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The Banking Factor In Real Estate

Aug 25, 2008
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.

You already have a grasp of this, of course, unless you have been visiting Antarctica for a few years. It is all doom and gloom now and rightly so. Still, what does the future hold? Are we close to the bottom of the market finally?

At first glance, one would think we have to be near the bottom of this bear market. Inventor is up and the values have dropped so long that there really is not much more room to fall. At second glance, however, things are more convoluted.

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.

Although the market appears ready to flip around and get hot again, it is missing one important ingredient. There simply is no cash to be had. Banks are in bad shape and simply are not lending money to buyers.

This problem is much like a dog chasing its tail. The banks issues poor mortgages that have come back to haunt them. Now they are in financial duress. Even those that have money to lend are hesitant to do so having been burned so bad.

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.

The primary problem is most banks are now facing up the liar loans they wrote. What are liar loans? They were known as stated income, no documentation loans. You basically told the bank whatever you wanted and were given a loan.

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.

Rumors have been circulating in the lending industry that one of the very large banks is in serious trouble and will fail in the next six months or so. Nobody has indicated which bank it is, but banks such as Washington Mutual are known to be severely stressed.

Ultimately, the real estate market will not hit bottom until the lending industry does. The real estate needs mortgages for transactions to occur. As long as banks are hesitant and money is tight, the bottom of the real estate market is no where to be seen.
About the Author
Learn how to sell your home quick as a FSBO seller by reading the articles of Hal James at FSBOAmerica.org.
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