Global Economic Picture Darkens; Is it a Good or Bad Time To Invest In Real Estate?


The last posting I had last week generated much discussion–I advanced the argument that the real estate mess we find ourselves in, and the resultant global credit crunch, is not likely to end anytime soon. And, that unless one happens to know what one is doing, this is not a very good time to learn the art and science of real estate investing.

Since just last week, the economic news had gotten considerably worse. In fact, I think that we are headed for a world-wide economic situation few of us have witnessed in our life times, unless we lived through the Great Depression.

Listen to this:

“Nothing of this scale has happened since the Great Depression. This is the toughest credit cycle I have seen in my years in the industry.”

That is a quote from Kerry K. Killinger, the chief executive of Washington Mutual, the nation’s largest savings and loan.

This week, Washington Mutual posted a $1.14 billion loss in the first quarter of 2008–the reason: the growing number of its mortgage borrowers going into default and eventual foreclosure.

Only a year earlier for the same period, the bank had a profit of $784 million. What a difference a year can make!

An enormous rise in foreclosures

The real estate data firm Realty/Trac, reports Reuters, says home foreclosure filings skyrocketed 57 percent in the year ended this March…..57 percent!!! And, bank repossessions went through the roof and beyond–rising 129 percent from just a year back.

And, it is far from over, folks.

“We’re going to see quite possibly a record amount of foreclosure activity in the third or fourth quarter,” Reuters quotes Rick Sharga, vice president of marketing at RealtyTrac, as saying.

Oil–the slippery slope

Making matters still worse, if that is possible, is that oil prices keep setting new records, week after week, if not day after day.

$114 a barrel on Tuesday–a staggering price that is contributing to the economic instability of the world’s interconnected economy.

We are way past being in trouble…but no one seems to really know just how past we are at the moment or what the near future holds?

Real estate may well end up being the eventual spark that will ignite a new fire to warm the economy up…but not now and not next week and maybe not even next year. Of this, I am certain.

About Author

Charles is currently reporting for KNX Radio in Los Angeles, is the co-author of the book No Time To Think, and can be found commenting about the news on his blog, The Feldman Blog, as well as on The Huffington Post.


  1. Pingback: Global Economic Picture Darkens; Is it a Good or Bad Time To Invest In Real Estate? | The Long List of Odysseus Medal Nominees | Realtors and real estate, mortgages, lending, investments

  2. I agree that we haven’t seen the height of foreclosures. That being said, we haven’t hit bottom on home prices either. I expect, in the Minneapolis market, we will contiue to see prices decline for at least 18 more months.

  3. Nice analysis. High foreclosure rates already, plus rising food and energy prices will be pushed even higher by the cost of oil. All the while, the Fed is debasing the dollar and Congress is providing tax breaks to banks, homebuilders, airlines, and auto companies and calling it “Foreclosure Prevention.”

    It looks like the criminal leveraged buyout of America, funded by the American people for the benefit of multinational corporations, is being finalized. I agree with you, I think things are going to get much worse before they get a little better. There’s a second wave of ARM resets coming in mid-2009, indicating the slow collapse will continue at least past that point, if not accelerate before then.

  4. I agree with your analysis in general, but what are the alternatives?

    Hold cash? Not with inflation running between 3% to 4% per the latest Bureau of Labor Statistics data.

    How about a money market account? Returns have slid below 3%, so you are still not surpassing inflation.

    The stock market? Pick a forecast, but none of them are real positive. S&P returned 5.39% in 2007. For the period 12 months through March 2008, it is at a -5%. Corporate earnings will be less this year than last. Doesn’t look pretty.

    I still think that your best chance of decent returns is in real estate. It’s hard work, but I am still finding decent investment and development opportunities. Fortunately, I have decent credit and am able to still get financing.

  5. The current housing market reminds me of the chicken and the egg question. Which came first? We need the investment community back in the market, competing to make higher quality loans. More lending money relates to more homes purchased and the housing market bottoming out. Home values rise and those close to forclosure now have the equity to refinance. I’m not sure which will happen first, but hope it happens soon.

  6. Have all of you forgotten the early 90’s? The same sort of sky is falling mentality existed then. The smart people saw through it, bought real estate at great prices and made millions. Nothing has changed. There are bargains everywhere.

    As for Mr. Killinger, his mismangement of WAMU has put his company at risk. A guy that’s scrambling for excuses for his poor performance is hardly someone to look to for sage advice.

    Time to get over it people, adjust to the new realities and figure out how to make money.

  7. As an economist and someone who has made great money in real estate I cannot agree with Tom Lindmark more! Tom hit the nail on the head. You do not want to jump in when there is a falling knife but, in many markets across the country there is no falling knife. For example, the Houston residential and commericial markets have been doing excellent! If you wait for the natinal picture to look good you may miss the biggest opportunity while all the “smart money” is getting richer and bailing out when everyone else thinks its time to jumb back in…

    As for the post it definatley hits several key issues that are facing our economy in the short run.

  8. Great time to invest in Real Estate. I believe it was Donald Trump who spoke “I would rather hear of a persons failures than to hear of their successes” we can aquire a wealth of knowledge from the mistakes of these past investors. Or should we call them Speculators. Those people who know how and where to invest always make money in their investments. People can now learn how and where to invest by learning from those who have made bad desicions over the past few years. At any given time their are markets poised for massive growth. When we take our eye of the negetivity and focus on the opportunity we will see that we are going thru a re-distribution of wealth. Lets be positive learn from the mistakes of others and make some serious investments.
    Go back to the basics. Location,Location,Location. This may not be in your back yard so watch for those Emerging Markets.

  9. Banks are one of the largest small business lenders but their approach to lending varies. Commercial Banks decisions are based on your strength as a borrower (a good credit score, personal financial statements, experience and collateral) the banks goals for the period and their lending philosophy. Banks may be looking to expand their small business loan consumer base; others may focus on larger loans or a specific industry.

  10. You analyze it well. Oil price continue to high in the coming week, month,or year. This is one of the factor and reason on economic crisis. And this crisis that happens to Washington Mutual is really lead to bad effects of the economy.

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