New home sales plummet--what does that mean for you -- the buyer?

Sales of new homes plunged to a 12 year low, an annualized pace of 647,000. New home purchases are down 34% from a year earlier, the biggest year over year drop since 1991. Source: NY Times 12/29/2007 Michael Grynbaum

What does that really mean for a potential buyer?

Since less new homes are sold there are more new homes (spec homes) and lots available in existing developments, at least for a while. But, new home builders such as DR Horton, Pulte, KHovnanian, Toll Bros, just to name a few, know this data all too well. They will stop buying land and developing construction sites until demand picks up. The sites that are available will be reduced for some great buys for the new purchasers.

When new builders reduce building starts, that helps the existing real estate market. Why? Because the houses are already built. As the market picks up and existing home sale are steady or increase, then the new home builders will also pick up again.
But, they still need buyers. That is qualified buyers. There is a credit crunch out there that most people do not know about. Gone are the no doc loans. ARMs are hard to get as well. You need to have proof of income, low debt-to-income ratios and a great credit score. Jumbo loans also require more proof and documentation. Jumbo loans are loans over $417,000.

If I seem like a broken record, I apologize. But the easiest way to get into that mortgage and buy that dream home is to have the best credit you can have.

There are a few simple steps to doing that. First, stop spending money on unnecessary things. Second, make a budget--a realistic one--and eliminate all of the extras. Third, allocate that amount of money for extras and pay down debt or if debt free, save it. The less debt you have the higher your FICO score. Fourth, get your credit report from the big three reporting agencies: Equifax, TransUnion and Experian. Finally, retain an attorney who does credit repair to fix the errors in the report. If you do all of these things then approximately five to seven months down the road you will be ready to get the mortgage you want and deserve.

John

GMAC Announces Layoffs and Other Mortgage News

On today's Inman Real Estate News, check out this article
on the GMAC layoffs.

It's a good article and it's important because the lenders are not lending to as many people. The no-doc loans or loans without income verification are over. People with a good income and most importantly a high FICO score (credit score) can obtain loans. But they are less abundant than prior mortgagors. Hence, less mortgages mean less employees for morgage companies and now layoffs.

And speaking of less mortgages, Money magazine reports that the feds are cracking down on lenders -- "The central bank is expected to propose regulations that would offer greater protections for home buyers and curtail abusive lending." Read the article here.

So what should you be doing? Make a resolution! It's the end of 2007. Your New Year's Resolution should be this (everybody repeat after me), "By January 15th, I will have a copy of my credit report! I will read it for errors and I will take it to a professional to fix and remove negative comments to maximize the score!"

Until next time,
John