Turning the Real Estate Ship Around: Why It Hasn’t And How It Can
Author: Charles Feldman • URL: http://www.thefeldmanblog.comMay 21st, 2008 •
Okay…so what’s wrong with this picture? In communities all across America the value of homes has dropped faster than the New Year’s Eve ball in Times Square. Lower prices should mean bargin prices. Bargin prices should mean people jumping back into the housing market.
People jumping back into the housing market should help inflate the value of homes…..
But things aren’t working out that way and it is all because of the credit markets.
Most “experts”–and I do use that word with great caution when talking about the real estate mess–seem to agree that lenders are sitting on the fence because they still are not sure just when this mortgage crisis will hit rock bottom.
The banks and other financial institutions worry, and not without good cause, that if they do start freeing up credit and people buy up those cheaper homes, the homes will still continue to loose value leaving the lenders holding the bag.
What will turn this around?
For one thing, if the lending institutions get convinced that the U.S. government is as serious when it comes to helping out home owners as it was in helping out Bear Stearns, they may feel a bit more relaxed about freeing up some credit.
But it is hard to feel that way when Congress is still trying to come up with legislation that the president will not veto–though it appears more and more likely each day that Bush will not stand in the way of anything Congress will offer for fear of further damaging Republican party candidates in the fall.
Lending institutions must also take stock of their own practices and either self police or face regulatory action under a new administration, especially if it is a Democratic one. That means
putting a stop once and for all to those misleading radio ads that still pop up telling people who have credit scores that suck that they can still get a nice, big, fat mortgage with hardly any financial pain on their part. Yeah, right.
But buyers can also contribute to the solution to this problem by realizing that homes are places to live and raise a family and not either an ATM card with a front lawn or an investment to dump back on the market in a short amount of time hoping to strike it rich.
When all of the above things are in place, it is my best guess that lending institutions will free up credit, which will grease the way for more realistic mortgages, which will allow people to finally start taking advantage of all those bargin homes flooding the market.
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Tags: Credit, credit market, default, home value, house values, loans, Mortgages, Real Estate Market
Joshua Dorkin
Charles Feldman
Ted Karsch.
Troy Schuricht
Richard Warren
Jim Watkins
The cleansing process this time around is so much more convoluted, isn’t it? Everyone involved in the process must confess to their own contributory sins.
This is the first time I’ve seen a credit crunch where just about everyone in the room has a dog in the fight.
Well written article and you make several good points. However, lenders are not lending because of there balance sheets. There unsure about how much they will have to write-down/write-off assets that are already on their balance sheets. In other words every time a financial institution has to write-off/write-down an asset they have to use cash in order to cover the short fall. This is why financial Institutions having been raising billions of dollars of capital.
So with new loans they naturally have to tighten their lending criteria because they are unaware of how much “exposure” they have on their securitized assets which are currently sitting on their balance sheets.
Once again I enjoy your post and you are great and picking hot topics to write about. Keep up the good work and I look forward to your response and upcoming post.
Well done and very generous. I’ll pass your words of wisdom along.
Thank you.
The credit situation is a real problem and it’s clear that we’ll need more time to get the housing market up and running again. But as slow as it is, there will still be 4 million people or more who will buy or sell a house this year. The deal is that you’ve got to make your home look better than all of your competitors, and priced more reasonably. It isn’t any more complicated than that.
I’ve got some great suggestions on how to do this in my book, 50 SIMPLE STEPS YOU CAN TAKE TO SELL YOUR HOME FASTER AND FOR MORE MONEY IN ANY MARKET.
Thanks to all who liked my latest post–I do believe that the items I outlined in it are some of the key issues that need to be resolved before we begin to even see a hint of light at the end of the you know what!
A good post.
What most people do not realize is these loans are created out of thin err… well… sort of. Let me explain very briefly - A LONG time ago when we were on the gold standard there was gold for every dollar so each dollar was backed with value. That standard is long gone.
Today the banks operate on a a fractional reserve banking system which lets them play with and risk other people’s money. The bank is allowed to loan out just over 9 times the amount of money it receives in deposits. Translation is your 10K deposit equals a 90K loan and none of it is the banks money!
So the banks do not have their own skin in the game!
Should a bailout be allowed for investors, homeowners, or banks? No. Everybody needs to grow up and realize nobody put a gun to anybody’s head and told them to borrow or loan money.
Gerald Romine
Lenders will start lending when investors start buying thier loans.
This is, first-and-foremost, a liquidity crisis.