Five Years in Review The Minneapolis Real Estate Market
Poised on top of the real estate mountain in 2003, it’s hard to imagine so much change in the Minneapolis real estate market in the last five years While the bubble has certainly burst and it’s no longer a seller’s market, key elements like long-term value of Minneapolis real estate as an investment and the quality of life available to residents has not changed Even after five years of change, the world of Minneapolis real estate is still a great place to buy a home for you and your family . .2003 was a banner year for the housing market across the United States In Minnesota, 39,440 people were gainfully employed in the real estate and rental industries with a combined annual payroll exceeding $1,237,000,000 Clearly, real estate was lucrative for sales professionals involved in the booming market Sellers benefited from bidding wars over their homes Houses could not be built fast enough to meet the exceptional demand for homes in the market . .Over the next two years, the strength of the economy and the housing market caused lenders to start granting adjustable rate mortgages and larger mortgages than people could actually afford Lending practices got very loose as bankers were caught up in the housing market frenzy Add the risky business of real estate speculation to the equation and it soon became clear that some of the growth in the housing market was built on shaky ground . .Builders and lenders wanted to continue the exponential growth of years past, and by 2006, it was clear that far too many new homes were sitting on the market unsold New home building slowed to a stop by 2007, and because builders could not get new homes sold, the value of homes across the country started to drop Analysts called it price adjustment for the over inflated selling prices of years past, but homeowners simply saw it as less value in their investments . .Once the dust settled in 2008, however, homeowners realized that although their homes had lost a bit of value, their homes were still solid investments Compared with the performance of stocks and 401Ks, home equity was a solid place to put hard earned money for those willing to keep homes until the economy began to pick up speed . .While the past five years in Minneapolis real estate have been filled with drama, one thing a smart investor realizes: current prices in the housing market make this the ideal time to buy Houses and condos that were once out of reach financially are now less expensive and ready to be purchased In addition, the influx of one-time homeowners that now want to rent homes instead of paying over-inflated and financially dangerous mortgages makes this the ideal time to venture into rental property ownership Rentals are a great way to invest and make money in the current economy . .The future is anyone’s guess, but one thing is certain: Minneapolis real estate is one of the best ways to invest in your future Over the long haul, it’s sure to pay off; thanks to the strength and bright future of the city’s schools, commerce and the entrepreneurial spirit of its residents .
Source: www.rsstnx.com
Why the Real Estate Crisis Had to Happen
We cannot understand the present unless we understand the past The first question to be asked is when did the real estate crisis become inevitable? The correct answer is in the time period between 1980 and 1982 It has been forgotten today but the last real estate crisis in this country were the twin real estate crises of the 1980s In the early 1980s the first crisis was brought on by double-digit mortgage interest rates Then in the late 1980s there was the savings and loan crisis, which in those days provided most of the nation’s mortgage capital In response to these twin crises congress passed two laws that made today’s real estate crisis inevitable . .After these acts were passed it was only a question of time until the stars aligned correctly for the volcano to erupt .In 1980, congress passed the DIDMCA Act Prior to this time, it was illegal to charge less credit worthy customers a higher rate of interest on their mortgage Then in 1982, congress passed the AMPT Act, which allowed adjustable rate mortgages or ARMs for the first time Prior to this act adjustable rate mortgages had been illegal . .If you go back to 1896 when reliable housing records first began to be kept you will find that from 1896 to 1996 housing prices tracked the rate of inflation Then suddenly from 1996 to 2006 housing prices doubled The problem of course in that the income of the American people did not come anywhere near to doubling in that time period .When you stop to think about it, you will realize that it is impossible for the price of housing to exceed the rise in the income of the American people for any sustained period of time Unless there is an enabler, a speculator’s tool that allows this to happen What was the speculator’s tool or device that enabled this process to occur? What was the enabler? . .In the whole of American history there has only been one prior real estate bubble that resembles the real estate boom and bust that we are now witnessing It was the great Florida land boom of the 1920s Real estate has always been expensive What has always held real estate prices in check was that people just did not have enough money to bull prices up for very long The money is just not there The device that enabled the Florida land boom to occur was the “binder ” This is a real estate term that has gone out of use today In the manner in which it was then used it was essentially an option payment on the down payment if you can conceive of such a thing . .What it boiled down to is that people thought they were speculating on real estate but in reality they were speculating on real estate options . .The stock market has long been the ultimate proving ground for speculative tools Those of us who are stock market speculators are very familiar with stock options The only thing that the reader has to know about options is that they are speculating tools that possess tremendous leverage In other words, you can make a killing on a chump change investment . .Both the binder of the 1920s and the ARM are in reality real estate options All options expire worthless if they are not exercised prior to their expiration date Most ARMs were written to expire in two or three years, the fixed interest rate period At that moment the option had to be exercised or rolled over because the option would become worthless People were deluded into believing that they were buying real estate When in reality they were speculating in real estate options As we have seen, the tools for the bubble were in place by 1982 the only thing lacking now was the mania The boom years from 1991 to 2007 provided the mania Real estate prices rose relentlessly It was a boom that seemed like it would never end You couldn’t lose in real estate because no matter how much you over paid because rising prices bailed out everyone . .Today in the aftermath of the boom, we are already discounting the impact on the human psych that manias and bubbles produce To put it bluntly by the end of the boom almost no one could believe that real estate prices could fall This nearly universal belief gradually eroded prudent behavior The more risks you took the more you were rewarded There was no down side . .In the early 90s the use of sub prime mortgages and ARMs were limited-since almost all sub prime mortgages were also ARMs they will be considered as a unit- but as the boom progressed their importance grew and grew .Mortgage brokers just could not stay away from sub prime mortgages They were three to five times more profitable than standard mortgages Once they had sold one they didn’t want to sell anything else The caution that lenders had originally shown toward the new mortgage products was relentlessly ground away as the endless boom continued Caution wasn’t being rewarded, it was being punished There was a Gresham’s Law in effect- Gresham was an economist-in which bad or reckless behavior which was constantly being rewarded by lush profits drove out good or cautious behavior because the profits were inferior In the final years of the boom, conservative firms could not even keep their mortgage brokers from bolting to subprime lenders . .Then around the year 2000 Minsky’s Law kicked in Hyman Minsky was a Noble Prize winning economist . .Minsky’s Law .Over periods of prolonged prosperity the economy evolves from financial relationships that engender a stable financial system to financial relationships that produce economic instability The longer the trend persists the more violent the correction when the trend reverses . .As the boom rolled on the most important factor was that almost everyone was a winner This was true in spite of the fact that subprime mortgages were constantly defaulting at the higher rates that had been predicted Not only was the higher default rate not a problem but everyone was making out like a bandit with subprime mortgages This included the subprime borrower As soon as he fell behind his friendly subprime mortgage broker would be there to write him a new subprime mortgage In fact he often got to take out new money when he refinanced the mortgage It was not unusual to have subprime borrowers take out new mortgages every two or three years during the boom . .If there wasn’t enough equity to suit the lenders, real estate speculators would be pounding at his door offering to take the property off his hands as soon as the notice of default had been published Often at a profit over his purchase price . .The banks were the greatest winners of all They were making a killing It is obscene how much money a bank can make during the foreclosure process as long as someone buys the foreclosed property Not only do they receive all the back payments but the brutal penalty fees as well .
Source: www.rsstnx.com
