Real Estate

Real Estate Will Continue in the Doldrums in Most Markets Nationally

Wed Aug 25, 2010 7:45 am
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The Real Estate sector is what many so called experts see as the cash cow for the national economy. The meteoric rise in home values in the 90's continuing through to about 2007 was a train wreck waiting to happen. No one will ever convince me that there were many individuals in the home building/lending community that did not see the folly of thinking that home values would continue inexorably upward.

Local Governments loved the fact that they could count on assessments rising exponentially thus filling tax coffers. The point here is that literally every local, state and federal entity were choking on  tax dollars and could not take a gasp of air to realize that the bubble was about to burst. Worse those same tax dollars were burning a hole in the pockets of most local Governments to spend, spend and spend some more.

People were moving into homes with no documentation of assests, jobs or tax returns. Imagine just signing on the dotted line and taking the keys to a house that was doomed to be foreclosed on in the end.

Greed is good so said Michael Douglas in the infamous movie "Wall Street". Ignorance may be one step beyond greed. People who moved into homes that they should never have been able to purchase had the tacit approval of the federal Government. The game was to increase the percentage of home ownership, dam the financial facts/condition of the buyer.

So here we are about three years into this real estate conundrum. How will home sales rise, home prices stabilize and buyers acquire mortgage funding? Not by looking at a crystal ball and thinking the answer is return to the same methodology that got us into this mess!

What needs to happen is not an easy realization to comprehend for most folks. The shadow inventory of foreclosed homes has never really been examined closely. Banks have been furtive to not act on the real number of foreclosures on their books. This was foolish thinking, by bankers and the Fed's, that by leaking out only so many foreclosures to the market, at any given period would help hold steady home prices/values. 

The pain will be more tolerable when home values seek their own level by virtue of the "markets". When this happens prices will fall dramatically initially and then return to a level that will be decided upon by the buyers and the markets. Mortgage rates are at all time lows, why then are so many people not purchasing a home? 

Maybe at least part of the answer to this lack of buyers/funding is that when the paradigm for home sales is reset then mortgage rates will conceivably rise to about 7% and buyers may then find owning a home a choice they are willing to take even with a higher interest rate.

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