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Most Recent Articles
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- Real Estate Markets In Danger
The housing market since 1992, and at an accelerated pace, since 2001 has been going rapidly up. Now, it seems that it’s all over. How could such a devastating reversal happen? On the one hand there are various theories on how the interest rates much go up now in the United States, in order to attract foreign capital, to fund the trade deficit and keep the dollar from collapsing in value. Yes, but how does that explain the rising prices in housing and other real estate in Western Europe, and even in Eastern Europe and spots in the developing sector? In a word, these are the economics of globalization, where protectionism of national sectors has been gotten rid of. In its place is the credo that the market decides everything, and that international capital can travel freely from country to country? A policy of looking at housing as investment properties, as opposed to finding affordable housing so most people can have a decent place to live is bound to cause foreclosures and suffering.
What is driving prices down, particularly in the U.S. is the exotic mortgages used to drive up prices, especially in key East Coast, West Coast and Florida markets in the first place. These are exotic mortgages, where there is little or no down payment, there are low payments for the first three to five years then, the payments increase dramatically. This creates a situation, where potentially half of the people who used these mortgages to buy housing which is half of the home buyers, could be forced into foreclosure. Right now there are over 1 million housing foreclosures a year, but what would things look like is there were, say, 10 million foreclosures a year? - The Outlook Of The Real Estate Market
There has been a definite slump in the prices of houses for sale. This has been compounded with a tendency this year for the dollar to go down some 11 percent this year in relation to the Euro. Some economists are worried that a high level of foreclosure of homes could also cause a financial crisis at the two big agencies that buy mortgages, Freddie Mac and Fannie Mae. Home foreclosures are up 53% compared to the same time period in 2005. This is bound to create some real financial problems down the road.
Banks are able to continue to supply mortgages to consumers because their mortgages are sold to Freddie Mac. Freddie Mac buys home mortgages from banks and sells them repackaged as securities, which are sold to investors. The stated mission of Freddie Mac is to stabilize the mortgage market and make homeownership possible and opportunities for rentals. There has been some concern at Freddie Mac for the extension of a real estate bubble since 2005, since Freddie Mac noted that large amounts of cash were being taken out of home values through the refinancing of second mortgages on houses that had been revalued at much higher than their original purchase prices. Due to the fact that Freddie Mac and its sister organization are heavily in the real estate market themselves, they have continued to make optimistic predictions about the housing market. In late 2006, their predictions are that we have seen the worst in the fall of housing prices, and things can only look up.
Despite all the happy talk, there have been recent warnings of a sudden fall in the real estate market and in the value of the dollar itself. Robert Rubin, the Treasury Secretary under President Clinton, and Paul Volcker, Federal Reserve Chairman from 1979 to 1987 have warned that something must be done or else foreign investors will pull their money out of U.S. investment and cause a continuing fall of the dollar. - Will Real Estate Hold Up? Take A Look At Florida
Is it interesting how a huge financial bubble can be created? Is it something that just happens? Are there dark forces behind it? Who could have known? The basic facts are that a huge amount of credit was pumped through the Federal Reserve and re-circulated by agencies such as Fannie Mae and Freddie Mac. This has been going on since 1992 really, but it went into super acceleration by 2001. This money then was directed to certain locations that were considered highly desirable. These locations included much of Florida, California around Los Angeles and San Francisco, and the Virginia and Maryland suburbs of Washington DC.
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