Anyone know why the real estate market is so bad?
 

It doesnt make sense to me. Unemployment is down, so people are working. Rates are lower than 6% and that is low.

I understand that things would slow down from too much appreciation of the past few years, but I dont get why its this bad. Nothing is selling, no one is buying and prices are dropping like crazy.

I believe there was some talk about mortgages people couldn't afford . . . not sure though.

The predictions are another 18 mos of decline in valuation too. A lot of the reason for the decline is because ppl bought more house than they could afford and were given loans to buy those homes when they really should not have qualified. This caused a lot of ppl with ARMs on homes with monthly payments increasing drastically as the rate increased. Since they cannot afford their home anymore they put it up for sale. More ppl did this and there are more homes for sale than there are buyers thus pricing goes down.

Pricing drops and RE investors stop buying too. They will buy when the market reaches bottom and make a killing but we are not there yet. Not many investors want to buy something that will be worth less in a year even if they are investing long term. Why pay 400k for your 10 yr investment when next yr you can pay maybe 350k-360k?

Higher rates, then all those companies were cooking the books on the mortgage applications etc etc.

the realestate market and its bubble finally popped! It NEVER should have gone that high in the first place. Just like everything in this economy it was basically fixed, first it started to rise because the people that could afford it and had the legitimate credit could afford to pay thier bills. Combine that will low interest rates after the turn of the century everyone was buying up. Then mortgage companies started to get into riskier loans to keep it going, sub prime loads people that either really couldnt afford it..or looked like they could on paper but didnt have the credit for it were given loans normally they shouldnt have been qualified for. Now the market is tapped out, and everyone that shouldn't have gotten loans are starting to default on their payments because of the economy and interest..BOOM instant flood of house back on the market.and everyone that was building houses late in the game only added to the problem.

Just because everyone has jobs doesnt mean everyone has GOOD jobs. most jobs that are being created are low end jobs. Combine that with oil prices and inflation because of that. You have the makings of a bad situation.

The problem started when there were more houses for sale than there were people who wanted to buy them. The old supply and demand thing.

Then, the credit crunch came and even the people who still wanted to buy (or most of them anyway) couldn't.

That's when the free fall began.

Credit crunch clickhappy - triggered by predatory lending by financial institutions to people who had little hope of paying a mortgage. The home market accouts for almost a quarter of the economy - so everything from construction to retail etc will be hit.

Banks have now tightened up lending critera after having lost billions (and many billions to go yet). The next problem is going to be from people who did pay their mortgages, but want refinancing out of adjustable rate mortgages - it's going to be generally harder for them to refinance.

Sure.. unemployment looks OK, but there is just not enough liquidity around and less retail spending - a vicious cycle.

Meanwhile, the home constuction industry is in for a longish time of bad news. There is almost a years worth of 'home stock' on the market now and little chance of it being sold soon - and this is increasing weekly as further foreclosures are processed.

There have been around 750billion worth of foreclosures so far and roughly another trillion expected.

Bottom line - it's the worst real estate scenario since the depression and ripples everywhere and creates a lack of confidence - hence the dollar and oil problems etc.

Great time to be a buyer. We are looking at 2 houses right now...

Patience can be more profitable :)

No point in buying now then watching your asset decrease further :thumbsup

Is it because of the tube/torrent sites?? It seems that because of them the whole world is collapsing (according to some) :upsidedow

buying now too. They have a positive cash flow so even if it falls further I can hold on.

Besides the subprime fiasco, many banks are smarting from that experience are now tightening up even on people with GOOD CREDIT.

Who says unemployment is down? The Government?
They cook those numbers more than many sub prime lenders.

zango...

in typical south park fashion... "Blame Canada"

As long as illegals (and semi-Americans from U.S. territories, such as Puerto Rico) keep streaming into the U.S. in large numbers, the long-term future for U.S. real estate is fantastic!

Short-term, this is a correction - it will be painful ... commercial real estate is still doing decent, but that will likely get hit hard too come next year - but will correct within a year or so afterwards, but I digress.

Consider this ... it's widely projected that 100 Million more people in the U.S. by 2030 at current growth rates...

Heck, even if one is super-pessimistic and it's only 25 million more, that's still a heck of lot of people who are going to need housing, need stores, etc.

Rambling on ... anyways, as many have already pointed out, main reasons are prices went up too fast compounded by a severe credit crunch.

The time to truly worry, as in sell and move out of the country, is when the "illegals", etc stop coming in / many people leave for other countries - as of now, there's no indication of that happening ... if anything, more people than ever are coming into the U.S. - they all need somewhere to live!

And as that 'ol saying goes, they ain't making any more land ... well, ok that's mostly true - there are a few exceptions like Dubai, which are building and developing man made islands.

Ron

All of the above and one factor that has been, thus far, overlooked.

Investors. Behind those mortgage companies (predators and nonpredatory ones) and banks, are the moneymen. When mortgage and RE portfolios and bundled products containing them began to drop in value, they took a hard look at banking and lending practices of the last few years.

The rate of foreclosures began to skyrocket, and probably will continue for some time, leading the investors behind the scenes to tighten the screws on how much exposure they wanted to a dwindling asset. That means less money on the market for new mortgages and less money for existing companies to fund even their day to day operations, things like rent on office space, employees, phones. It was a perfect disaster waiting to happen, created in fact, by the very people who ended up going broke-the mortgage lenders and bankers.

Of course it is a LOT more complicated than that, with hidden players in every corner either counting their losses or licking their wounds.

