Mortgage Mess: How Tucson Real Estate Could be Affected

I wanted to write about the mortgage crisis that has been ongoing for the past 4-5 weeks. In Tucson, one of the largest mortgage brokerages in the nation (private banks), First Magnus, went out of business due to the lack of liquidity in the secondary markets. They could not sell off the packaged loans that they had made to borrowers, which then get resold to Wall St. The closure of First Magnus, in my opinion, has put a lot fear in the local Tucson real estate marketplace. Many buyers whom I have spoken with within the past few weeks since the closure of First Magnus have second thoughts about actually deciding to make a purchase. Also, First Magnus laid off roughly 600 employees when they went out of business, and that alone has shocked the Tucson mortgage business.

What will happen from here?

While no one knows for sure, the obvious choice is that lenders are going to be upping the requirements on all the loan programs they offer. Every week, it seems like fewer and fewer loan programs are available for borrowers. The borrowers who are looking to buy right now need to be more highly qualified than in the past 5 years. The availability of zero down and other products such as option ARM’s has not gone away altogether, but has been drastically reduced to only those borrowers highly qualified and able to purchase.

What will this do to the Tucson real estate market?

My guess, as it is already happening, is that the tightening of lending standards will strictly limit the number of buyers in the Tucson real estate market, especially first time buyers. First time buyers are the life blood of any real estate market, as they allow all the other buyers to move up in homes. It wasn’t that long ago that if you wanted to purchase a home, you needed a 20% down payment. Will we go back to that? I highly doubt it. Most loans (the very high majority) are being paid on time with no issues, but foreclosures are approaching all time highs in many areas that have not experienced this before. In Tucson, as well as Phoenix, Las Vegas, and most likely San Diego, this will be looked at as a downturn where there were unbelievable deals to be had if you would have stepped up and purchased a property or two. The Tucson area has amazing weather, job growth, relatively inexpensive housing, and an economy that is one of the best in the nation.

In 1991 to about 1993, Tucson real estate was in a down market a lot like the current trend. Until this year, that period was the last time real estate prices went down vs. up year over year. An average home in Tucson would cost roughly 100k dollars. This same home 10 years later would have fetched roughly 250k. Now obviously it’s doubtful that home prices will have a 150% raise over the next ten years, but currently I have been seeing homes priced at levels even cheaper than 2004 prices. Eventually the market will correct and prices will stabilize, but if you are thinking at all about buying a first home in Tucson or moving up to a bigger home in the area, now would be the time to do so. On the other side of the coin, if you are looking to downsize, I would recommend you try to wait out the current down cycle and sell when the market becomes more favorable .

This entry was posted on Thursday, September 13th, 2007 at 2:22 pm and is filed under Financing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.