It looks as if the housing blogger’s are ready to deliver the "coup de grace." Real estate is starting to drop in price. This impending collapse of housing has other implications. Not all of them are obvious.
Everyone who files bankruptcy or goes into foreclosure will be virtually eliminated from purchasing a home for years. The list of potential buyers of real estate will be cut drastically. That’s good news for rentals.
As a lending institution picks up more REO’s, you’ll see their lending standards become more selective. As markets drop, even the new lending standards will produce losses. The first to enjoy the new banking standards will probably be the Condo owners. Lenders will not want to touch this class of properties. I sold one on North River Rd, Oceanside in 2000 for $45,000, prices now are at $260,000, 850 sq ft.
Indirectly in the fracas, would be the real estate appraiser. In order to salvage an image of creditability, without being held responsible for the whole mess, they would have to find an appraisal method that could be sanctioned by the banks; quite possibly a roll back to the 1999 year pre bubble values. These values would be low, but lending institutions would be comfortable that the loan isn’t going to turn into an REO.
I’ve heard that 70% of the US population changes their address every 5 years. If you bought before 2003, it looks as if you still have that option and can pick up and move. Otherwise enjoy your financial mouse trap.
Congress (god bless those whose good intensions seem to screw up everything) removed the capital gains tax on selling your home. Well, that also removes the deduction for a loss. Add on top of that the 1099 you get from the bank for a short sale of your home. So if you do it this year, the 1099 might be for $80,000. Wait till next year and it could be $180,000 and maybe $300,000 if you last a year longer.
RealtyTrac.com is showing 3,462 Bank REO’s for San Diego right now. San Diego realtors didn’t sell 3,000 houses last month. This pretty much suggests that the lenders are feeling some pain. Couple this with the outright real estate fraud in the Temecula area reported by the North County Times, last week, and the outlook gets worse.
If you picture a tree, and each leaf is a house and the branches and the trunk are our financial institutions, you begin to realize the size of the problem.
If you picture a baby boomer standing on a three legged stool (labeled “retirement fund”) and imagine kicking out one of the legs, it doesn’t bode well.
Interest rates could go through the roof. Forget Bernenke and the Fed Funds Rate. That rate has to do with the loaning of funds to a Bank on an overnight basis when a couple of million dollars in checks hang up for some reason. The Fed covers the bank for the night and gets a check for a couple of hundred the next day. My eyes gloss over whenever someone decides to enlighten me on the significance of the Fed Funds Rate, they raised the rate 17 times and the RE loan rate went up one half point. What we are talking about are big foreign investors trying to get their money out of US banks.
At this point, I could be accused of forecasting Gloom and Doom. But look at it from a different light. From 1980 to now, everything has gone up for no real reason. EVERYONE was a successful investor. Now the mood seems to be changing, and it’s a group sort of thing. I believe that the herd is about to turn. What we are about to witness, is reminiscent of 1929.