Here we are again at the top of the list. The Office of Federal Housing Oversight (OFHEO) has placed Oklahoma at the top of the list in home price appreciation through the second quarter of this year according to OFHEO's seasonally-adjusted purchase-only house price index. The index, which is based on data from home sales, was 1.4 percent lower on a seasonally-adjusted basis in the second quarter than in the first quarter. This decline was less steep than the 1.7 percent decline in the prior quarter. Over the past year, prices fell 4.8 percent between the second quarter of 2007 and the second quarter of 2008. The decline is the largest in the purchase-only index's 17-year history, but is much smaller than those of other indexes. Here's the kicker Oklahoma's appreciation for one year was reported as 4.93%. For those who care to read the release you can find it at this link > OFHEO. Again for Oklahoma its the same good news / bad news. This state has not had a real estate "bubble" and has only appreciated at around 4% for the last few years. That's the bad news. The good news: We continue to appreciate at 4%. Also it was reported locally that in the Tulsa World, according to Realty Trac, US foreclosures were 1 in 464 households in July. Oklahoma was 1 in 930 households or to make the comparison about half of that nation wide.
Here's another example of how issues in other parts of the country are effecting us in Tulsa.
Fannie Mae, August 1, 2008 adjusted their investor rules. On investment properties, Fannie now will require 30% equity on the existing property for the investor to claim up to 75% of the rental income as an offset to the mortgage payment in qualifying for a loan. Without the 30% equity, the rental income cannot be used as an offset AND the current and proposed mortgage payments must be used to qualify for the new loan. In addition, 6 months PITI for both properties must be escrowed. See RISMedia at this link for the story.
Here's why this is important. The rule has been that when qualifying for a mortgage an investor could count 75% of the income from the rental properties toward gross income. So a first time purchaser of investment property could apply with a rental agreement and receive credit on income for 75% of the payment. So if you had a rental of $800 per month, you are allowed to count $600 toward your monthly gross income. This is important because as you add debt, you also must have the ability to service that debt through income. What's significant is that in order to count the income now, an investor on a purchase will need a 30% down payment. Thus, on an $80,000 purchase, an investor would need $24,000 as a down payment to count 75% of the monthly rental towards gross income. If our investor has an already high debt to income ratio, he may need this additional income to qualify for the loan.
There's more to this new rule as well. Like what we call reserves. Investors are being expected now to have 6 months of reserves of PITI, and the lender is seeking to have them escrowed. The clear reason behind this is those other markets I mentioned. Because of the number of declining housing value communities (now being tracked by zip code by some lenders) investors and lenders are seeking to find ways to protect them selves from further default. History has shown, that the more "skin in the game" a purchaser has the less likely the investor will suffer a default.
You can always drop me a note if you have questions - you can e-mail me or though my web site at BrettBrough.com
Brett's 2008 Forecast !
Well, now that 2008 is here I thought it might be time for a look at 2008 and what I think is likely. First for many people in the real estate industry 2007 was a difficult if not frightening year. I am fortunate to say it was challenging but good year for me. While many lenders had difficulties getting fundings completed in the first and second quarter of 2007, we did not miss a single closing date of have a funding issue. Here's why that may have been an issue for some lenders - Since November of 2006 over 200 wholesale lenders have closed their doors or entered bankruptcy. I mention this because beginning in the second quarter of last year the guide line requirements began to tighten. At the beginning of 2007 a credit score of 580 could still get 100% financing. Now the score must be greater than 620-640.
The Tulsa economy and Oklahoma in general remain strong at present. Our good news is also our bad news. Because the housing market in Oklahoma in general has not appreciated more than about 4% per year for several years we have not been in a condition where people were able to wildly speculate on real estate appreciation. Consequently we have been largely insulated from the use of various hybrid products which in a speculative market are dependant on appreciation. Because we have not been prone to speculation we have also been tagged one of the fastest appreciating areas in the country (again about 4%). So, our normal or recently average condition makes us look very good against the rest of the United States and the areas suffering double digit declines in home price. Indeed our foreclosure numbers are in about the middle of the pack at present. According to my sources there are only about 500 properties currently bank owned in the entire state. However, I was told that more requests for broker price opinions being made by lenders and servicers which might indicate there are more foreclosures coming.
I think that we will see a continuation of tighter underwriting standards by investors, lenders and banks going forward. What that means to the real estate professional is that more transactions that have borrowers with issues which may be questionable are going to be delayed or perhaps not completed at all. This will mean that your mortgage professional will have to be very diligent at the qualification stage going forward. I believe that the fed will continue to lower the fed funds rate in the first half of the year, and most likely at every meeting. The noise about the credit crisis will continue to be heard though the second quarter. By the end of the second quarter, most of the major write down on mortgage backed securities should have been done and the decimation of the financial industry on Wall Street should be nearly over. That doesn't mean that things will suddenly get better, but I believe that in the third and fourth quarters next year we should start to see some easing of the mortgage secondary market and the return of some of the products which have been shelved. However, if the economy continues to decline with a weak international dollar and high oil, other economic factors may affect any growth in the real estate market nation wide.
In Tulsa and Oklahoma, I believe that we will see some contraction in 2008. It won't shrink a lot, but it will shrink some. I believe we will see fewer homes sold monthly and a flattening of price increase. Again, I don't believe we have a "bubble" in our area, but we might see some stagnation in certain areas. Overall I believe we will again see an appreciation rate of 3-4% for 2008.
If you have any questions please check out my website or drop me an e-mail.
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