Housing Nightmare, Fairy Tales and Dreams that don’t come true
June 03, 2011 2:37 PM
It’s a beautiful thing when you wish upon a star, and your dreams come true.
Housing bulls and fanciful thinking led to claims and hopes that low interest rates, and a growing economy would spur home buying and halt the drop and even bring an uptick in home prices.
Jim Cramer was one such housing bull. He called a bottom in housing in 2009, and since that time prices continued to slide. But the problem with Jim Cramer, and other housing bulls throughout the media and government and real estate agencies is that they WERE DREAMING.
Now they and we all have a choice. We can let them keep talking in their sleep, while watching that dream turn into a nightmare. Or we can throw a cold bucket of water on everybody, and wake them up to reality.
That cold bucket of water might be at hand. It would come in the form of a second recession which is now a possibility.
The reality has always been that supply far exceeded demand, and would continue to do so, recession or not, because there are not enough buyers qualified to get loans. In truth, there were never enough truly qualified home buyers to absorb the supply of homes built to satisfy a demand based upon poor risk buyers. Once common sense guidelines were put in place following the collapse, which removed subprime, stated income and option arm loans, huge pools of buyers evaporated and nobody has come along to take their place. Who could?
This is the hard cold reality that everybody needs to wake up to: WE DON’T HAVE ENOUGH QUALIFIED BUYERS IN THIS COUNTRY to absorb the current housing inventory in any reasonable time frame.
During the real estate boom when we were dreaming, in order to buy a house a person needed:
1. A pulse.
Now a person needs:
1. Good credit score
2. Real Income with job history
3. Liquid Assets
4. A Down Payment
So what happens now if the economy does fall into a double dip recession within the next twelve to twenty four months? We will continue to see negative wealth effect, lower home prices, more foreclosures and even tighter lending guidelines.
And with that backdrop, this is the NIGHTMARE that everyone has to wake up to: No Quantitative easing; no FED keeping short term interest rates low; no housing tax credit, but higher interest rates, tougher lending guidelines and a bad economy to boot.
Welcome to the real world!
Logan Mohtashami is a senior loan officer in his family run Mortgage Company, AMC Lending Group, which has been providing mortgage services for California residents since 1987. LoganMohtashami.com