Recent headlines tell from this newspaper the story: “
The real estate market is back, and it isn’t long before the mortgage market follows. As it already has: our data unit reports that four of the top five mortgage originators made more loans in the fourth quarter of 2012 than the fourth quarter of 2011. And the fifth top lender, Bank of America, was flat, not down.
Even jumbo lending, a desert for the past five years, has opened up with JPMorgan following Redwood Securities into the JMBS market, giving Redwood its first company in several years.
The big question is, is the market already overheating, or is this a normal reaction to an abnormally big decline? Mortgage bankers we spoke to recently in New Jersey and Florida felt there is no new bubble forming, and that what is happening in the market is a normal correction from an abnormally big drop.
We hope they are right! Because to have an overheated market now would be the height of folly, an incidence of cluelessness of mammoth proportions from an industry so damaged by one not ten years ago.
One sign of a bubble is to have a lot of investors, non-owner-occupants, snapping up lots of units. This reduces inventory and puts upward pressure on prices. Plus, investors are keen to make a profit and so they tend to sell properties more often, driving prices up legally as well as illegally through fraudulent land flips.
The National Association of Realtors has just reported investors bought a million properties in 2012. That sounds like a hefty number but is actually down a couple of ticks from 2011 volume.
The key thing this time around will be credit quality. If loans are made to people willing and able to repay them, that will soften the edges of any bubble. This is certainly not what happened last time.
And it’s good to remember that a little inflation, say 3% to 4%, is good for real estate, boosting home equity and bailing out bad underwriting. But now housing inflation is running about 10%, cause for concern, perhaps not for alarm.
