What Will the Mortgage Market Look Like in 2009?

Paul Schott   

If a consumer-oriented government bailout is passed and lending increases, what does that do for your chances of buying a new home in 2009?

Transcript

John: Welcome to the CreditFYI Café. I'm your host, John Fischer. 2008 hasn't been what you'd call a banner year in the home-buying industry. Between record-setting foreclosure rates, trash-outs (where former owners leave everything behind for a clean-up crew to dispose of), and government bailout programs, buying a home is anything but a sure thing. Now that we're nearly ready to turn the page to 2009 though, will things be different? Will the recent drops in home mortgage rates stabilize the market? Will it be easier to buy a home, or will it be tougher? And if you do purchase a home, what's the best way to avoid foreclosure? Today we'll be answering some of these questions, and we'll be taking about the mortgage markets and the impact a consumer-oriented government bailout might have on home buying. We welcome in Paul Schott, President of Newport Beach, California-based Schott Financial to the show. Hey, Paul. Thanks for joining us.

Paul: John, thank you. Looking forward to it.

John: Paul, let's get right into a few questions, because I know there are a lot of questions and worries on homeowner's minds — and more to the point — would-be homeowner's minds. Do you think a consumer-oriented government bailout plan will have a long-term effect on mortgage rates? Or would you encourage buyers to take advantage of lower rates now and buy right away?

Paul: John, that's been an interesting question that I've been trying to answer as transparently as I can over the last few months, and also in my 18-year mortgage career. My comment to everyone is if the rates are attractive to you currently, and you have a property that you're interested in, buy it. I don't care if the rates are at 4.5 percent, 5 percent, or if they're at 20 percent. In my opinion — I'm still a very bullish fan of real estate, although it has been a very delicate year and a very interesting year — if you find a property you're interested in and it's the right move for you and your family, you go for it. The bailout, in my opinion, and for whatever it's worth, I think it's going to have a good lower trending on our market initially. That's kind of the short of it. Long-term, that's kind of anyone's guess. I know that's not all that pragmatic, I guess I would say, but for the distant future, I think it's going to help a lot of people.

John: So would you say, all those things considered, that this is a buyer's market at this point? Given everything that's changed, especially, as you mentioned in the last few months, regarding rates?

Paul: In my opinion, I think it's definitely a buyer's market. If I had extra cash laying around where I could afford to pick up a couple investment properties, I would buy, buy, buy. Rates are low; housing prices have dropped significantly; and there are a lot of buying opportunities out there. The struggle is, however, not a lot of people out there can qualify. With all the recent turmoil, with the economy, with the housing market, with the foreclosures, guidelines have tightened with all investors. So you need to "fit in that box" for qualifying. If you fit in that box, and you can qualify to purchase a new property or an investment property, I personally would buy, buy, buy.

John: That's interesting. In terms of qualifying, obviously it is a lot harder for people to qualify now with the credit crunch and the credit markets in the state that they're in. Again, in your opinion, Paul, has that improved — really over the last few months? Obviously the markets are still in a bad way, but are more people qualifying than there were, let's say, six months ago? Is that, at least, some light at the end of the tunnel?

Paul: That's a difficult question, just because I'm out here in Newport Beach, California. Newport Beach and the more affluent areas don't get hit as hard as some of the lower-income or lower-sale-priced home areas. However, in the last six months, in my opinion it has been more difficult — tremendously more difficult — for the average person out there looking to buy to get qualified. Let's just go over the qualifying parameters. If you fit in the box — and that box is, you got good credit, you have good income, and you have a down payment, there are fantastic loan opportunities — fantastic. Rates on 30-year fixed loans are the lowest they've been in a long, long time. So if you can fit into that box, number one, I truly believe that it's a buyer's market, and you should take advantage of it. And number two, there is a ton of money for those particular buyers. Where you've been hearing that there's no money and banks are failing, is that happening? Absolutely. But if you have, once again, you have the good credit, you have the good income, and you have a down payment, everyone has great programs around the country.

John: So in terms of where you're located, if I'm out there, and I'm looking to buy a house. Let's say I'm in a very rural area, as long as I have decent credit, now would be a good time for me to buy?

Paul: In my opinion, absolutely. And I'd buy a couple investment properties as well.

John: Interesting. Paul, recently TransUnion, the credit bureau, they predicted that foreclosures were going to rise into next year. Given some of the positive news you've just shared with us, do you agree with that?

Paul: I do agree. And let's go back to my positives — where I'm coming from. Because I don't want to make it seem like across the board that everyone thinks I'm a "buy, buy, buy" buyer's market guy. You've got to get down to the basics of Real Estate 101. And what is that? "Location, location, location."

John: Right.

Paul: If you're going to buy in a "great" location, and it's a location that has been hit hard but is conceivably still a good location — one with good home values; good schools; good neighborhoods — I would buy, buy, buy. To your comment about TransUnion, do I think there's going to be more foreclosures? Absolutely. I think we still do have a lot more carnage that's going to be coming here in the next six months to a year. However, like I just mentioned, go back to the Basics 101, buy in a "good" location, and I don't think you can go wrong.

John: In light of that, Paul, let's take a step back, and let's talk about the sellers out there. Let's make it simple: Those who currently own a home in this current market and they want to get a new one, what's your advice to them? Let's keep things in general terms: Should they try to wait this out and perhaps make improvements to their current home, until things get righted a little bit? Basically, what's your take for a seller out there who owns a solid property that's likely better off waiting to sell in a market that'll bring a decent price?

Paul: John, you're firing off a lot of difficult questions, and I love it. Again, this is just Paul Schott's opinion. Depending on your market, obviously if it has been hit hard — or whatever that level of decline has been — if you're in a property that you love, if you're in a good community that you love, if you've got kids, and you're in a good school district that you trust, I'd weather the storm. However, if you bought at the top and the peak of the market, and you're not liking your neighborhood, you're not liking your community, then get out. You're probably going to take a bath, meaning that you're probably upside-down on the property, and you're probably struggling. However, I'm not trying to be too basic here. Let's just go back to Basic 101.

John: Right.

Paul: If you are in an area where you do enjoy your property and the lifestyle you have, and you can afford it, I would weather the storm and stick it out.

John: All right, folks. Well, you heard it here. We thank Paul Schott the President of Newport Beach, California-based Schott Financial for joining us today. Thanks, Paul.

Paul: Thank you. And if anyone would like to get more information on Schott Financial, you can go to our website at www.schottfinancial.com, and I'll give you my honest opinion on what's going on with the current trends.

John: Thanks again for joining us today.

Paul: Thanks, John.

John: After months of hearing continual bad news about the home-buying markets, maybe the new lower interest rates can give us all some hope that things will eventually turn around. If you're out there looking for a home and you can qualify for a loan, you can consider buying. The toughest thing for many people is getting qualified. If you can get a loan, there's no reason why you shouldn't start looking. Thanks again to Paul Schott, President of Newport Beach, California-based Schott Financial for his insights into home buying markets. And thanks to you for joining us. I'm John Fischer for CreditFYI.com; we'll see you next time. Until then, remember, the biggest factor in controlling your credit destiny is you.

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