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The State of Real Estate Financing

By Mike in August 2008|Downtown San Diego Real Estate Market Analysis with 0 Comments


Financing continues to be a challenge in todays Real Estate Market. We see that the conditions and documentation that underwriters have been asking for is getting more and more rigid. As real estate brokers, we try to get investors to consider equally the two sides of the deal. Most of the time, we cant do what we do until the financing side of the loan is taken care of. Also, we challenge those investors who are trying to time the market to consider the affect that higher interest rates have on their monthly cash flow. Often times, if real estate values drop slightly but interest rates increase, it may actually cost an investor more each month for even a lower priced property.
All the analysts and investors have been keeping a sharp eye on the state of the financing market these days. In fact, there has been a lot of talk of the mortgage industry in the recent weeks.more than normal. With the recent issues surrounding Indy Mac (failed financing bank), it is good to know that Wells Fargo Bank, N.A. is still the only bank in the U.S., and one of the two banks worldwide, to have the highest possible AAA credit rating from both Moodys Investors Service, and Standard & Poors. How many more banks are going to have trouble and eventually fail? It is hard to tell at this point. As Downtown San Diego Realtors, we have found the Wells product to be very competitive in pricing for high-rise complexes. Often times, Well Fargo does not need a full condo certification for funding.they just require a limited review of the HOA. In non-real estate terms, this just means there are decreased contingencies that could potentially hinder funding of a loan. Usually, these funding issues happen in the 11th hour of the deal. This makes everyone nervous.
When looking at interest rates that deal with residential housing financing, the bond market is generally the most important. This months bond market opened well into the negative as investors continue to shy away from the inflation-threatened securities. The stock markets reflect mixed results, as increased trading put the bond markets down, and pushed mortgage rates higher. There are a couple of reports scheduled for release in the coming weeks that can affect mortgage related bonds and rates. None however, are considered extremely important to the markets. The release of Junes and Julys Leading Economic Indicators (LEI) will have insight on the housing sales, big-ticket item manufacturing activity, and the Fed Beige Book which breaks down economic activity in the U.S. by region.
Well, if you made it this far into the blog, you are probably wondering what the bottom line is.right? Some mortgage commentators, with fear of continued rising rates, state to be cautious if still floating an interest rate. Also, real estate consultants recommend taking advantage of good deals before interest rates increase to a level that prices monthly mortgages out of reach for the average homeowner.