Countrywide is being taken over by Bank of America. What a huge company, taken down due to sub prime lending. Additionally, the FBI has just launched an investigation into its lending practices, according to CNN. Beyond just the mortgage crisis, there appears to be a global money and credit crisis. The Fed is expected to lower overnight rates to below the reported rate of inflation. The Fed has now offered $400 billion in short-term loans to help rescue the mortgage market, including $200 billion announced Tuesday, the $100 billion from the term auction facility loans to banks, and $100 billion announced Friday in loans to primary dealers in the bond market.
The credit frenzy stopped short in July 2007. In newsletters to my clients, I railed for years about “fogged mirror” underwriting that put unqualified buyers into homes with nothing down. National lending practices allowed anyone to buy, but in Denver, prices were stagnant. People in over their heads could not sell into such a market, and the natural result was Denver metro’s leadership in the foreclosure stats.
These continue to be interesting times. Sales are declining. Owners are calling us first, now, when they need to move. Many listing agents have reinvented themselves into short sale or REO specialists. Many buyers’ agents are working with investors or getting out of the business. I’m getting calls from licensees who would like to start property management businesses. The last three employees that I’ve hired were licensees.
Most people think I was brilliant to have started my company. I don’t disabuse them of the notion, naturally. The funny reason I opened shop, in 2001, was because my 3 little rentals were a piece of cake to manage. The more serious one was that I wanted a build a business that was “real”, no longer working for someone else, where I needed to look for a new job every 3 or 4 years.
Now the nation is heading into a recession. What will that most likely mean for Denver? More tenants doubling up to pay the rent. More owners will be moving out of town to find new work. If our local economists are still on track, however, we will continue to have net in-migration and job growth. These newcomers are more than happy to rent, being wary of real estate (and, perhaps, their own job stability). The increasing rents we’ve been enjoying over the past year… may be coming to an end.
It appears to be a perfect time to buy rentals: declining prices, increasing rents, improving tenant quality, and we still have cheap credit! On the other hand, the money crisis may affect us profoundly, so caution is recommended.
