Will Construction and Real Estate inevitably be effected by the recent decline in bank issued mortgages?
Will Construction and Real Estate inevitably be effected by the recent decline in bank issued mortgages?
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Of course, and it is already happening. Construction is down, and so are real estate prices in much of the US. (But not all of it.) Well qualified people can still get mortgage loans, it is just a bit more difficult.
How could it not be?
It already is, most builders have cut back or stopped new construction completely. There is no sense building any more houses until the supply you have now gets sold.
Not near as bad as some people think.
If u are situated in Asia Pac.. Answer is a definite “NO”.. Especially if you are referring to Singapore. The construction projects in the pipeline last till 2012 for major infrastructure projects and building project till 2015.
Others countries in Asia Pac the are poised to grow incl. China, Malaysia, Vietnam and India.
However, price in US are expected to fall in a short term.
Actually, you are stating a broad misconception. There is no decline in BANK issued mortgages. In fact, bank mortgages are doing fine, and even SUBPRIME loans are available through local and regional banks.
The decline is in lender origination loans. These are loans from lending institutions that do not lend off their own money. They do most of their business through mortgage brokers, make loans, bundle hundreds or thousands of the loans together into securities and sell them to investors. They take some profit from these transactions, then take the rest of the investor money and make new loans. Well, investors have become concerned about the dangers of many of the ARMs and NoDoc “liar loans” – mortgages where buyers could pay a higher rate of iterest but did have to show proof of income or employment. The investors stopped buying those mortgage-backed securities so the money for the SubPrime and Creative loans has disappeared.
But banks loan their own money, so they are not effected in a major way.
That said, Construction and real estate will be effected for about the next 18-36 months. That is because a large market had developed of buyers using the liar loans – rising to close to 20% of the 2006 market. Well, now that 20% of the buyer’s no longer can buy, that turns the real estate market from one with more buyers than sellers, to one with more sellers than buyers.
Also, since up to 2 million foreclosures may hit in the next 2 years as many of these owners with liar loan ARMS get rate adjustments to a much higher payment, a lot of homes will be unavailable for sale for 8-24 months as they go through the foreclosure process.
People are thinking that this glut of foreclosed properties will drag the prices for other homes down, but I expect that not to be as severe as people believe. Because of the problems of foreclosure, and the fact they are normally left vacant for 6-12 months before sale, they almost always need lots of repairs and only certain people are willing and able to take on such a property. Most homes will have a small value correction – 5-10% or so. The homes that will sell quickly will be the ones that are the very best house for their price – either because they are in perfect, BH&G shape of they are a bigger, pricier house that has been discounted. Sellers can’t sell at a higher price as everyone else is anymore, because there will be ten homes just like them, and only 8 buyers for those homes.
As far as construction, most people are finding that it is mid-priced homes that are suffering. Construction for inexpensive homes and extremely expensive homes are going very well.
It is not unusual for this business. Some parts of the market are hurting badly. Other parts are doing just fine.
Lenders have made it harder for the builders to get loans. Many of the new construction projects are vacant properties purchased by builders where they have been building huge homes. Lenders are no longer lending this kind of money anymore. Also Jumbo loans are harder and harder to get.