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
The Importance of Selecting a Real Estate Agent
Whether you are looking to buy or sell a home, or are interested in investing money in real estate, finding a professional agent is one of the most important decisions that you can make When you find a talented, knowledgeable real estate agent, you can navigate complicated transactions with greater ease Shopping around for property or other investment opportunities is made much easier by the aide of a good agent Make finding one your first priority, and everything else will fall easily into place . .The first and most obvious way to go about finding a suitable real estate agent is through reputation Ask the people who live within the area for referrals If you know someone who has recently bought or sold property or other prime real estate, ask them about the agent that they used Often, simply getting a referral from a trusted source is all you really need to hunt down the best agent for your needs Also, there are often agents that will service other surrounding suburbs . .Look for referrals or find a good Real Estate Agent online - . .If you are unable to get a good referral from someone you know, you should try researching the various possibilities online Browse through local real estate websites, focusing on sites that are dedicated to properties in the area you are interested in Try to get an idea about which agents specialize in the kinds of homes you are looking for Try to discern what qualities are important to the agents that you research; for instance, does the agent seem to place a lot of importance on transparency and keeping their customers in the loop? Or do they seem to take a more commanding approach? . .Arrange a face to face meeting with the most suitable agents Come prepared with a list of questions about issues that matter the most to you Always be prepared to ask a lot of questions ensuring you are using their expertise regarding a variety of topics such as investment opportunities Quiz the agent on their local knowledge of the area They should understand where the local shops are, the layout and dynamic of the local community and be able to recommend the best areas based on your current and future situation . .Choose a Real Estate that best suits your personality - . .By sitting down face to face with a prospective agent, you can really gauge how well the dynamic between the two of you works It is incredibly important to choose an agent who get along with well If there is some unpleasant undercurrent between the two of you, then they are probably not a good option You want to choose an agent with whom you are comfortable You should agree with their overall viewpoints and philosophies, as well as the kinds of strategies they like to use . .You will know the right agent for you when you meet them The dynamic between the two of you will be great, and they will impress you with their knowledge and expertise Their experience and experience will allow you to feel at ease With any luck, your real estate endeavours will be well served by the agent you select, and you will experience great success .
Source: www.rsstnx.com
