WesCorp's Ron Araujo sees a mixed bag for credit unions in the mortgage market.
"This declining housing market may actually be different this time," he wrote in a recent report to credit unions. "While this is a troubling development, it may be one where a credit union's reputation for customized member service may save the day."
Araujo cited a recent study by Moody's Economy.com, a research firm which expects a 10% correction (from the peak) over the next few years in 20 metropolitan areas.
Some of these areas include Washington D.C.; Sacramento and Riverside, Calif.; Las Vegas and Reno, Nev.; Sarasota and Naples, Fla.; and Tucson, Ariz, with smaller declines in other areas. But the Moody's study expects the decline to go well into 2008, as opposed to the National Association of Realtors, which projects it's nearly over.
Who is to blame? Speculators, for one, who rushed into a booming market for investment properties, Araujo said.
They expected them to appreciate, but they haven't, and now they're dumping, glutting the market, he explained. Investors own 40% of homes, and localities where that percentage is high, the correction will be steep.
Those adjustable rate mortgages offered by brokers who lowered standards to make the sale are causing a hurt, too, Araujo added.
If a family can't make the payments on a repricing rate, they have to bail, sending defaults and foreclosures upward.
Araujo found good news in a stable economy and solid job market, however.
"This will keep money coming in the door, and should act as a strong suppressant to a cataclysmic decline. Indeed, this reason is frequently cited as to why the current downturn in housing will not cause a downturn in the economy," Araujo suggested.
Those investors may have already dumped their properties, so the oversupply may be halted, he added. And finally, many builders have already announced plans to stop building more homes.
"This is significant in two ways," said Araujo. "First, it will act to reduce the number of homes on the market, which will get us to equilibrium more quickly. In addition, the absence of a new home sale market (as contrasted with a resale market) is very good in a declining market, as builders tend to get impatient with inventory and 'cut and run.'"
Lastly, many lenders are beginning to tighten their lending standards materially. While this will further reduce the size of the buyer's market, it should have no effect on the qualified buyers market, or those borrowers that have the ability to weather the storm.
Many economists and market players (WesCorp included) are expecting a decline in rates during the next six to nine months, he said.
Because credit unions pride themselves on knowing their members better than competitors, and provide more personalized service, that may be the ticket to get out of the dark forest that has become the current real estate market, Araujo said.
