Q&A talks about the residential mortgage climate with William (Bill) H. W. Crawford IV, president and chief executive officer of Rockville Bank and Rockville Financial Inc.
Q: From your perspective, how is the Greater Hartford real estate market doing after the first quarter of 2012? Are values increasing?
A: Greater Hartford, and the Northeast as a whole, has held up much better than other areas of the country. With the continued low mortgage interest rate environment and the Spring market upon us — which is the biggest selling season — stabilization or even improvement in home prices is possible.
Q: What particular parts of the real estate sector, by comparison, are doing well? Are the higher ends of the market weathering things better than the lower segments?
A: Generally speaking, the lower and mid-range of the market have held up better, especially homes that do not require a significant amount of work or no work at all. However, in all cases, towns with well-regarded school systems have fared the best.
Q: Could you expound more on why the lower and mid-range market is doing better? Are people being more cautious in laying out money for real estate? Have we seen a shift to smaller house ownership?
A: The lower and mid-range have a larger and deeper market to support prices, that is, there are more consumers who can afford homes at these price levels. Furthermore, Fannie and Freddie buy mortgages up to $417,000, which creates a more efficient credit market for this space. Consumers are absolutely being more cautious and this level of caution will continue until consumer confidence is fully restored. There has not been a shift per se to smaller homes; the support for the pricing at this level is driven by the larger pool of consumers who can afford homes and a more efficient credit market at this level.
Q: Where does consumer confidence stand in terms of the real estate market? Are more people staying put and not buying up, even if they can?
A: The return of consumer confidence is critical to a turnaround of the real estate market and the "de-leveraging" of the consumer will serve to temper the markets for the foreseeable future. However, there is certain level of pent up demand which could positively impact the Spring market.
Q: Where would this real estate market be without low mortgage rates? Would it be further depressed?
A: Historically, low mortgage interest rates have prevented a further decline in real estate prices and assuming they continue will play a positive role in bringing back the real estate market as things improve.
Q: Have you seen upticks in mortgage and refinancing applications and other real estate activity?
A: There is still a healthy level of refinance business and this will continue to make up the majority of residential mortgage activity until sales velocity picks up.
Q: In your view, would values drop dramatically if mortgage rates began to rise?
A: So long as the rise in interest rates is accompanied by real economic growth, values should hold.
Q: How much longer do you think buyers will able to avail themselves of these rates? Through the election?
A: The Fed has indicated that it will keep rates low into 2014. Although it is uncertain if that will be the case, it would appear that rates will remain relatively low, historically speaking, for the foreseeable future.
Q: What about the sub-prime market? Can people with bad credit get mortgages?
A: Sub-prime lending, no-doc, etc., is gone. Individuals with credit scores below 620 will have a difficult time securing traditional residential mortgages and should re-establish their credit prior to coming back into the market.
Q: Is there any hope for the first-time buyer?
A: It is a favorable time for first-time home buyers. Prices are good and mortgage rates are low. Also, there are several government programs designed for first time home buyers. The market is driven by consumer confidence.
Q: Has the pendulum begun to swing back to looser credit for home buyers?
A: At Rockville Bank, our underwriting has remained consistent throughout the financial crisis and Great Recession (2007 thru 2012). Currently, we are seeing robust mortgage applications, approved loans, and loan closings. Industry wide, mortgage credit appears to remain tighter than pre-2007 levels, which is likely appropriate given market factors.
Q: How about Rockville Bank itself — how is it doing clearing its balance sheet of bank-owned properties?
A: Fortunately, Rockville Bank enjoys excellent asset quality and has very little OREO. The little the bank does have is typically sold quickly.
Q: What is your perception on the building of houses on speculation? Has that market returned?
A. Speculative building is at a minimum and will remain that way until we start to see real economic growth and material home price increases. All interest rates remain low, relatively speaking, when looking at the last several decades and that includes construction loans as well as permanent loans.