Fiducial | We help your business grow and be profitable.

by Stephen Parezo

December 13, 2004—A forecast released last week by a group of West Coast economists says the nation is in a housing "bubble" that will depress construction in 2005 and slow the nation's economic recovery. But Fiducial mortgage experts argue that to have a bubble there has to be an oversupply, which they say is not the case.

Kevin Reese, Fiducial's lending manager, doesn't buy into the housing bubble theory. While acknowledging that new home construction should slow down in 2005, he noted that construction has been at an all-time high in recent years and people are still moving into pre-existing homes.

"There has been a housing boom over last five years with lower interest rates available so people can afford more house for those who have moved up into the next tier of homes," said Reese who heads up Fiducial's mortgage lending services operation in Indianapolis.

The report from UCLA Anderson Forecast indicated that the housing sector's high and unusual contribution to economic growth is not going to continue next year. Forecasters contend that real estate prices today are rationally propelled by low mortgage rates and high demand, while construction is justified by population growth.

Moving on up

With the government putting more emphasis on more people becoming homeowners, Reese says there's an increased number of buyers' moving into bigger and better homes through the sales of their previous homes and the equity that they've built up.

The National Association of Realtors raised its forecast for sales of new and existing U.S. homes in 2005. Though the NAR's forecast predicts both categories to decline their growth estimates are higher than UCLA's. The trade group predicts that existing-home sales will reach 6.38 million in 2005, down from 6.58 million this year. New-home sales are expected to reach 1.13 million in 2005, compared with 1.18 million in 2004.

While construction has been slowly plateauing, Reese pointed out that there are still tons of homes lasting six months or less on the market.

"People are buying homes," he said. "In Marion County, which includes the city of Indianapolis, within a 90-day period over 1,300 homes went up for sale indicating that more people aren't moving out of their home into an apartment."

Reese acknowledged that there's less growth in certain parts of the country but says homes are still sold every day nationwide.

"It doesn't take much to drive down the street and see the number of for sale signs in people's front yard," he said. "You see new business coming to town and businesses leaving town. People do need to buy."

With the prime rate still low, Reese noted that there's plenty of opportunity to consolidate high interest debt.

"With the use of the equity in your home, homeowners can refinance higher interest debt into lower interest tax deductible loans," he said.

Having access to equity

On the mortgage front, Reese indicated that Fiducial had a better than expected calendar fourth quarter which is usually slow going into the holiday season.

"A lot of people are trying to get in with interest rates the way they are," he said.

Many buyers opted for the new construction of homes instead of purchasing new used homes since the unseasonable weather has allowed builders to proceed farther with their schedules.

Reese says Fiducial is still on pace to be licensed to sell mortgages in about 35 states by the end of January 2005. Mortgage representatives have to deal with year-end governmental processes since all of the applications go through various licensing branches. In addition, a number of states have year-end renewals so instead of it normally taking six to eight weeks to process an application it's turning into 10 to 12 weeks which was what they had planned on.

Asked for his biggest end of the year tip, Reese advises homeowners to make sure that they have availability to equity in their home.

"Going into the spring, even if you're planning on selling your home make sure you have access to that equity," he said.

For example, if you're planning on putting your house on the market next spring, Reese says to get a home equity line in January or February so you can still use that equity for the purchase of your house. If you intend on renting out your house, take advantage of an owner occupied home while you have it as your primary residence because things happen.

"Who knows what could happen in winter," he said. "After your roof collapses and it's sitting in your basement it's tougher to get that equity."

Looking ahead to spring, Reese says curb appeal is going to add value to your home. Heading into March and April, whether it's new trees, shrubs, driveways, a new pool or patio, if you plan for the unexpected having availability to your equity can make all the difference.

"You don't have to draw a dime on your home equity loan," he said. "It's like having a tax deductible credit card at your convenience."

Stephen Parezo is the Media Manager for Fiducial

Whatever your small business needs, your Fiducial tax and financial professional can analyze your situation and recommend an appropriate action plan. To locate a Fiducial office nearest you on fiducial.com, see the Zip Code Locator located in the upper right hand corner of the page. Do you have a particular topic that we should be writing about that can help your business? Please send your suggestions to: stephen.parezo@fiducial.com.