The first time I bought a house (right in the middle of all the "irrational exuberance") I was pre-approved for a loan where the payments would have exceeded my monthly income.
Let that sink in for a minute. It's no wonder that the nation got into some trouble.
Now, the last time I purchased a house (right in the middle of the banks' 'Oh CRAP, how are we going to pay for all this?!!' moment), Mrs WBill and I had near-perfect credit and were looking for something well within our budget. We were still pre-approved but we only were able to get the exact amount of money required and not a nickel more. The paperwork needed takes up several folders in my desk, as well. Lots and lots of hoops to jump through.
So .... fewer unqualified people buying houses is probably a good thing, especially in the long haul. However, to your point, the pool of qualified buyers is shrinking as well, which will weigh heavy on the market in the short AND long term. It's a vicious circle that can only reinforce itself.
Yes things are not going to be better for awhile. As a 30 year veteran of the mortgage industry underwriting, managing and being a mortgage broker for 17 years I can tell you though that the mortgage business runs in a cycle and as soon as the business falls off they come around and tell the underwriters to start loosening up on the underwriting. Then the no income verification loans come back and yes they will. If interest rates rise the ARM’s will come strong and then down the road another refi back into fixed. It is age old.
The difference IMO this time around is the high unemployment and that combined with the huge shadow inventory the banks are still holding is providing a different dynamic. The banks use those REO’s in their asset column and they show the value based on the time the loan was made so it bumps up their asset column. If they sell the property then take the write down it erodes their assets on paper and they can end up showing that they are undercollateralized. Which IMO a lot of the banks are undercollateralized. The only thing making them look solvent is this bogus REO inventory showing inflated value.
As long as Obama is in office its not going to change. We have a long slog ahead of us.
“So .... fewer unqualified people buying houses is probably a good thing, especially in the long haul. However, to your point, the pool of qualified buyers is shrinking as well, which will weigh heavy on the market in the short AND long term. It’s a vicious circle that can only reinforce itself.”
The worst symptom or our national suicide/0 birthrate is the lack of interested buyers (qualified or not). When the young people that are working are foregoing families in order to preserve some semblance of a middle-class standard of living, then they certainly aren’t going to be tied to thirty years of school tax payments for somebody else’s children.
NJ, with taxes among the highest in the nation, will probably be the last to see any housing recovery for this very reason. Young workers will keep their mobility to follow jobs/dreams, and will accept the relatively light burden of income taxes in exchange for freedom from property taxes. They will have nice cars and electronic gadgets, though.