There's no such thing as a good loan.
That blunt lunch table assessment comes from a man who has been a successful developer in Knoxville for decades. It doesn't matter about your track record, the prospects for the deal, the ability to pay the interest. Getting credit to do developments is virtually impossible.
Government payrolls are the backbone of the Knoxville economy, but those payrolls drive retail business and the other major driver of the Knoxville economy—the housing market. When I want to get depressed I call around to my list of experts for a candid assessment.
Nuggets from three conversations:
—America is going back to being a renter nation. Up until the 1950s, the percentage of homeowners stayed at 40 percent. Aggressive government subsidies drove the percentage in recent years to above 65 percent. The housing "industry" ran out of buyers. A good 35 percent of Americans prefer the freedom of movement and lack of responsibility that comes from being a renter. We will likely return to being maybe a 55 percent homeowner nation.
—We will likely go back to having multi-generational families living in the same house. Can your children buy a house?
—One developer predicts there will not be any financing for condo projects "in my lifetime." (Note that downtown Knoxville might be an exception, but more and more of those units are being rented rather than sold.)
—The housing model of the future will be investors buying up existing housing stock and renting the houses or selling them to the occupant and financing the purchase themselves. Given the low returns on other investments of late, this is a lucrative new market for people who have cash.
—It will likely be 10 years before large-scale subdivision development will come back, and then only if the government gets back into the mortgage subsidy business. MPC says they have had one new concept plan for a residential subdivision in Knox County in the last six months. There has never been a housing industry in America without heavy government subsidies and tax incentives for home loans. Banks have never been willing to finance home loans without government subsidy or loan guarantees.
Developers, even successful ones, do their deals with OPM—Other People's Money. You don't last long in the business if you take all your own chips and put them on the line to do a development. So you go to the financial sector, get a line of credit, and pay the interest until you sell the units. The lines of credit aren't there because the banks don't want to carry any paper secured by houses.
So the real estate market in Knoxville, such as it is, consists mostly of selling existing homes.
The good news is that there are incredible loans available. Low, low interest rates and the price for houses is right. You can also save a bundle if you refinance your existing loan to a lower interest rate.
The bad news is you can't get a loan. You can apply and wait 90 days. It used to take three. In the meantime you cool your heels and hope for the best. And that low interest rate for the re-fi or the house purchase is available only if you have a credit score of at least 780. Any lower than that you may not get the loan and if you do the interest rate is going up a point or even two. In the good old days the credit score didn't affect the rate, as long as you were above 600. Now the credit score is tied directly to the rate of interest.
Maybe it should be that way. People buying houses with lousy credit or an inability to pay the money back got us into this mess. But buying a house or doing a re-fi these days is an arduous process.
Is there any good news? I would just recall that in 1980 I was repeatedly told by financial experts that if you didn't already own a house you never would. Interest rates would never return to single digits.