Many in real estate are now acknowledging that something is broke, and no one seems to know how to fix it. I guess if we are still holding our breath for the borders to be fixed by congress, waiting for a fix for our national real estate crisis will be no different. Most of us started to realize a lot of the change last summer when Countrywide started to go into a meltdown mode. Around the same time in the Atlanta area one the largest mortgage lender in the south Homebanc got out of the mortgage business. On August 7, 2007 they shuttered their mortgage business. At their peak, Homebanc was doing over 5 billion in mortgage loans a year mostly in Georgia and Florida.
At the time of all these mortgage company melt downs, as a nation we were assured at the time that sub-prime was the problem! We were also reassured that sub-prime was only a fraction of the mortgage problem in the nation, and now almost a year later there still is no fix from many of the solutions offered. Has anyone been counting the time?
As a nation and as an industry we anticipated that a rate cut(s) would help. Well they didn't. What about the bail out of Bear Stearns wiht taxpayer money? You remember the Bank that was too big to fail? The only person that may have benefited from that was Secretary of the Treasury Paulson the former CEO of Goldman Sachs Group Inc. His competition was just vaporized. Bear Stearns wasn't even classified as an institution that the Federal Reserve has any jurisdiction over. No one questioned that. In May 2008 our 9th month of the credit crisis Paulson, along with JP Morgan and Leyman Bros announced we were almost at the end of our troubles. The fact is since then; Leyman Brothers is now the discussion of having major credit issues. That was this weeks news...noteven a month later! So where are we in this mess?
Interest rate cut after interest rate cut and out 30 year fixed rate conforming loan is probably about the same or higher than last year. A proposed fix of raised Fannie Mae and Freddie Mac limits to cover the cost of obtaining what was once considered a jumbo loan in some high priced areas of the nation didn't seem to work I understand there are very few takers, and sales remain lackluster in those higher price ranges. In fact in most parts of the nation yes activity is up, but a large percentage of sales are bank owned, foreclosures and short sales with large seller concessions to the buyer. Those sales can damage a market even more by dragging local home values further down as those sales now become the neighborhood comps.
In the Atlanta area I notice a lot of new home subdivisions seem like ghost towns. In a recent visit to one subdivision where I did not identify myself as an agent...I noticed there had to be about 200 homes built with only a handful occupied. When I asked the onsite sales person what was happening, she explained "Oh we're the areas largest volume builder!" My comment to her? "Since nothing appears to be selling, how's that working for you?" She didn't get it. As some new homes are now sitting on the market in some subdivisions for close to 3 years, where will the changes the Federal Government enacted start to kick in? From the rate cuts one thing we have gotten was higher gas prices which has only placed more of a drag on the economy.
The real issue which no one is talking about is the banks. The lenders made a lot of bad loans with very few of them having PMI. Basically the 80/10/10, the 80/15/5 and many of the 100% loans avoided any insurance to cover the loss in case of default. The fact of the matter is that the banks made bad, and fraudulent loans on products that have declined a lot more in price then they are willing to admit. The new lower rate cuts have should have helped, but where the banks make the money on the spread, they are hoping to pocket the difference with a larger spread..., but no one is biting. Since they are not passing on the reduced rates the credit crunch is getting deeper. Why aren't the banks admitting this? If they did admit the real losses, the banks would fail. They're broke! It is simple math. That is why the heads of Wachovia resigned this week, the head chairman of WAMU was stripped of his title this week. That creates a dilemma for the Government - how do we really fix this mess? Since mortgage application declined big time again this week I have to stop and ask some questions!
- Did raising the limits on Fannie Mae and Freddie Mac work on any level?
- Did the rebates get the buyers out as promised?
- Have prices real estate stopped falling?
- Did Fed rate cuts work? Have falling home prices brought out the buyers?
- Have sales increased over same time frame of last year?
- Do you still think that real estate is local?
- How do we explain the record withdrawals this week from individual SEP IRAs?
- Is anyone in the US Congress working or really paying attention to the mess?
;)
;)
Jim,
I hear the Chinese and Saudis have a lot of money... And something tells me that they are waiting for their rebate checks for some more....
In all seriousness, until some serious investment (and incentives) goes into Alternative Energy in the U.S., the $600 Billion going out of the country every year for our energy needs is not going to help anything out...
As for housing... tampering with the conditions in the forms of cutting interest rates, raising FHA limits, free money, etc... only delays the process of correcting what was an artificial boom in the first place.