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Posted about 15 years ago

The old rules are back in play

The old rules are back in play.

The old rules worked.

I met a couple last night. He makes 32,000 She makes 15,500. Those are yearly incomes. 47,500 total household income. The old rules had a rough guideline of 3 times the yearly income was the house you can afford. These guys almost match the Avg SFR sold in Cape Coral. It’s a real market now.

The people buying today will not be in foreclosure in 12 months because common sense is back in the market. Part of what caused this is, we priced the above named couple right out of the market about mid 2004. I can not find any reason why that transpired other than a mania was going on. Did we strike oil? Did GM move its plants?  

What happened was the bankers fell in love with turning their banks into a glorified mortgage broker. They got so hungry for the fees. The quit being bankers. Sad part is they gave up most of the profit for a quick buck. Now they are toast. The interest stream is what you want to own in a mortgage not 4 points of the loan balance. 

This is the real world not 2002 thru 2005. A large percentage of the people playing at Real Estate today, all they know are the rules of 2002 thru 2005. It’s kind of like judging the stock market by the roaring 20's.

The market will go back up, it won’t take 10 years but... this downturn is going to leave a bit of a scar. The bankers are taking quite the beating on a daily basis. Avg. Loss 170,000 per REO. That’s hard costs.

As far as the market. Most did not see 2004-2005 coming. What makes you believe they can see the recovery? Lots of Gaussian projections then and now. That stuff does not work. Its all about Empiricism. Stop predicting, start playing in the market of today as revealed by the numbers of today. 


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