Here we are the end of the first decade of the new millennium. For old geezers like us who remember when George Orwell’s 1984 and Stanley Kubrick’s 2001: A Space Odyssey were speculations into the future, just saying “2010” is weird. And if you’re not in the geezer group, you might not even recognize the title of this blog as the opening verse of an old 60’s rock song. What does that have to do with real estate? Nothing really. The point of this blog is that as we enter this new decade, more and more positive signs keep popping up. We’re here to help make sure you don’t miss them.
A December 19th Wall Street Journal headline says, Down Payment Standards Eased. Well, that certainly caught our attention. The gist of the article is simple: Mortgage lenders and mortgage insurance companies are beginning to loosen their lending standards. This, the Journal says, is a sign of increased confidence in housing.
You can read the article yourself, so we won’t repeat it here. But we do want to point out a couple of ideas we think are worthy of consideration.
First, the looser standards are being applied on a market by market basis. This acknowledges the obvious truth that real estate values are local. This fact creates both opportunity and challenges for an out of area investor. How do you know which markets are recovering and which ones are still declining? While knowing what to research to figure this out is one thing, actually having the time and resources to do it is another. How convenient when huge companies have already done some of this work for you! So, it seems to us that any market where the looser standards have been applied might be of better-than-average interest.
Also, the article talked about the toughening of lending standards by Fannie Mae, who they say just raised its minimum credit score from 580 to 620. That alone just took lots of people out of the running to buy a home. While that might seem negative toward new buyers driving up values, it also means more people will need to rent. As a property manager, if you’ve been running credit reports on prospective tenants, there might be an opportunity to pick up new customers in the 580 to 620 range. Of course, you take more risk when you lower your standards, but unlike these automated underwriting engines that just lop people off the list at a specific point, you can be a little more personal. There are a lot of people in this economy whose once pristine credit is tarnished because of unemployment or strategic mortgage default. This doesn’t mean they will be poor credit risks when renting a place to live from you.
The landscape continues to change. With every shift, problems and opportunities are created. The signs are all around you, so keep your eyes open. Think about what you are seeing. Form hypotheses and develop action plans to take advantage of the shifts. When we’re at the end of the next decade looking at 2020, where will you be? The actions you take in this next year will be the foundation for the answer to that question.
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