Will 2009 Be Another Bad Real Estate Year?
By any indication, the real estate market has been bombing away for the last three years. Foreclosures are at historic rates and home values are plummeting like a brick thrown out the window.
This scenario is something everyone knows. Even if you do not own a home, the fear of bank failures has certainly come to your attention. The past is done and nothing can be done about it. Ah, but what about the future. Is the bottom of the market near?
Pure logic would suggest we must be getting close. We have been in a spiraling decline for a good two and a half years. How much farther can it possibly go? Alas, there are factors coming into play that make the future murky at best.
If one focuses just on the real estate market, a turn around seem inevitable by early 2009. Of course, the real estate market does not just sit in isolation. It is part of the overall economy, which means additional factors have to be taken into account.
There is one factor that is flashing a major red light for the real estate market. It is the banking industry. The problems surrounding mortgage lenders have been very bad, but have really only just begun.
It is rather ironic. The problems of the banking industry are related directly to the problems surrounding subprime mortgages. This has resulted in banks failing or under severe stress, which means they cannot loan money to buy homes now.
The banking problems have been pretty bad so far. Unfortunately, the worst is definitely yet to come. This is why you see the Federal Reserve taking actions that it did not do even in the Great Depression. Yes, it is that bad.
Subprime loans often get the blame for the current mess. They were part of the problem, but now things are worse. The infamous liar loan, also known as a stated income loan, is starting to rear its ugly head. Yes, the loans are defaulting in mass.
Most banks cannot afford to take a second big hit on bad loans. With the slowing economy and liar loans going bad, that is exactly what is starting to happen. This and next year should be an ugly one for banks.
How bad are things? So far, most bank failures have been limited to small regional banks. Now, however, it is expected that at least one huge bank used by millions is going to fail by the end of the first quarter of 2009. Nobody knows the name.
You have to have money to buy a home. With money scarce, the real estate market is not even close to hitting rock bottom. Until the banks start lending again, the market will continue to have problems.
Filed under: Business