Now don't get me wrong, most people know me as a forever optimist. Optimist to the point of waking up everyday singing and telling myself that the Real Estate market is bound to change. In my opinion, 2008 was a correction, 2009 was a realization, and 2010 was suppose to be the year when things should bottom out and get better. Here we are, 2011, and prices are still going south. From the the look of it, we are still not out of the woods.
There are many signs out there that points to the direction of another Real Estate Crash. Here are a few:
1. Within the last 2 weeks, CNN has posted blogs of experts stating that we are about to see a double dip housing price correction within this year. The average price of home are now comparable to 2009 when the price of home hit its all time low since the Real Estate buble burst.
2. MSN.com articles and blogs has predicted that there will be at least 1 million foreclosure that will occur this year. This adds to the 1.3 million shadow inventory (homes about to be foreclosed) that is currently being held by the banks. Real Estate experts predicted that it would take 3 to 5 years before the current toxic inventory be wiped away from the banks books.
3. Bank owned and REO homes are often priced 10% to 30% below market value. With 50% of of the U.S. homes REO servicer listed by banks such as Wells Fargo, Chase, and Bank Of America, home market value will continue to drop. With a very large foreclosure inventory, their goal is to let go of homes as fast and efficient as they can (big goof-off are the Robo-signers they hired who foreclosed homes illegally).
4. Sub Prime Mortgages are no longer the only reason people foreclose on homes; it is now because of lack of jobs, economy downturn, people believing home values are no longer there ( Strategic defaulter: the new in thing with people with good jobs), and divorce. I've had far too many homes I listed last year with divorce and unemployment written all over therm.
Now where does all of this lead us. Well, The Great Depression did not completely turn around until the 1950's. Small Recessions in the 90's and early 2000's may have lasted only 2 or 3 quarters, but the impact lingered at least a couple of years. There have been talks within the Real Estate profession that this may last 5 to 7 years. But the truth is, nobody really knows. People were hoping for a "V" shaped recovery where we go down hard and bounce right back. Others hope we have a more "U" shaped recover where we stay along the bottom for a while and then slowly recover. The worst we can possibly go for is a "W" shaped Real Estate recovery. This means we go down hard, go up, then go down hard again.
I am not a prognosticator of Real Estate, but I do follow Real Estate trends rather carefully since this is one of the businesses I am currently invested in. Now is the downturn good or bad? Well, It depends who you ask. Investors, buyers, apartment renters, and big developers may approve the downturn as a way to invest and make more money in the future in real estate. The cash flow that they can generate plus the low mortgage rates suites them just fine. Now, sellers, positive equity owners, mortgage re-financiers, and home owners in general may not like what is going on. Losing value on homes means they are at risk to be "underwater" (loan greater than market value) in the near future. If underwater homeowners decided to sell their home, their credit will get hit through a short sale. IRS sometimes step in to collect for deficiencies (only on deficiency states) on a short sale which leads homeowners to opt for bankruptcy if the home does not sell and nears foreclosure. More on this subject on later article. Such a vicious cycle we currently live in.
In a nutshell, we may or may not experience another Real Estate Market Crash. However, if the banking system and other government programs do not start helping current homeowners with their current mortgages, we may see a flood of foreclosure greater than what we have seen. But as I currently look around, the Dam is slowly breaking..
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