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Why the real estate market will not recover soon

Below are the reasons why the real estate market will not recover soon.  The real estate market is slow to non-existent in most of the county.  There are good reasons why this has occurred and why it will not change soon.  The reasons are simple and clear.

 

  1. The market in general is over priced.  For five years the institutions we rely on to protect us broke down and were corrupted by greed.  The Fed kept the interest rates too low, banks and mortgage companies made bad loans (called liar loans), dishonest buyers bought homes they could not afford to own, flippers filled homes and this pumped the prices above where most middle class buyers can afford to buy.  The average price of a home has come down some, with the average price of a single family home lower in most areas.  The prices are still too high for most buyers and the price must come down another 25% to 40% at the low end before the market will begin to regain momentum.  Even then the market will be slow until the huge inventory of homes on the market burn off.  Currently most areas have a 9 to 12 month supply of homes listed for sale.
  2. Consumers have been hit with increasing prices for necessities.  The price of gas, food, clothing and anything having gas in the supply line are going up and will continue to go up.  This takes away a major part of the middle class disposal income.  The price of gas in 2000, the year Bush took office was $2.06 per gallon and it is now $3.60 per gallon.  This an increase of $1.54 per gallon and it will certainly go to $4 pr gallon this year.  Under Bush the price of gas will have doubled providing huge and obscene profits to big oil companies.  These profits take hundred of billions in spending power out of our economy and they will stop people from buying homes.
  3. The costs of buying and selling a home have soured to over 10% of the purchase price and represent as much as 50% of the actual cash to the seller when they sell.  The costs of real estate fees have grown to represent a huge burden on buyers and sellers.  Real estate commission to real estate brokers of 6% and loan fees, some hidden on the backend where borrowers never see them of as much as 8%, are drag on all real estate transactions.  Add to these the price of title insurance and selling or buying a home costs too much.
  4. The flippers, investors and quick money boys have driven prices up in some areas and now have made owning a home for many low end families an impossible dream.  This will not stop as long as lenders support this activity.  Many of these flippers and investors lie about living in the home when they know they are going to rent or resell.  Lenders don’t enforce the rules about buying and selling your own home.  Down payments for investor property are stated at 25% down, but lenders allow investors to lie and to put down only 5% to 10%.   This distorts the prices in a market for single family homes.
  5. Stagnate wages for the middle class due to the movement of good paying jobs to China and India has made keeping up with inflation almost impossible for the vast majority of the middle class even with both the husband and wife working.  This trend will continue and accelerate as corporate executives look for bigger and bigger pay checks based on bottom line profits.  Rather than look for ways to increase revenues it is much easier to continue to reduce labor costs by moving to China where labor is 35 cents per hour, with no workers protections, no environmental protections and no product safety rules.
  6. The coming foreclosures under estimated at between $300 and $600 billion, probably closer to $1 trillion will take three to five years to clear the market.  These homes will continue to flood the market of homes for sale.  This will drive down all homes prices.
  7. Total lack of leadership on the part of our elected officials.  Keep in mind they were all bought and paid for by big business like banks, mortgage companies and investment house like Bear Stearns, and they can not or will not see the reality faced by the middle class.  Government could and should do something but they will not.    

 

Since a large part of the economy is based on the real estate market this trend will have a very negative affect on us all.  If you want to look for blame it is everywhere, but mostly it is on Bush and his band of non-regulator regulators.  The Fed, SEC and the other agencies looked the other way while the banks, mortgage companies and investment community took us for a ride.  The profits to a few were huge, hundreds of billions and now we all have to pay for this illegal, immoral and unethical period.      

                     

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May 1, 2008 at 3:11 pm Leave a comment


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