 2 recessions. Don't believe all that crap that news editors need to say to sell newspapers. People need to live somewhere, whether it's an apartment, condo, co-op, or house, they need shelter. It's a basic need. You just make sure that you help people that need housing to find it, and help those who want to sell it in a professional and sincere manner. You'll always be in business if you do the right thing for people."

That was the best advice I ever got in business in general and it has served me well all these years.

The Pendulum Sings Both Ways
We know we were in a heated market, and now we're "correcting" (paying for our excesses. We've been here before: in the early 70's, early 80's, early 90's, and now the housing "credit bust" of 2007. It will likely continue until the ship rights itself for a couple of years, and the cycle will start again.

Well so what? We've mentioned the same thing before in slightly different ways in this blog and in others. However, you may want to begin to be prepared for what you may not see coming regarding the current financial credit crunch.

Before There Was a Secondary Market
A long time ago circa 1980 there was no real secondary market to sell mortgage securities nationally, so when money got scarce rates went up. They went sky high in the 18% range in the early 80's. The government then realized that we needed to create a vehicle that would allow money to be always in the system for mortgages. Mortgage backed securities and the vehicles to market them to investors were the result.

However, it took a couple of years for the Fed and politicians to smarten up to the realities on the street. What did people do in the meantime? They got VERY creative. They assumed payment for existing mortgages, took over property "subject to a mortgage," and used a number of creative financing strategies to sell and purchase homes.

Be aware, that this situation appears to be more and more likely in the next couple of years. We may have the mortgage vehicles to keep liquidity in the market, but right now a lot of mortgage pool investors are very wary of buying mortgage backed securities, and they will continue to be until the turmoil settles. Unfortunately, because the big lenders don't even know for sure themselves how much "junk debt" they really put out there, it's going to be awhile yet before mortgage funds are readily available.

In the real world I'm hearing from many sources how long mortgages are taking to complete now. It's not because so many people are clamoring for mortgages, but rather I suspect it's because the lenders and brokers can't find ready sources to purchase the securities and/or each mortgage is being scrutinized more than ever.

This of course slows sales, and more sales are lost by already nervous buyers who drop out of the deal when their financing doesn't come through in a timely manner. It just becomes another "omen" to be avoided in a turbulent marketplace.

Opportunity Knocks
When you have a problem, there's an equal opportunity for those that can help solve it. What we found in the early 80's was that "owner financing" and alternative mortgage instruments kept the market going in spite of 18% interest rates, and MOST of all helped support seller prices until mortgage money became readily available again.

So, those who are willing to become well versed in alternative financing methods may very well be the ones who prosper in the next couple of years: sellers, buyers and brokers. Yes, it's a win/win/win for everyone.

Sellers get to sell their home without having to discount it at fire-sale prices, buyers get to buy with usually less stringent conditions than lenders have in tight money times, and brokers get to help both by offering real service, instead of lip service.

At some other time we'll talk more about GEMS, SEMS, GPMs, Lease/Options, Contracts for Deed and other exotic financing instruments.

Thanks for listening.

Chris Michaud
www.acceptancegroup.com