BiggerPockets

I am curiuos to have insight from people who were in the business post Savings and Loan Crisis...specifically from a more experienced perspective..What do u guys think will be the effect of the Bailout ...vis a vis Rea l estate prices....PLS I DO NOT WANT THIS TO DESCEND INTO POLITICAL DISCOURSE, AM NOT INTERESTED IN SOCIALIST,FASCIST AND CAPITALIST POLITICAL DIATRIBE( NOT INTERESTED) am stricly interested in what I can do to better myself under this emerging conditions.Thank you

Daniel - I think Gani's point was to shout . . .

Gani - If anyone tries to tell you that they have any idea what the bailout is going to do for the economy and real estate market, they are lying. Neither Bush nor Paulson nor Pelosi nor Obama nor McCain have any CLUE! All people can do is speculate.

My guess: The bailout should preserve (temporarily at least) credit markets so lending won't immediately dry up, which should keep the housing market alive.

In Lee County Florida, Last month fannie and Freddie Disappreared off the radar screeen for foreclosures. Expect a lot of these assets to do the same.

Not sure I get what you're saying, Jeff. Do you mean FM/FM have withdrawn their REOs from the market and are holding off on foreclosures?

I do think the bailout will help with the credit market. Lending will ease, though it may take a while.

As a buyer, I worry that the number of REOs available will decrease and their prices will increase, since the banks now have an alternative buyer for their bad loans.

As an individual investor, I'm concerned that large companies will end up being the ones to get the properties from the fed entity that's yet to be created. So, there will be yet another group of big players that will feed at the trough.

I understand the concern about the "mark to market" accounting. But, the banks have created this problem themselves with all these complex and hard-to-value vehicles. You can rest assured you and I will still have our investments "marked to market" each and every day, and we'll get a margin call the next day if the result isn't positive. I'm not too sympathetic to the argument that these investments are really worth more than the "current market".

In some places, $100 million would be a lot of houses, perhaps 10,000 or more. Even here in the Denver area, in hard hit areas, this could be 1000 houses. So, maybe there will be smaller packages. As much as I'd like to set up a company to take one of these packages, and I've broached the topic with a few friends, I'm having a hard time getting my head around how to pull it off.

I really don't think this bailout is intended to fix the RE market. I don't think it will have a radical effect, actually. We'll still have a bunch more foreclosures. We'll still have REOs. Prices will continue to fall.

Its intended to help the credit market. Whether or not it works remains to be seen. But, it the credit market is looser, investing should get easier. It should be easier for us to get loans. It should be easier for our buyers to get loans.

That said, I suspect many banks and other lenders will still hold the purse strings tightly for RE, even if they loosen up other lending. It will take a few years before they forget the burns.

I don't think lending will ever return to the guidelines of the bubble. So, that's a very fundamental change to the investing and housing market.

To go to the OPs questions, I think this will have little effect on RE prices. They will continue to fall, perhaps more slowly. We're still way above the long term trend line. I was concerned we would undershoot, and prices would end up below the long term trend. This bailout might generate enough credit that we'll have a "soft landing", and end up on the long term trend, rather than below. I suspect we still have a ways to fall in some markets.

Some very good comments. The main purpose of the 700 billion bailout was to ease the credit market between the banks, Wall Street, etc. Huge corporations like GE or governments -- state, county and city -- rely on liquidity in the credit market to grease their wheels. This bailout was to get the wheels of industry and government turning again. Most people did not realize that when the money came out of the market, it would effect everything from the former AIG chairmans retirement account to the street sweepers paycheck. This bailout was really not intended to help the real estate market per se.

That being said, 700 billion aint gonna get it. They will need trillions of dollars for this bailout. That means the government will start printing money and that means inflation. While housing values will keep dropping for a minimum of another year or two (or five, depending on how deep this goes), inflation is about to run rampant. So a house that has dropped in value to $100k in todays market, in two years will cost $115k - $130k just because the dollar is worth less. Or worthless to be more accurate.

The good news is that if you have fixed rate mortgages, the dollars that you pay in two to three years from now will be cheaper for you. Small comfort, I know.

On the plus side, seller financing will be huge in the coming years and investors who understand that can position themselves for great upside potential.

Barbara

I have to agree seller financing is coming back with a vengence the next few years. Personally I'm positioning myself to take full advantage of this within my local market.

My understanding is that the sub prime crash is only the tip of the iceberg. In the next few years there will be many more adjustible rate mortgages that will mature and that there will be an even greater # of these going into forclosure.

Does anyone have any opinions on that?

I agree with Lee Common & others-Owner finance or other creative financing may take off as good people cannot be approved for a mortgage.

I make no predictions regarding banks and politicians fixing anything in a logical or timely manner unless it lines their own pockets.

No amount of bailing will keep the housing boat afloat at it's current level. Median home prices still need to fall at least 35% to bring them into line with median income, assuming income doesn't fall, given the fact that the lending institutions have been forced by reality to return to sane lending practices.

We're back to a substantial down payment, and realistic appraisals. Those of you who learned real estate in the last 10-15 years are out of your element, and should probably go get jobs.