Getting Real About This Housing Market

Click stars to vote (left is low, right is high)

(6 votes, average: 4.33 out of 5)

 Loading ...

[?]
 Print This

By Robert Sheridan

RISMEDIA, May 26, 2008-The surprise these days isn’t the steady drumbeats of doom and gloom emanating from the financial and housing markets. The surprise is that many people who should know better are still being surprised. Whether it’s mounting foreclosure numbers, bleak home sales reports or another sub-prime victim in the banking industry, the media, analysts and lenders gasp in astonishment every time we break a new rung on the way to the bottom of the financial ladder. This ought to stop.

The sooner people in and around the real estate industry face facts the sooner we can break what is effectively a market standstill and move forward. What’s behind the standstill? A few things. First, there is a large swath of homeowners who simply aren’t moving, either because they’re saddled with negative equity (mortgage debt exceeding the value of a home) or because they were lucky enough to secure extremely low-interest mortgages and would be crazy not to stay put. Second, there are wealthy and first-time buyers - the market’s main sources of activity right now - who are weighing whether or not to make a new real estate investment while prices are still falling. Third, there are sellers, many of whom are stubbornly pricing their homes at levels better suited to the state of the market in 2004 or 2005. Add to that a severely restricted credit environment and you’ve got a perfect recipe for market paralysis.

How we got here isn’t hard to see: We used foreign investment to finance a housing-and-credit bubble that’s now popped; regulators fell asleep at the wheel as lenders overextended credit to people who couldn’t afford it; many ratings agencies performed so questionably they’re now under investigation by the FBI; and the Fed, under Mr. Greenspan, chose to do nothing to regulate the process. Plus, lots of people in and around the industry - people who should’ve known better - either looked the other way or actively participated in the madness. So how do we grease the wheels and get some forward momentum?

The Fed’s rate cuts will - over time - have an impact. The market is also looking for some fairly significant price reductions. Prospective home buyers won’t become actual buyers if they believe prices are going to fall further. A reduction in mortgage costs won’t prod prospective buyers into action, either. After all, who wants a mortgage - no matter how favorable the terms - on a property you expect will be worth less tomorrow than it is today? Perhaps most damaging of all, we’re hearing a cavalcade of talking heads telling us the housing market could right itself later this year. Let me be clear: It won’t. Some markets may not recover until 2010 and, in cases like Florida, a turnaround could take as long as three to five years. This is a bad cycle - maybe one of the worst. There’s lots of grim news still to come, including the potential for far more foreclosures than we’ve forecasted.

We’re in a mess of our own making and it’s time to own up to it. Prices need to fall, credit needs to flow (more responsibly this time) and everyone - from homeowners to industry professionals - needs to lower their short-term expectations. We won’t be hearing any good news until we come to grips with the bad. We’ll get through this, of course, and the cycle will start again. When it does, I hope hindsight makes us much, much wiser.

Robert Sheridan is the principal and chief executive officer of Robert Sheridan & Partners. He was among the first proponents of apartment-to-condominium conversion back in the 1970s and has been a leader in the field since. His career includes a founding role and a co-chairmanship of the National Multi Housing Council.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

For more consumer stories, see:

10 Red Flags for Home Buyers
7 Tips to Buy Smart in Today’s Market  
Amazing Places to Live the Rest of Your Life

Discussion Forum

Topic	Posts	Last Poster
financing for real estate and mortgages at 5-10% rates	1	thrifty
5-10% financing for real estate and mortgages	1	thrifty
Where did all of the PMI go?	5	scherner
Do you have the best price today? Post FREE on PROPERTYFIRESALE.COM!	4	Greatinfo
U have best price? POST FREE - PROPERTYFIRESALE.COM (no registration needed)	1	Greatinfo
Advertise Your Condo Listings Today!!! FOR FREE	1	mycondospot
Interesting Real Estate Blog...	6	progressive37
First time owner……..need some good tenant advice.	5	progressive37
Looking to know more about real estate investing.	5	progressive37
T-I-Cs start with T, and that stands for Trouble.	1	PeterWunsch

Plight of New-Home Marketing Companies: Struggling to Survive?

By George W. Mantor
RISMEDIA, November 21, 2008-Lost among the bank failures and resale downsizing has been the plight of new home sales and marketing companies. Once the high-flying benefactors of an explosion of new home sales, they now find themselves wondering where future closings will come from.
While there is excessive new home inventory at the moment, builders […]