The sub-prime mortgage industry is hurting. These are the lenders who specialize in giving mortgages to high risk, low credit borrowers. Let’s face it, almost everyone has been able to get a mortgage the past few years. Well anyway, foreclosures are up and these lenders are left with the defaults in a stagnant market. Many of these companies are going out of business and the fallout has sent the stock market reeling for the second time in recent weeks. The website The Mortgage Lender Implode-O-Meter tracks the companies who have gone out of the business since late 2006. As of today it is 36 and counting. The fear on Wall Street is that credit will tighten and foreclousres will continue to rise, just as the economy and the housing market weaken even more.
What does this mean for our market? Credit is tightening and this strongly affects the entry level market. Many people who have marginal credit have been able to buy those entry level homes that keep being built. When these potential buyers are not able to buy they will be forced to rent and the pool of buyers for lower priced homes gets smaller. As the pool of buyers gets smaller there will be more foreclosures etc. This cycle will be a possibility in all markets but the hardest hit in our area will be Southwestern Weld County, Eastern Boulder County and the low priced attached dwellings in town. Higher priced areas such as Boulder will not be affected very much because most Boulder buyers are not credit challenged. If buyers are affected in the higher markets it will most likely cause them to buy a smaller house not keep them out of the market altogether.
Another long term result of tightening credit will be the a strengthening of the rental market. I think there are going to be some great investment opportunities in the coming months. Being a contrarian is when you make money. When everyone else is down on the market is when you buy. Stay tuned for more developments.