Is there Hope for the Real Estate Market?

This seems to be a rather universal question. It is also an honest one. The overwhelmingly resounding answer is YES!!!

As with everything cyclical, and real estate is no exception, it is always best to buy at the bottom of a cycle. So, why aren't more people buying?

1. Credit Concerns
1. People are concerned about personal liquidity
1. Easy credit has left many people strapped with high levels of consumer debt, which they need to repay to get the debt-to-income ratio in line with lending guidelines. That means people must pay attention to making and keeping a budget.
2. Foreclosed borrowers, and bankrupted potential borrowers haven't seasoned either enough to re-enter the market at a rate they can afford. With lending guidelines tightened, borrowers are having to wait, or lenders simply cannot qualify them, based on a lack of "seasoning" in old foreclosures and bankruptcies.
3. Lenders are now faced with finding willing investors to put up funds. After the way investors  got burned in the last round, they are more careful about how they lend their money. The are looking more carefully at the ratios of debt-to-income, and total debt of borrowers now. If you don't believe me, try and get a stated income loan that doesn't require proof of income.
4. Investors are requiring a steady and reliable return on their investments. That means they aren't as free with the funding.

1. Borrower Ability
1. Borrowers are more stretched these days, with increased food and fuel prices. Part odf this is due to the oncoming winter season, and as the cold weather comes upon most of the country, fewre transactions have been historically closed. Like car buying, if there is a way to qualify and buy, it is possible to get better rates and prices, as home showings decrease this part of the year. You may also want to keep this in mind over the next few months, if you need a new or different vehicle. Inventories grow this time of year, and there are fewer test drives leading to sales this tme of year. This is not new, wither. You can find it in The Millionaire Next Door, which is a prety good book as a guide for personal finance.
2. Borrower credit stretched going into the holidays. After Black Friday, everyone's credit cards, and budgets are stretched as we attempt to outdo last year's holiday season yet again. This year will be extremely critical for retailers, some of which are just hanging on. Even the 'big box" retailers are feeling the pinch this year.
3. Borrower employment worries. Many employees are fearful of the traditional paycheck with a combination of a Christmas paycheck, bonus, and PINK SLIP. Employers all over have been trimming staff levels, causing a lot of fear and panic. Although payrolls are rising 166,000 jobs last month, this isn't really translating into meaningful job gains, as displaced workers may be working two full time positions to break even with a job lost. Mind you, I haven't yet verified these figures with the Labor Department, so this is a true hypothesis. I also compare this to the number of people I meet who are actually working two full time jobs. Realtors® are also cutting from full time to part time, and some are barely hanging in there. Others who had huge advertising budgets are spending less to preserve cash flows, and cutting assistant hours in half to meet payrolls. Desk fees are going unpaid, because agents cannot afford them, and are "banking" commissions against expenses, trying to stay afloat. Oh yes... Realtors® are employed, too, and are also borrowers who have or may be looking for housing.
4. Borrowers experiencing changes I family structure. Death, divorce, alimony, child support, and having children are altering the credit standing of borrowers. Any of these events radically alters the ability to get or repay a mortgage.

1. Lender Willingness or Ability
1. Lenders have different access to money to lend these days. Factors affecting their ability are;
1. Investor guidelines. As these get stricter, fewer loans are underwritten. When foreclosures are up, guidelines tighten, and this affects the public's ability to borrow.
2. Regulatory pressures. When large numbers of loans go bad, banks can become insolvent. Bank regulators increase the loan loss reserves of a bank to create a cushion against bad loans, as a percentage of the money available to loan. This is done to protect the interests of the depositors, so their fund can be insured against loss via insolvency. With less money available to lend banks tighten requirements. This closes the market off to some borrowers.
3. Bank insolvency. When a bank folds, the effect ripples through the entire lending community. Surviving banks buy bad loans back at a discount, but this is salve on the wound. Still, the loans cannot sit in suspense, and the payments need to be collected against all sorts of loans from the closed bank.
4. Banks have to loan to stay in business. Banks make no money from the money deposited with them.

1. Investment Market Fluctuations
1. Money flows in a global economy. When more of it Is available from investors, borrowers want it, and especially when the rates are low. Investors raise capital for investments and the rate they pa is a discounted rate. What they charge to lend their money (the spread) is their profit. Somewhere in there is a balance point between their spread and what borrowers can afford.
1. Interbank transfers of investment products: U.S., European, and Asian exchanges trade round the clock, which means that money is always flowing.
2. Investors trade in what provides better returns. Lately, with oil at $100+ a barrel, and gold at $800/oz. it is nop wonder their money is going there. That will change once the banks began to manage thing s better.
3. Banks still don't get it. They have to work with their borrowers better in order to stave off the foreclosure problem that is currently tightening markets. HUD is now pouring  money into the market to streamline and head off mortgages. That means that HUD will now be buying conventional paper to save loans and borrowers, under some new guidelines.
4. We are in the downswing season, for real estate, too. As the weather cools off, so does the housing market. Still, some buyers will still be available to purchase new and resale homes, as long as the weather holds out.

Finally, let's not forget the role the balance of trade plays here. Since it doesn't fit neatly into the outline, I decided to cover it separately. Governments loan money to each other, too, via interbamk exchanges, and currency trading. Raw materials of one country are used in making the finished  product in another. These goods are imported by others, and the profits go around the globe via the import/export process. There is a balance point between what a country imports and exports that keeps a nation healthy. When there is an imbalance,   a nation's currency valuations against other currencies, are affected, and this in turn affects the end user pricing the consumer pays. The U.S.is still one of the largest consumers of finished good in the world. In order to avoid import duties that would make products noncompetitive in our markets, many companies have "set up shop" in the U.S. (Nisssan, Daimler Benz, Toyota, Honda...). Our companies also do the same in other countries (Coca-Cola, Pepsi, Halliburton, McDonalds...).

All of these things are interrelated. When something happens to one, the others feel the effect of it. As a construction worker how a slowdown in housing affects them. Then ask the lumber yard manager, tool store owner, and trucker. All get touched by big swings in markets. That is why this housing market creates fears in people. They are real, and could trigger unemployment problems, which could further depress the markets.

On the upside is that for every bust there is a boom. The markets cycle, and for a period of time there is sanity, followed by a period of heady speculation, profit-taking, and then the markets once again peak, and swing 'round again.

What is causing so much panic is the effect of a rapid transmission of news. People react more quickly, and forcefully than ever before. In the last 3 years more data has traversed the globe than in all of history combined, before that period. We get more information in a day than our minds can digest. Then, before we can process it, we are deluged again. That, and covering costs are reasons major media outlets feel compelled to cover the same story for an eternity. Now, for the first time in history, people are becoming their own individual broadcasting stations. The elements of the are such tools as YouTube, MySpace, blogs, and podcasts. This is the new media, and the traditional outlets ae concerned with being undermined. If advertisers start paying individuals small sums to write than what do they need the traditional outlets for? What effect would this have on a largely overpaid entertainment community, who, for the most part produces little of quality programming?

Once people grow accustomed to something, the waves and tempests will calm. Then, someone else will come along and upset the waters again. And the cycle starts again...