2008 Real Estate Market Will Make the 2007 Market Look like Walk in the Park
Watchdog Group Says Home Values to Decrease Another 10-15% in 2008
AW's predictions are nothing new. The group and its National Mortgage Complaint Center have been warning of pending disaster in the real estate market for a couple of years, recently going so far as to say that the 2008 real estate market will make the 2007 market look like a "walk in the park."
Few, if any, would argue that the real estate market is in crisis, and most lay the blame on sub-prime mortgages and predatory lenders. But AW says the crisis is more about banks, mortgage lenders and home builders inflating the values of homes than it is about sub-prime loans. No doubt home buyers are responsible for buying over their heads and falling for exotic loan offers and great sales pitches. However, according to AW, the greed of builders, banks and mortgage companies is the power that drove the real estate market to where it is today.
AW says that between 2002 and 2006, builders, bankers and mortgage companies were doing everything possible to get home values inflated, including telling real estate appraisers to either "come up with inflated values, or we will find someone else who will." Once the appraisals were met, bankers and mortgage lenders sold consumers a bill of goods, claiming they could take advantage of "instant real estate equity" in their new purchase. What consumers didn't realize was that their real estate really had no equity. In fact, consumers who bought new homes after 2003 possibly paid as much as 20 percent more than the house was actually worth.
AW goes on to explain: "What we find astonishing is the wizards on Wall Street dismissing the seriousness of the real estate/economic issues now facing the U.S. It's not sub-prime; its value. If the 15 million U.S. homeowners elect to walk away, because they figure out its better than paying on an upside down mortgage that cannot be refinanced, a deep recession is assured and we are not sure how you dig it out of it. Big banks and mortgage lenders were pushing artificial valuations. So were the top 20 home builders. Pushing values happened long before sub-prime; it started back in 2002. The Fed cannot fix this, even if they lower rates to zero. Valuations will first have to arrive at the real world, before that happens. In the meantime pension funds and others are going to have to start wondering who will be able to pick up the bar tab, after all the greed related to the non-stop real estate happy hour that actually ended a couple of years ago. We don't think even the federal government will be able to pay it."
So what are some things consumers and homeowners should consider?
If looking to buy, don't fall for exotic mortgage loan terms like "no points, no fees." These are little more than gimmicks that can lead to higher monthly payments because of undisclosed kick backs to the bank or what's called a yield spread premium.
If you don't have to buy in 2008, don't. If AW's predictions for 2008 are accurate, it makes no sense to buy a house in January 2008 that could be worth 10 to 15 percent less by the end of the year.
If you have a pay option adjustable rate mortgage and cannot get your bank to give you a fixed rate mortgage without any catches, AW says you may be better off to simply walk away the home if you cannot make the payments.
If you have a home to sell, give serious consideration to renting it until the housing market recovers. AW estimates recovery will start around 2010 to 2011.
Source:
Press release, "Americas Watchdog Calls Federal Reserve & Bush Administration's Attempts to Fix US Real Estate Market Disaster Too Little and Too Late; http://www.prweb.com/releases/2007/12/prweb576807.htm
Published by Sussy
I'm retired and living in the country where I enjoy my family and my many animals: horses, donkey, goats, cats, and dogs. I love the outdoors and reading and writing about serious matters. View profile
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20 Comments
Post a CommentI appreciate you opinion that Realtors make a "way too much money for so little work". I just wanted to mention that we Realtors get to keep, after expenses, about 0.05% of the purchase price with which we get to feed our families, pay our mortgage, etc. That translates to about $600 per transaction. We would have to close 2 transactions a week; 52 weeks a year just to make what a fair living.
good article--Im a advocate for home swapping--thinking about setting up a local website for it too. This could be one constructive way to bypass the realtor-- whom in my opinion makes way too money for only a small amount of labor. maybe Im wrong--but think how much money one can save without the use of a real estate company--anyone intrested in this concept --send me a message
I have a question that I would like to know how people feel about. I own a home already and have also rented. I wish I bought my first home long before I finally made the decision to buy. My question is, if you are renting and qualified for a mortgage, why wouldn't you buy a home right now?
I find your article and the advice of the AW to be very dangerous. Walk away from a mortgage if you can't make the payment? Don't buy if you don't have to? Wait for values to decrease even further at the end of 2008? Maybe if you live in California or Florida, but not in my city. Be careful of making such broad statements. The market is different in every city.
How can you make a statement like the following? "In fact, consumers who bought new homes after 2003 possibly paid as much as 20 percent more than the house was actually worth." What could you possibly base that on? In my neighborhood, the value of houses has increased since 2003 at an average of 7-15% per year. That means EQUITY. I paid $137,000 for my home in 2004. My neighbor just sold their house which is the exact same as mine for $185,000. Explain how I paid 20% more than what my home was really worth.
I just revisited this one to review the information. Solid and informative!
I have to be optimistic becuase I'm in the business. I started around August 2005 and the market for me has always been difficult. Your article is so dead on point. I've been trying to come up with a way to explain the status quo to my clients who continue to price there homes aggressively. I think smart agents and smart buyers who are in the market now will take into account changes in value a few months from now. Bottomline, people have to move on with their lives; banks still have to lend to make money. There are great deals to be had in certain markets and buyers need to know that. Great Article.! Do you blog?
sorry, I wrote a lot..I was cut off. What I wanted to continue to say was, people are being inudated with so much negative news on real estate that despite people wanting to be contrarians, they could be getting what they wish for. Be wary of groups that have special interest also in the real estate market trying to say prices are starting to go up. In January of this year in my Orlando area, the builders were trying to put proproganda out there that it's a great time to buy and just a lot of positive stuff..they didnt' disclose who was behind the commercial but I went to the website to see it was the builders..do not be surprise if some of the builders are behind the positive overtones...You did a good job though presenting it.
Nicely written, Sussy. However, I can't agree with the watch dogs. I follow this market so closely and called the turn in late 2005 when I noticed Toll Bros. one of the largest builders missing their earnings for the first time in about 40 yrs. The market can certainly plateau which is what I believe might happen with parts of the country still falling. When you have long term things breaking down, meaning a long term trend, whether it is builders or real estate prices bubbling, it takes a while for the problem to be resolved..certainly, one will have bottom fishers calling a bottom..but I see an actual wash out crash coming perhaps around 2010-2011..then markets will just not increase for a long time after that. Many people are just starting to feel the crunch and we have a banking crisis that will take years to resolve...there are underlying issues we don't even understand or know about yet..however, it will come out one day...and that could be the final blow for the wash out..people
im just glad im still renting at this point
You've made some good points, Sussy. My husband and I bought a newly constructed house last January. When we leave here, I want us to rent it for a few years. My family have been in the buy-to-let business for years, so I know a bit about how it works. It's amazing how many homes on our estate have been repossessed. So many people just got in too deep over their heads.
Sophie