We just returned from the 94th Annual Mortgage Bankers Association Meeting in Boston. It was important for HomeSmart Reports to attend to try to gain an understanding of what’s going on in the mortgage lending space. It’s a lot of talk mainly, and no one is really taking the lead in terms of working out a strategy to stem the inertia in the mortgage lending arena.

So, there was some of the doom and gloom mindset and talk of government bailouts, increasing the conforming loan limits above its current amount of $417,000. If a loan is at or under that amount, GSE’s (Government Sponsored Enterprises like Freddie Mac and Fannie Mae) are required to purchase these loans to provide market liquidity, provided the loan application and collateral value of the property are valid. Liquidity in the market keeps the funding sources available to homebuyers. Without them, you have to pay all cash or get the seller to carry back a loan, or the deal won’t go through.

In high priced areas, the interest rates on Jumbo Loans (higher than $417,000) have gone up making them less attractive to borrowers. All of this has served to slow the real estate market. Don’t look for interest rates to go lower, either. If they go lower, it could further de-value the U.S. Dollar which has taken a beating lately. Don’t look for government intervention anytime soon. Elections are on the way and politicians will likely bicker over what to do and get little done in the next 13 months. After that, the new administration’s usual message is that it will take time to fix the problems. We’re talking 18 months away at best.

Market inventory is increasing. In some areas, there is more than a one year supply of homes on the market at the current absorption rates. Foreclosures are mounting and there are loan resets on the way which could increase mortgage payments and cause more foreclosures. This will add to the inventory load and slow the market further. Lastly, there is still a gap between what sellers will take and buyers will pay. The gap is sizeable…sellers don’t want to lose money…buyers won’t overpay. One small shining light is that interest rates are still fairly reasonable. The going rate as of today is about 6.05 % for conforming loans, 30-year loans.

Lenders are going to dump more properties on the market despite what they have said to the contrary. The prices will likely be lower than homes currently listed by sellers.

Sellers are probably going to have to get very realistic, very quickly before this new inventory comes on the market. If your home isn’t selling, the number one reason is that it is priced too high. However, suppose you are planning to buyer elsewhere. If you accept a lower price on your current home, it is reasonable to expect you’ll pay less for your next home than you originally thought you would. So, your real loss may be less than you think. See how much “balance” there may be in such a trade off. If you were going to buy up, or buy a lower priced home, there’s a good chance you’re still getting good “relative” value for your money. I sold a home at a loss some time ago to buy a more suitable home for my family and while it was painful, I moved on and was better off for it. I’m not saying it is THE answer, but it is an answer. Certainly better for me than double payments!

We believe buyers and sellers have to take matters into their own hands. Negotiate with brokers for lower commissions to try to make a deal work. You may want to consider carrying back a loan if you are a seller, providing the buyer has solid credit. If you do carry a note, you might want to consider deferring payments for the buyer for 12 months so they can get established. Flexibility and creativity on everyone’s part is going to be important if we’re to work through this housing crunch. You may also want to limit the term of the note to say, 3-5 years until you get all of your money in a balloon payment.

There may be Nay-Sayers to some of these suggestions out there and we understand. If you don’t “buy” some of these suggestions, please be part of the solution and suggest some other alternatives that could help us all find a way through our current real estate dilemma. Sellers, you should do your research and list your property at a reasonable market price. Buyers should, as always, also do your research and make a reasonable offer if you think the property is within range of the market and within your budget. Interest rates are still very favorable. This could be one of those times when consumers have flexed their collective muscles as election time nears. It wouldn’t be the first time the public has taken matters into its own hands shown elected officials and big business a better way.