The other shoe

Reading this article from CNN only confirms my belief that we have yet to see the full correction here in Utah. In the past we have trailed the rest of the nation in trends, going up after they peak and going down after they level out. The NAR and of course the UAR and nearly every talking head within their grasp is touting the end of the crash in complete defiance of every known principle of economics I have ever read. Well one of us will be right, an so far its not them.

Speaking of that…I have to mention here that just the other day there was an article pinned up on my friends cork board from the UAR titled “Utah market poised for gains in 2008″. My Uncle Jeff spent 15 or so years in New York as a commodities trader and was an innovator with-in his field as a trader of Weather Derivatives. Anyway, he has a phrase that they use on Wall Street called “talking your book”. It basically means that whatever it is you are selling you talk up.

Realtors call it puffing. In my experience Realtors just might be the most notorious book talkers of all time. Realtors talk their book religiously and it harms their credibility. Honestly I laughed when I heard the radio ad from the UAR talking about how strong the market is in Utah. Its a joke; The UAR not the market that is.

Bottom line, housing demand is directly proportionate to the availability of financing or cash. Since so few cash buyers exist, the availability of financing will be the principle driver of housing demand. Since the secondary market has not only not recovered, but has become worse I find it hard to understand just how the NAR and UAR foresee such incredible growth for 2008.

Well, half of that year has come and gone, and so far that article on my buddy’s cork board might be the most wrong article I have read all year…and I read a lot of the L.A. area rags before the Finals.

FHA almost got it right…but missed the mark.

On June 9th the FHA made a change to their long standing policy which requires a 90 day waiting period before an FHA insured loan can be used to purchase a home where title (or ownership) has been transferred.

Upon the announcement from FHA there were immediate shouts of joy heard amongst investors, Realtors, loan officers and anyone interested in seeing the housing market work through its current issues.

I admit I was amongst those shouting for joy. But my joy was to be short lived. The waiver of the 90 day anti-flipping rules does not apply to investors or private owners who buy a property to fix up and resell.

A careful reading of the actual document signed by the secretary of housing HERE indicates that this only applies to lenders who foreclose on a property who are not already exempted from the 90 day waiting period. Apparently certain lenders that are government sponsored (e.g Fannie Mae and Freddie Mac) were exempt, so they could foreclose (which transfers title) and immediately put the property up for sale and then sell it to someone who was using an FHA insured loan.

Some non FHA lenders (conventional) have also adopted similar “anti-flipping” rules, but this move from FHA comes in response to the glut of homes that are being foreclosed upon by non-exempt lenders who are now having issues getting the foreclosures off their books. The main problem is that buyers who require FHA financing are not able to even submit their loan until the 90 day period has passed. This means that a lender will have a foreclosed home on their books for at least 120 days and thats assuming that a buyer is in place and willing to wait until the 90 day period ends and submit their loan on day 91. A cumbersome process indeed.

While I would have liked to see FHA drop the rule in regard to investors…it was too much to hope for. I’m afraid the rules are there to stay, at least for now.