Housing Crunch — Deed of trust buyer

The economic news over the past week has not been good.  On the (un)employment front, job growth ground to a complete halt last month, adding no new jobs.  The employment-population ratio dropped to 58.2% (9/3/11 Wall St. Journal) and the unemployment rate stayed high at 9.1%.  Meanwhile, Bank of America announced that it may ax 30,000 – 40,000 employees, and Deutsche Bank is moving in the same direction.  So, the income and job security of the average American certainly isn’t going up.

Let’s now look at the consumer savings and debt side.  One bit of positive news is that household debt loads are shrinking.  However, mortgage debt as a percentage share of home values is sky-high, and close to double what it was 25 years ago (9/8/11 WSJ).  Nearly one in three American adults who grew up middle-class are now on a lower income rung (9/1/6/11 Washington Post).

It used to be that people in their 50’s and 60’s could get their mortgages paid off by this point in their life so that they could prepare for retirement.  That is no longer the case.  Almost 40% of households with heads ages 60-64 had mortgages on their primary homes in 2010, nearly twice the 22% in 1994 (9/7/11 WSJ).

In review, consumer incomes are stagnant, savings are low, and debt levels are still high.  Surely, the government is putting in place a long-term plan to get America to a sure financial footing, right?  Alas, not so much.

On top of the current debt which the U.S. has no way to pay down, last night the President opined that there should be $447 billion (nearly half a trillion bucks) in spending initiatives and tax cuts.  If you look at recent programs like the buying of toxic assets from banks, various foreclosure relief programs, home buyer tax credits, cash for clunkers, etc., it is clear that neither the administration nor Congress have a clue about how to solve the problem, so they throw more money in the air with the hope that something good will happen.

None of this is good for housing.  When potential buyers have no money to buy and banks are stingy about lending, home values and sales have nowhere to go but down.  The average rate on a 30-year mortgage dropped to 4.12%, which is a record low, and still is not enough to crank up home prices.

Owner financing can help in some situations.  If a house seller owns a property free and clear or has a low balance on their mortgage, then setting up a deed of trust note and perhaps later selling that mortgage note to a deed of trust buyer can make sense.  However, owner financing is generally not a good fit if the owner is carrying a heavy mortgage.

Each month, the economic news seems to get worse and the politicians less capable.  Nobody knows how this will all end, so keeping an eye on the always changing economic landscape is the best approach.  Sorry, but no miracles are in the offing!

Alan Noblitt is a deed of trust buyer based in San Diego, California.

Leave a Reply

Your email address will not be published.