As the summer of 2011 rapidly comes to an end, it is time to reflect on what has passed us by, and it is now time to anticipate what the next 12 -18 months will look like.
The financial world is built on the premise that U.S. Treasury securities are very close to RISK FREE. However, the question has to be asked what damage was done to that perception as a result of the messy handling of raising the debt ceiling due to political posturing by the Democrats and Republicans. Additionally, it is very hard to quantify the effect that the near calamitous inability to raise the debt ceiling had and will have on commerce in the short term.
So, the economy is limping along at an anemic pace with growth expected to come in at a whopping 2% (approx) for 2011. Unemployment is still over 9% and there does not seem to be an improvement coming in the short term mainly due to the fact that smaller companies are struggling. Consumer confidence continues to fluctuate between, occasional cautious optimism, and the reality that we are in a recession.
Combine the weak job market with weak consumer confidence, and you have many homebuyers playing it safe, and sitting on the sidelines for fear of a deeper recession. Home ownership levels have declined to levels not seen since the mid 1990′s. With demand tepid, home prices (nationally) are drifting lower, as a result, I worry that we may see banks asking for higher down payments to tighten lending terms and reduce risk.
The one bright spot amidst these troubling economic times is the fact that interest rates remain at historically low levels. Lenders are lending. I will agree with you that it is tougher to get a loan today than it was 4 years ago (a pulse and an ability to sign one’s name allowed one to get financing” back in the day”) However, common sense prevails. A borrower who is gainfully employed, has credit scores over 600, does not exceed the standard DTI (debt to income) %’s, and has the requisite down payment of 3.5% on FHA and 20% on Jumbo monies, IS getting financing.
Does today’s consumer have to provide more paperwork than days gone by, and is the process more intrusive than in the past? The answer is of course. However, banks are closing loans.
My advice is to come prepared, don’t take it personally, and realize that we are just coming out of an environment that was almost a worldwide economic “Armageddon” due to a mortgage market that had lost its senses for several years. There has been so much fraud in the mortgage industry in the last several years that underwriters dig deeper than they have to. The consequence is that there are more questions asked of the buyer, and there is more paperwork required to validate the authenticity of the buyer and the transaction.
The Federal Reserve has pledged to keep short-term rates near zero for a minimum of two more years. That means commercial banks will keep their prime lending rate at 3.25%. The rate for the 10-year Treasury note will probably remain around 2.1% – 2.35% until growth picks up. The Fed really has no direct control over long-term rates, though it has sought to lower them by buying Treasury bonds over the last three years. I would be very surprised if the Fed decided to dive into another round of Treasury purchases.