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joeDowntown

Mortgage Crunch

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With all the news about banks tighten their belt due to high foreclosures and loans they should have never given in the first place (sorry, done with my opinion piece), will this affect downtown projects from a funding standpoint? Or are commercial loans much more conservative, hence, no changes?

I could see this hurting the condo market as it is harder to sell a home, and harder to get a loan for a big fat mortgage, but I wonder if it will also hurt purely commercial endeavers. Anyone?

Joe

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With all the news about banks tighten their belt due to high foreclosures and loans they should have never given in the first place (sorry, done with my opinion piece), will this affect downtown projects from a funding standpoint? Or are commercial loans much more conservative, hence, no changes?

I could see this hurting the condo market as it is harder to sell a home, and harder to get a loan for a big fat mortgage, but I wonder if it will also hurt purely commercial endeavers. Anyone?

Joe

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Well, I see in the news that Michigan is 3rd highest in foreclosures for the month of July. Definately not good news. It will be interesting to see what happens over the next several months.

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he purely commercial endeavors will probably not be hit very hard, if at all.

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The high residential foreclosures are happening for a few reasons:

1) Many 2 and 3 year ARM's are adjusting and putting payments out of reach for many

2) People cannot refinance out of their ARM's because lending guidelines have changed (subprime market basically eliminated). Now you must have a lower DTI (debt to income) ratio and higher credit score than ever before.

3) When you miss/pay late house payments, your credit score drops, and puts you out of contention for a new mortgage. So, you cannot refinance.

4) The soft market is making it hard for people losing their homes to sell before the bank takes over. People who want "handyman" houses (investors) will just wait until the bank lists the house (usually cheaper).

5) For other homes, appraisals were "pushed" to allow the borrower to take maximum equity from their homes the last time they refinanced. So, they cannot afford a realtor (already owe what house is worth...no room to pay 7% commission plus transfer tax, plus tax proration, etc...).

6) People procrastinate. They get notices from banks/attorneys, but don't pursue anything. People could call the bank, call an attorney, try to sell their homes by owner right away, etc...BUT, they just sit there and do nothing.

7) When obtaining loans, many people used "stated income" loans to qualify, but those programs are no longer available. So, people with unverifiable income (there are more than you think who make money but cannot prove it) can no longer get financing.

...I could go on, but the bottom line is that I don't think this will affect the condo market. First, ask "who is buying these condos?" Where do they work, what do they make, how financially responsible are they? Granted, there are exceptions, but the people who buy downtown condos are not the people who are losing their homes.

Therefore, if people continue to buy condos (basic supply and demand), the condo developers won't have any problems. In fact, commercial development generally improves when the residential market (and economy in general) is down. With the squeeze in residential mortgages and mortgage backed securities, banks may even make funds for commercial projects more easily available as they become better investments (comparatively). So, what we should really be talking about is 1) What will people looking for downtown condos pay, 2) What is happening to improve the utility of downtown (entertainment, retail, general atmosphere), 3) Alternatives to living in downtown condos. For 1), I believe that developers must now concentrate on the 125-175,000 range to capture buyers and sell their units fast (see Fox Lofts--only one or two left, and construction hasn't even begun). For 2), we all know what's going on, and it will only get better. That leaves 3). If the downtown dweller can find a great home in Heritage Hill, East Hills, Eastown, the West Side, etc..at a better deal than a condo, they may take it. Sure, they would have to maintain a yard and pay higher utility costs, but if they can get a 1500 sf home for $89,900 in a good neighborhood, the cost savings will make it worth it. This may be where foreclosures and the market hurt downtown condos. If residential home inventory increases surrounding downtown, the average prices will come down, and the people who were looking at condos may just start considering a home just outside of the city's center.

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The high residential foreclosures are happening for a few reasons:

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GRDadof3 and Rhino, very good comments. As I was reading all I could think of is the continuing influx of wealthy retirees to the county in which I live. Most of them are from Michigan, Pennsylvania and NJ. When lower through upper-middle income folks are being foreclosed on, these northern retirees are coming in droves to purchase, waterfront and non, in the $300,000 - $2,000,000 range. Many pay cash.

Back on topic, I think that only places that will really suffer, will be like Miami where many thousands of new condos are now available. From UP comments, it does not sound like GR has gone overboard or at least not to that degree. If some of the developers need to drop the selling price of condos just a bit, at least they will move, and the developer(s) should end up with less of a profit rather than a loss.

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GRDadof3 and Rhino, very good comments. As I was reading all I could think of is the continuing influx of wealthy retirees to the county in which I live. Most of them are from Michigan, Pennsylvania and NJ. When lower through upper-middle income folks are being foreclosed on, these northern retirees are coming in droves to purchase, waterfront and non, in the $300,000 - $2,000,000 range. Many pay cash.

Back on topic, I think that only places that will really suffer, will be like Miami where many thousands of new condos are now available. From UP comments, it does not sound like GR has gone overboard or at least not to that degree. If some of the developers need to drop the selling price of condos just a bit, at least they will move, and the developer(s) should end up with less of a profit rather than a loss.

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