The Brokers Edge Real Estate Blog

Tough Times Ahead

I am constantly hit with questions about when I think the real estate market will rebound from Real Estate Agents all across our Nation. The short answer is “No Time Soon!”

Before the real estate industry can begin a recovery we must first hit bottom and unfortunately I feel we are far from that yet. The housing market is not only suffering from the subprime lending fiasco it is currently driven by nothing less than fear and lack of confidence.

Public perception of the real estate market as a solid investment is shaken daily by the news of record braking home foreclosures. This “cancer” is now spreading rapidly infecting neighborhoods across America with devaluation of homes that took no part in subprime lending.

Homeowners are experiencing their equity diminish weekly as homes are just not selling. While some buyers are waiting for the market to hit bottom before buying others that are normally qualified buyers are experiencing difficulty in obtaining home loans as the credit crunch continues to tighten.

Recovery

There will be no recovery anytime soon. On top of all the issues facing the real estate industry we have a Presidential Election right around the corner. While the main stream media has a true love affair with Sen. Obama, Wall Street reels over the prospect of an Obama Presidency. As well they should. Sen. Barrack Obama has demonstrated his distain for business and as made his intentions of raising taxes on business across the board well known. Legislative bills that Obama has co-sponsored shows a severe lack of knowledge when it comes to the real estate industry and the economy as a whole. If Sen. Obama is elected as president we can count on Wall Street and investors sitting on their hands for at least a year until they can assess how Obama handles key issues in the economy such as taxation.

In addition to the Obama wildcard there are still ARMs (Adjustable Rate Mortgages) that have yet to mature. Some Subprime loans that were originated in 2005 will not mature until sometime in 2010. This means there will be many more foreclosures in months to come. So the immediate prospect for industry recovery is bleak to say the least.

Agent Survivability

It is clear that many real estate Agents will not survive these tough times. It is unfortunate but as in nature only the strong will survive. That is NOT a bad thing for the industry. Real estate has always and always will cycle. In bad times weak Agents will drop by the way side and while the quality of professionalism improves the competition becomes less intense. This is a win-win proposition for both the general public and the true real estate professional.

For real estate Agents to survive they must be good managers of their time and resources. Unnecessary expenditures and marketing expenses that do not work need to be pruned. To survive we must make every penny and every minute count. Those that do will survive to see better times.

No Home Foreclosure Bailout Coming

I have spent a lot of time in other forums and blogs writing about the foreclosure crisis that everyone in the real estate industry is currently suffering from. I am beginning to truly believe that most American’s simply do not fully understand how severe the foreclosure crisis really is. Even long time colleagues of mine that have been in the industry for decades are under the impression there is a massive government bailout on the horizon.

The truth is there will be no bailout for the real estate and mortgage industries.

As opposed to listening to politicians and the news let us attempt to use some simple common sense. In order to bail out the homeowner that is in or about to go into foreclosure a bank or other financial institution would have to refinance their home with monthly payments the borrower could afford. Now keep in mind that due to prolonging this crisis home values have plummeted in many major markets. So what we are looking at is a lender refinancing a $300k home loan that is now worth $200k. No lender would do this unless the borrower could come up with at least the $100k difference. That being said, why would a borrower put that much money in a home currently worth $200k? And that is assuming the borrower would have the $100k on hand.

So the banks will NOT refinance and if they would the distressed borrower would not. It really is that simple.

Foreclosure Rate Increases

On this past Friday RealtyTrac posted alarming figures for the 2nd quarter of 2008 showing that almost three quarters of a million home owners received foreclosure notices in that period. The report claims that 1 in every 171 household in America is under some stage of foreclosure and “a nearly 14 percent increase from the previous quarter and a 121 percent increase from the second quarter of 2007”. The report goes on to rank states and major metro areas for foreclosures with Nevada coming in at #1 with foreclosure filings going out to one in every 43 Nevada households during the second quarter of 2008.

Looking Ahead

Looking ahead I see more of the same. There are still a significant number of ARMs that are yet to mature that will price sub-prime borrowers out of their homes. Foreclosure rates are proportionate to the ARM maturing rate so we are still a long way from seeing an end to this crisis or the bottom of this real estate slump. In coming months you will see more banks go under that are heavily vested in real estate loans. Unfortunately it will not be just the banks that made sub-prime loans. With properties devaluated you will see many borrowers forced to walk away from their real property.

By continuously attempting to artificially prop up lenders and borrowers that engaged in sub-prime loans our government is prolonging the inevitable and damaging property values of those not involved in the sub-prime lending debacle. In order to begin a true recovery we MUST hit bottom.

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