Issac J. Bailey | Unbalanced credit creates unbalanced market

Ken Strand represents what he says is one of the under-reported causes of the weak housing market.

Despite having had only one late mortgage payment in 14 years, he was unable to qualify recently for the best rate when he tried to refinance.

What he was offered wasn’t good enough to go through with the process. It would not have lowered his monthly payment much and likely would have taken several months, if not years, to recoup the upfront closing costs required.

Had the refinancing gone through, he would have used the extra cash to inject money into the broader economy, which is why many economists have said a mass refinancing program could help the housing market, and in turn the economy overall.

“I would have gone and bought a new truck,” Strand said. “The people that really need [credit] aren’t the people that are really getting it.”

His credit score was harmed a few years ago because of a mix-up over how he was being paid. The company he worked for switched to a new electronic system and that caused a delayed deposit of his pay into his checking account. That triggered a late mortgage payment, particularly after the bank demanded two payments at once.

And later, when he was away from the area for several months for work, a dispute over how quickly he needed to return Time Warner Cable’s equipment led to another small blemish.

Those things hurt his credit score and it was hard to get it resolved, Strand said.

“I’m sure a whole lot of people had a few small glitches on their credit over the past few years,” he said.

Housing, which usually helps lead a recovery, has been a drag on the current one. The economy has produced about 2 million private-sector jobs since the summer, which has reduced the unemployment rate to 8.3 percent in January in spite of a real estate market that has yet to hit bottom.

Single-family home sales have finally ticked up a bit along the Grand Strand, but home prices have continued to fall.

That’s because almost a third of area home sales are either short sales or foreclosures, which tend to hold down prices.

There have been attempts to help struggling homeowners avoid foreclosure, but so far those efforts have fallen well below what’s needed.

Recently, there’s been talk of a mass refinancing program that would focus on homeowners who did not buy too big of a home and are current on their mortgage payments. It would likely help homeowners such as Strand and unleash the buying power of millions of residents who are suffering through the real estate downturn through no fault of their own.

Anything that addresses or reduces the growing glut of foreclosures would be welcome, but a market such as the Grand Strand’s needs more, said local real estate analyst Tom Maeser.

About two-thirds of the local housing market involves non-permanent homeowners who won’t be helped by efforts primarily focused on permanent homeowners, he said.

“And they are the ones that are doing a good bit of the foreclosures here,” he said. “We went through this in the ’80s when all the savings and loans went under. Back then, they really put together creative financing packages for the permanent owner and the investors. Most of the efforts today are focused on the permanent resident. A lot of investors here own permanent homes and an investment property, so they are hurting, too.”

And the credit standards for a pre-foreclosure program designed to “bring good qualified buyers into a [stressed] property” are too high.

“They’ve gone from the ridiculously-too-low regulation,” Maeser said, “to the ridiculously-too-high.”

Currently, the local market is out of balance in favor of buyers the way it was a few years ago for sellers. A healthy absorption rate is about a six-month supply of housing inventory, Maeser said.

Between 2005 and 2007, the supply was less than six months. Today, the single-family home absorption rate is about 13 months, with condos at 16 months.

It has gone from one extreme to the other. Unfortunately, credit standards and availability have done the same thing.

Housing probably won’t find a good balance again until the credit situation does.