FOGGY VIEWS

Does it feel like the movie Groundhog Day?  Following the second straight week of economic unrest, watching coverage from the trading floors on Wall Street resembled an endless video loop, replaying the same performance day after day. The U.S. stock market endured its worst five-day performance since 1932 on fears of a severe economic downturn.  Two days later (on Thursday), stocks plunged in the final hour of trading, sending the Dow Jones industrial average down more than 675 points or more than 7% to its lowest level in five years.  In response to this news, overnight stocks plunged in Europe and Asia, as well.  Most notably, Japan’s Nikkei fell more than 10 percent Friday.

We’re all affected by this, whether or not we have 401k’s and stock portfolios suffering large losses.  The business owner who may be completely detached from the stock market personally, and fortunate enough to not be in need of a commercial loan to make payroll, is still affected by his or her customers who are experiencing actual losses.  Many consumers were afraid to open their third quarter 401K statements as they arrived this week in the mail.  Others are making countless calls to their financial advisors in hopes of a miracle or a quick fix to stop the decline.  Still others are choosing to ignore it with the “ignorance is bliss” philosophy.  The bottom line is, we’re all in this together.

What I am thankful for is that I am not hearing very many instances of our customers who are qualified for loans by today’s standards not being able to get loans.  I am speaking regularly with my mortgage contacts over the subject, and we just aren’t seeing situations where loans are being pulled or denied unreasonably at the last minute. I have heard from some agents that they’ve dealt with a lender that had a buyer qualified for 25% down, and then changed the requirement to 30%.  This is by far the exception rather than the rule.  To date, most loans opened in the past 30 days are funding as they were packaged.  Naturally, jumbo loan resources are fewer today, but there is enough money out there at very reasonable rates to satisfy the current demand.

Last week’s passing of the Emergency Economic Stabilization Act of 2008 should help to alleviate some strain as one of the goals of the act is to unfreeze the credit markets to encourage intra-bank lending.  Once we start to see this, banks should begin to lessen their stringent requirements and consumers should be able to once again see more resources for mortgages, auto, and school loans.

Historically speaking, during times of economic crisis consumers tend to invest their money in tangible assets, like real estate.  We expect that this may be the case in the months ahead as consumers look to buy homes for all of the lifestyle reasons that prompt people to buy (i.e. marriage, births, divorce, deaths, retirement, job relocation, etc.) but also with a consideration of the historic long-term appreciation that makes homeownership a valuable investment over time.

Earlier this week, Bloomberg.com reported, “Rates are low enough that some consumers stung by losses in their portfolios may want to pull the trigger on a purchase or refinance if they can lower their payments.”

Indicative of this fact, the article went on to report, “A nationwide survey of consumer credit rates showed 30-year fixed rate mortgages averaged 5.8 percent yesterday, according to Bankrate.com.  Rates were 6.26 percent on August 29 and also July 31, in the same survey.  Home-loan applications rose 2.2 percent last week, according to the Mortgage Bankers Association and purchases were at a six-year low the previous week.”

We certainly are in a time of uncertainty.  But while many sit glued to CNN and others fret over their investment portfolios, the housing market continues to labor on in the Bay Area.  Because the beautiful thing about real estate is that it’s not just an investment—though it may be one of the most important investments a consumer will make in his/her lifetime.  Your home is where you raise your family and plant your roots.  It’s where you hang your hat and make memories to last a lifetime.