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Ummm... I don't think they teach that anymore. Especially in high school. And probably not in College, except in business classes for MBAs. I was never even introduced to the idea of leverage until I started studying for Real Estate.

Plus, we are all told that we Deserve to have great experiences. As a birthright.

Jim, how do I follow that comment?

Real Estate is a special class of investment. It does allow leverage and it does go up indefinitely.

But with that said, the analyst needs to know how much the real growth is and not the "market value" which might be higher or lower than the "real" value at any given time. A buy and hold strategy in real estate almost always works.

Speculation is not investment. Speculators have to expect to get burned from time to time.

I don't think that the loan products are the culprits, so much as the underwriting standards. Obvious speculators should have to have a little "skin in the game" while an owner occupier should be able to purchase without any money of their own.

Jim,

A great post.

That was a market we still have to pay for. The correction is here for me in San Diego and I think will loom for a couple more years it's already been going on for 2. When the bottom is found things will normalize. They did get crazy - now the mess needs to be cleaned up. I'm not a fan of big-brother but I do think that government needs to have stricter guidelines on lending. Otherwise this will cycle up again. Jim, fantastic insight into a problem we are all facing or are going to face soon.

Mike Lewis

Sarah Nopp, REALTOR(R), CRS. RE/MAX Four Seasons  Sarah they used to teach it.  There is a lot we all need to be paying attention to right now, and it is very important to know all the facts.  If we made mistakes in the past, we can learn from them.  History does repeat itself.  In the 1920's after the fall we had the Glass Steagall Act to prevent banks from making the same mistakes.  It was repealed in 1999 and without government over-site the banks/lenders went back to their old ways.  Bad loans (to unqualified buyers, with lax standards) then covert the bad loans into securitized debt instruments and then selling the bad loans around the world as investments.  So in my own opinion, no one is really talking about the real issues right now, but shortly they will be.  It will be too late.  It is all about accountability at every level.  Our government has taken a pass, and we as industry were overtaken by greed.  Integrity has taken a holiday.

Bill Roberts - "Baby Boomer"   The problem is that for the last few years, over 40% of all real estate sold was not owner occupied!  You know as well as I do that investors also lie when obtaining loans.  If asked "Do you intend to occupy this home as your primary residence...?"  the answer is always "Yes!"  Because to tell the truth means your rate will be higher.  So lets assume that the number of homes sold that are are not owner occupied and were purchased as second homes, or investments was actually 48%...how much of this can sustain the price without buyers?  A lot of it will not.

Mike Lewis  I fully agree!  The sales statistics for Atlanta just came out and they are dreadful.  According to the MLS they are some of the worst statistics ever recorded! Almost a 40% drop in sales across the board from the same time period last year!  OK, lets couple this with 100% more homes for sale, and Days on Market going through the roof, List Price / Sales Price ratios dropping from 98% to 94.1%.  A lot of folks are going to get burnt badly when they find out there is no equity in their home right now, selling it in the near future will not possible without  you bringing cash to the table.  Pretty scary scenario that by its nature is unacceptable as an answer for most sellers.  Most agents really do not want to talk about the issues because they feel it is too negative.  Negative isn't the word for this.  The word is "Catastrophic!"  Hey it is a tough job, but someone has to do it!  I believe the ones that survive this time in real estate...will be those that can talk about the issues and provide solutions to their clients.

Jim

I like these posts as they have a sense of realism.

We are seeing the same problems here in the UK. Historically we have always had a "boom" followed by "bust" in the housing market (30 year fixed rate loans are not the norm here) but the "bust" has usually been masked by inflation so nominal price adjustments have been rare.

Inflation is currently low and employment high, yet repossessions are set to rise due to a combination of bad lending practices and fallout from the re-packaged US sub-prime "investments" as banks are having to write off losses on these financial instruments resulting in an unwillingness to lend to other banks. 

I am hoping that the government keep there fingers out of this particular pie as they will only make it worse if they try to intervene.

Over time the market will self-correct and a return to cautious lending is no bad thing.

 

 

 

 

Jim,

Here is how I look at it...when someone gets qualified for a loan with no money down but can't pay their little cell phone bill then something is wrong. When someone can buy a property and then turn around and sell it quick with a large profit then something is wrong. Not because it is wrong but because if it is that easy then everyone would be doing it and they were. Now with people getting stuck carrying homes they certainly should not have owned...something is wrong. It was nice while it lasted but because of this new method...the hammer has fell on those who didn't make it out alive. It is not normal...people think there is something wrong. Its not wrong...it is just what it should be. No traditional loans with money down killed out market.

I'm so glad my boys are old enough to experience the current market (through me and my real estate ramblings at the dinner table) so that they will be able to make better decisions as adults when the time comes to buy their own homes.

I find it especially funny to watch all those flipping shows on TV...clearly they aren't in my market...yet there are people in my market who think if they buy a house and fix it up they'll make $70,000 in only 6 weeks! Imagine that!!

Neal Bloom-Realtor ® Assoc.-Weston Florida  I was listening to CNBC Radio the other night when driving to NY.  It was interesting to hear the commentary and comparisons of the current situation.  One person compared lending practices akin to serving drunks at a bar that could not repay, but giving them one more for the road!

Kelly Sibilsky~ Lake Zurich, IL RE/MAX Real Estate Agent Kelly there was so much hype in this past market!  No one made mistakes, and everything you touched made money!  There is a sucker born every minute!

Jim, I acknowledge your stats. but the NOOs are split into two main groups: investors (buy and hold) and speculators (flippers). How do we determine the per centage of flippers? These are the guys who de-stabilize thye market. If I was a lender (and I am) I would not make a loan to a flipper on principle.

Bill Roberts

Bill Roberts - "Baby Boomer" Retirement Planning  Bill I think that we must move beyond what the media is hyping and look for ourselves.  We must also look beyond the sub-primes and assess other weak spots...the Alt-A's and jumbos!  Liars loans are in the mix also.  There is more fallout to come.  Stay tuned!