The real estate caused global credit crunch shows signs of spreading like a fierce cancer to areas of the economy no one would have expected or predicted only a few months ago.
News this week that some major banks are no longer giving student loans to those enrolled in two year community colleges because of concerns those students may be a bad credit risk–which in nonsense, but an excuse being used nonetheless.
The chief executive of Wachovia was forced to walk the plank while Standard & Poors sliced the credit ratings for three investment banks, Lehman Brothers, Merrill Lynch and Morgan Stanley.
In Great Britain, one mortgage lender has issued a very dark and somber report on the near future of the housing market in the U.K.
Optimism or Foolishness?
At a time such as this, it is okay to try and remain optimistic so long as you don’t slip into the realm of foolishness and unrealistic expectations.
Understandably, some in the real estate business are sticking to the age old bromide that when housing prices are low–as they are now in many markets–that is a good time to buy. They pin their hopes for a recovery on this sort of stimulus even though there is scant evidence that things are working out that way.
In point of fact, potential buyers, rightly, are concerned that the property they purchase today will be worth even less tomorrow. So, they are holding back.
And, even those who are determined to charge forward are finding it nearly impossible in many parts of the country to get lending institutions to take them seriously.
The simple answer, though complex in its ramifications, is globalization of the world’s economy. And, it works both ways, as we are sadly discovering. Just as the subprime mortgage debacle in the U.S. triggered panic in stock markets around the world, the economic problems now being experienced by Great Britain, France and to a lesser extent Germany, are having an impact on us in the form of reduced credit options.
I know that there are those who believe we have seen the worst in this country; I do not share that view and think the evidence supports my beliefs: Prices of existing U.S. single-family homes, says Reuters, have fallen so much that many see this as “the worst U.S. housing market in a century.”
Even some housing markets that up till now have shown great resistance to the credit crunch and overall downturn are starting to show signs of distress.
As I have said before, this is not a good time for the non-experienced person to jump into the real estate market, and certainly not for the purpose of investment. That is not to say everyone should stay clear. For those who know their way around and are savvy about such things, this may, indeed, prove to be a good time for them. But they are the few and what is good for the few is not good for the many.
But suppose you are a determined first time home buyer? Is there anything you can do to help yourself?
Yes. Buyer education is apparently all the rage in many parts of the U.S., usually offered through nonprofit lenders.
One news agency report quotes the executive director of one such nonprofit as saying that the first time buyers enrolling in his company’s classes want to go into their first home purchase with eyes wide open to avoid the pitfalls that have stricken so many others.
Among other things, buyer education classes help would-be first time home buyers learn how to avoid adjustable rate mortgages and some of the other evils that led to the subprime mortgage crisis which, in turn, ignited the global credit crisis.
Being better educated about home buying, however, does not in and of itself mean you should go ahead and buy. You may have a false sense of security. There are so many other aspects of the economic situation beyond your control, even the most prepared first time buyer may end up stepping into quicksand.
And, there is one other important thing a first time home buyer could and should do–talk to friends and family members who may have recently purchased a home and find out how they avoided some of the more nasty things lurking out there.
A site such as this one is also a valuable tool that should be taken advantage of. It makes your extended “family” the entire country and there are things about home buying we can all learn from one another.
If there is one common thread that runs through all these suggestions it is this: do not go it alone! Do you think even Donald Trump doesn’t consult trusted advisers and lenders before making a major real estate decision? Of course he does. He’d be foolish not to and he is not foolish. Bad hair, yes, but foolish, no.
Finally this: If you know you have a bad stomach, it’s not such a swell idea to take a roller coaster ride. Get my meaning? Be honest with yourself. If you are the type who bites your nails hourly while watching the stock market go up and down on CNBC, you really need to ask yourself whether this is the best time for you to jump into the real estate market. There will be some good news in the days and months ahead. But there is bound to be a lot more bad news.
Are you ready for the ride?