The Pendulum Is Swinging….Too Far???

It had to happen….the pendulum needed to swing. It turned out that it just didn’t make sense to suggest that you could “buy” a home with no money down…especially if you didn’t have great credit…more especially if you were doing an “interest only” loan and REALLY especially if you also got “cash back” at closing. Why anyone thought this was a good idea is a question we all need to be asking ourselves. The only people who consistently benefited were the loan officers who made money each time one of these questionable loans was placed. 

So, we need to return to the good old days, when you saved some money in order to buy a home and when you cleaned up any credit issues prior to buying a home. But the restrictions currently being placed on the loan market seem to be going beyond this. For instance, there are entire markets that are being called “declining” by the loan industry and in these “declining” markets the rules for generating loans are even stricter than they are in areas that are considered to be just “soft.” We’ve been told that all of Washington, DC and Montgomery County, MD Real Estate is “declining.” First of all, a generalization that broad defies rational thinking. Washington, D.C. consists of many, many micro-markets - as does Montgomery County. It makes absolutely no sense to look at a townhouses for sale in Germantown and a home for sale downtown Bethesda and suggest that they are in the same market. 

It seems as though the people regulating the loan industry are not keeping up with the current market. Perhaps because it takes a while to instigate the rules, by the time the changes are actually made, they no longer make sense. According to the December 2007 MRIS data, although Montgomery County saw a small decrease in the number of sales (down 1.9%), the average resale price was actually up by a similar amount (up 1.2%). So, where’s the logic in terming the Montgomery County real estate market as “declining”? It’s true we’re declining from the days of over 20% appreciation per year, but by and large our homes are not a declining resource by any stretch of the imagination.

The lending industry needs to get its act together.  

- Contributing blogger Gretchen Koitz

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