The merger of real estate and mortgage has happened here in South Florida and many other parts of the nation, is a direct result of greed, both on the part of investors, developers, and to often, home owners. And, of course, mortgage companies, offering the sweet spread also to be true (they were) just ups the ante that much more. A component of the problem was investors, many of whom had been embittered by the lackluster returns that their investments were getting in the bag. The rise unrealistic real estate prices in Florida and elsewhere, seemed an excellent opportunity to double or even triple their money by placing a sign in their homes minimum investment. Interest rates were at all time low, although many of these mortgages had balloon payments a few years down the road. These investors planned on "flipping" these homes never happened
before. We know people who measured the time for this right and actually made huge sums of money with very small signal. Some actually sold their homes immediately after they were completed. They had been locked in home prices of the previous construction, and these households had increased in value by hundreds of thousands of dollars before they ever closed. These were the lucky investors who came in and before the bubble burst. But everything is timing. Investors who got in the car behind the band, and whose homes were caught in a pool of construction delays were not as fortunate. As prices began to fall, they couldn 't sell these homes as they were completed. I know investors who are now paying high mortgages, taxes and high premiums of homeowners in three or four homes empty. They still have to pay to save on electric bills, lawn service, and often even the pool, and water. The observation of them decrease in value only makes things worse. Developers haven 't much better. While they are finishing their homes, now have to compete for the limited pool of the buyer, with all those same investors are now looking to get rid of their homes in these same communities. They have had to drop their prices to get rid of some inventory. There is one more part of the picture. The homeowners in recent years begun to tap into the equity of their homes, which had been rising at an unrealistic rate due to this heating up the housing market in 2002-2005. They treated their homes as banks, borrowing against them with abandon. And, of course, banks and mortgage companies were complicit in encouraging this practice, giving homeowners many thousands of dollars to fix up their homes, pay off other bills, fund college education for their kids, or even to borrow against their existing homes to get a signal in a home for investment to "flip"! The airwaves and newspapers were filled with ads that encouraged people to borrow against the equity in their homes. It was as if this cycle takes a life of its own, and a perfect storm brewing. Well, the storm hit. Just like the stock market bubble in 2000-2001 showed the Americans that everything in our economy is cyclical, this time just hit as hard. Many of the same people who had been hit by the disaster in the stock market in 2001, got hit again. But the good news is that because each cycle, it will turn. Hopefully the housing market is relying almost out and the tide will turn. You can take a bit of time for the inventory of unsold homes and foreclosed homes to begin moving again, but. People still need a place to live, and our population just keeps growing, because the amount of land suitable for development is endless. Actually, for the first time buyers, this is a wonderful time. There are some great deals to be had out there now, and hopefully, as people begin to take advantage of this business, things begin to turn around.
Sunday, October 18, 2009