You noticed what the banks and brokerage corps are doing now? Decorating what they describe as "prime investments" and repackaging these CDO's and trying to offload them on to unsuspecting investors. When you look at the composition of these bonds - they contain a high percentage of sub-prime mortgage problems and fat chance of an investor actually gaining by purchasing them.

Typical example are CDO-based hedge funds from Bear Stearns which have been reported to be worthless. There is also a rising conflict of interest with rating agencies who value these CDO's - they same rating agencies are supported financially by the industry selling them. Due dilligence is missing.

Bottom line - financial institutions are trying to offload the problem they created on to unsuspecting investors - yet another time-bomb waiting to blow.

probably the biggest most complicated 'get rich quick' schemes to hit the u.S. in a long time :) Go republicans!

I'm sure the government will bail them out like they bail out every crybaby industry losing money.

oh don't get me started :upsidedow

ups and downs... always ups and downs! :)

Lets see.. Basically, it's a long story. Stay away and you'll be fine.

Sub prime moratages, places willing to lend money to people without any sort of credit check or even checking to see if someone actually had a job, idiots speculating in real estate buying vast amounts then having trouble unloading properties before the mortages are due.

from http://seekingalpha.com/article/5381...-subprime-risk
"If you know anything about the subprime mortgage crisis, know this: the hundreds of billions of dollars in losses incurred by banks, investors, home owners and others largely are due to government intervention in the private market for home loans going back decades. You can blame the mortgage bankers or ratings analysts or Sell Side traders for the subprime mess, but deregulation, active encouragement by regulators of bank dealing in derivatives, and policy efforts like the push for "affordable housing," are the root causes of the crisis.

An unholy alliance between the real estate, mortgage lending and securities industries, the "men" in Orwell's wonderful quotation, and the Washington political and regulatory elite, obviously the "pigs," has brought the US economy, the dollar and millions of Americans to the verge of a serious financial calamity. The mounting financial crisis emanating from the collapse of the market for complex structured assets also illustrates the huge damage done to the US economy by a financial culture which lacks accountability. The banksters and their political patrons on Capitol Hill profit enormously during boom times, but when the wheels fall off the wagon, the Masters of the Universe scurry back to Washington looking for a public bailout.
..................................
Today bankers privatize the profits and socialize the losses, to paraphrase Jim Grant. Imagine how different the behavior of the largest, universal banks would be today were the officers, directors and senior managers required to keep most of their net worth invested in their employers equity



.....................

That's a really good question... this will be interesting

exactly, repost from finacialsense.com


And of course, on the statistics, people don?t understand the way government statistics work . And most people will concede that politicians lie. They lie to get elected ? everybody knows that ? they say what they have to say, so I don?t know why people assume that once they get elected they stop lying. I mean that?s all they do. Once you get elected your job is to stay in office. And the way politicians stay in office, is to present a rosy scenario. And so what these guys do is they constantly change the way that economic statistics are calculated so that they can give a better result; so the politicians can point up to these dumbed up statistics as evidence that things have gotten better while they have been in office.

eg.

So they constantly change and redefine how things are measured. So the unemployment rate, for example, today, is calculated far differently than it was in the past; if they calculated unemployment during the Great Depression the way we do it now, they would probably have had very little unemployment then either They calculate GDP differently. There are a lot of things calculated as part of GNP that 5 years ago, 10 years ago, 20 years ago would not have been counted. Everything has changed, so when they compare a number today to one 20 years ago, it?s completely irrelevant comparisons because they?re not doing it the same way.

from shadowstats.com

" Today, the unemployment number does not include those unemployed who have been discouraged and out of work for more than a year. So they are taken out of the work force completely automatically. This results in knocking about 5 million unemployed out of the broader measures of unemployment.

Thus, unemployment is about 50% higher than is commonly alleged. And thus, "Today unemployment is really up around 12%."

The Chinese

Does anyone know what a convertible bond loan is??

I don't know, I'm still trying to figure out why the stock market was so bad in 2000.

Excellent post.

When they talk about easy loans to be had. When I got my condo 3 yrs ago, they gave me a upper rectal and had to jump thru all kinds of hoops to get approved.

have a read in Wiki http://en.wikipedia.org/wiki/Convertible_bond

The next greater fool couldn't get a loan anymore.

Today is is a lot harder for someone to get a loan for a house then 2 years ago when anyone seemed to get one. A lot of people agreeing on prices for a house, but financing never coming through.

Precisely.

And this in fact would be the most blatant example of government dishonesty of all.

You don't ship good jobs overseas, "replace" them with burger flipping jobs and then expect everything to be okay just because you've cooked the books to say everything is okay.

It's that simple really and everything else is just frosting on the cake.

One of the things I've never understood about the housing market is why a house goes up in value. If I buy a house and sit on it for twenty years, it's now throughly used, hopelessly out of date, shit like the water heater and AC units are breaking down, and it's just got nicks and marks all over the place.

im markets like florida there are several factors to home prices going up.

1. there is no more real land to build houses on.
2. alot of baby boomers and snow birds wanting to buy down here

in places like montana i dont understand it though

Overbuilding could be one cause.

Wages not increasing as real estate prices climbed might be another.

I thought that was the cause of the credit crunch in europe and the UK? Investors and banks purchased a lot of these (bad investments) which resulted in the credit crunch

I think this article explained it well

http://www.thetrumpet.com/index.php?q=4288.2525.0.0