Real Estate Market 2001 – 2008 – We Goofed

November 24th, 2008 • Related • Filed Under

Filed Under: 2008 Real Estate Predictions • 2009 Real Estate Forecast • Featured

“I and others were mistaken early on in saying that the subprime crisis would be contained,” Bernanke said in an article in the Dec. 1 issue of The New Yorker magazine. My Way News

The rapid decline in the subprime market and financing caught Ben Bernanke off guard? Greenspan says oops, I missed it too?

I firmly believe the situation we are in now comes down to all of the over corrections that started with the dot com blowout.

The investor class has many new participants and technology expanded the velocity of the markets. When the dot com market took off, we had irrational exuberance in the stock markets. When that bubble blew, the money raced into real estate for safety.

Next thing we knew 9/11 happened and to save the stock market from free fall. To save the market further interest rates were reduced to historic lows. So money already headed into real estate was joined by others and a speculative market took off.

Add to this financing that combined both long term low rates and never before seen products that allowed nearly anyone to qualify even if the terms were not advantageous to the buyers (or lenders)

More homes got built than people could live in. We also needed more people to build them was possible. This created a surge in illegal immigration that further fueled the home owner market.

When the bubble finally burst, we had an inventory problem of epic proportions in real estate. Add to this a migrant builder class that left additional housing as they returned to their countries.

So now it has come full circle and all of the creative financing that fueled the housing boom is destroying Wall Street and the major banks and leading the country into a recession further worsening the housing market.

Was this avoidable? Probably not.

The saving of the economy was a wartime decision after 9/11. We could not allow Al Quieda to destroy our economy and the response by our leadership, both political and financial, was correct in my opinion.

Long term it would have been better to take the hit then, but the world wide perception needed to be one of strength, not weakness, and we responded accordingly.

But now the piper is getting paid. And it is going to be expensive and painful.

Related posts:

1. Commercial Real Estate Meltdown Keeps Federal Reserve From Raising Interest Rates
2. Housing Plan Stuck, National Recovery In Hands of Real Estate Market
3. Washington Programs That Are Destroying The Real Estate Market
4. Poor Treasury Sales May Indicate Mortgage Rates Going Up
5. 3.3 Trillion Dollars In Property Values Lost In 2008

There Are 8 Responses So Far. »

1. 

   Comment by Brandon Green on 24 November 2008:

   The Economist magazine, a Bible here in Washington DC, talked about a real estate bubble for years before the current crisis.
2. 

   Comment by Daniel on 14 December 2008:

   How long do you think this crisis or bubble will last? I hope to see a rise in the market mid 2009 onwards.
3. 

   Comment by Tampa Real Estate on 15 December 2008:

   Daniel we still have some issues to work through. The bottom is tough to call. Because real estate is local in nature the bottom of any given market is the best price someone paid for a house in the area you are looking in.

   If you are looking to buy a primary residence for yourself and plan on being in the house 5 – 7 years (normal time people stay in a house) than now is the perfect time to buy. If you are an investor there are still Short Sales and Foreclosures to work through.

   Real Estate inventory levels here in the Tampa area have dropped somewhere in the area of 20% since the high last year. It looks like the the combination of low mortgage rates and low prices have started to bring buyers back out. Some are having a hard time securing financing but they are at least looking.

   In my opinion in the Tampa area we will see February start to see a pickup. It won’t be a full year before the market really shows signs of a change.
4. 

   Comment by Idaho Land on 15 December 2008:

   I hope it only lasts another couple of quarters cause the impact is so far reaching.
5. 

   Comment by Daniel on 16 December 2008:

   Hi,

   You are right about it. I think it will start to pick up after mid 2009 globally. Just a abstract thought
6. 

   Comment by Todd Covington on 20 December 2008:

   I must say that was a big Goof. Common sense told everyone 2008 was going to be a rough year. Simply compare average household income to average price of a home. Not to mention instincts said 2008 looked sour too. Today, homes are still WAY over-priced. You can expect a poor 2009 also. I do expect it to flatten out in 2009 and a very slow upturn in 2010. I just got my website up and running so I sure hope I’m wrong.
7. 

   Comment by Umair Suleman on 20 December 2008:

   A very big goof. We have all been struggling, the rents eat up 70% of revenue from all sources. Its just unbeleivable.
8. 

   Comment by Christopher Hain on 27 December 2008:

   I know it seems bad while we’re going through it, but despite all the economic calamity of the past year we’re really kind of on track with the predictions I was looking at a year ago: http://terrafirmala.com/2008/12/when-will-housing-market-recover.html

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