Real Estate

A very funny thing may be about to happen in the real estate market.  At first blush, as the bubble began to grow we had what is commonly called a seller’s market.  Homes that were in great neighborhoods suddenly escalated in price to double and then triple in price.  Bidding wars broke out as buyers clamored to have their piece, expensive though it might be, of the American dream.  Developerswho are always quick to fill a need, ask P.T. Barnum, began offering tracks of houses, and monster-sized MacMansions crammed next to each other (the legal 10 feet setback) could be seen covering the farm lands outside of cities across the nation.  Even not so great neighborhoods began to see and feel the change.  Lenders not to be left in the dust-up, began their own development by offering more and more exotic ways for home buyers to borrow money, sub-prime though they might be.  Not to be out done, investorsflooded the market place with OPM as they bought into the grand new scheme.  Workshops on how to become millionaires in the process took out full page ads in major newspapers from coast to coast. Home equity became the new savings account as owners financed the economy and the GDP suggested that the free market had won the day.

But as I said earlier, a funny thing may be about to happen in the real estate market.  As we all know, sometime last spring the bubble began to leak.  The sub-prime lenders, who apparently had begun to believe their own hype, had indulged in their own sub-prime loans via credit swaps.  And now those loans were coming due just as the first wave of home buyer ARMS hit their refi limit.  Countrywide went bellyup.  Homes, and rental properties bought on the ARMs became homes and rental properties listed as bank-owned.  Bankruptcy real estate companies began their turn at the trough.  Bailout efforts included the FED rate falling and the government concerned-Congress sponsoring plans (yet to go in effect) to help the strapped home owners.  And suddenly, just as Bear Stearns happened, a buyer’s market blossomed across and around the world.  Home values dropped 20%, but buyers offered even less.  Donald Trumpeted his foreclosure seminars with Robert not far behind.  For Sale signs grew like new trees in the springtime and suddenly the rental market had clientele.

And then, I repeat, a funny thing began to happen in the real estate market.  As home prices continued their fall and auction sales began reflooding the market, a new kind of buyer has begun to appear.  Sure the wolves with money, their cash cashed out, are there in abundance.  Buying up tracts and shopping for deals.  But amongst those many are now the few who waited and followed the tenets of personal finance.  These are the ones who lived within their means.  They spent less, worked at earning more.  They set aside emergency funds and put their extra cash into index funds.  When they did buy a house, it was with the traditional mortgage.  But many did not buy, preferring to rent rather than go into debt, until now.  Now, as the pricing gets real, as the properties begin to be assessed at the current market level, these buyers can now in fact buy their own homes.  Funny, I think so. By staying stable and thinking thin, they are now in a position to apply prudence and frugality to the home buying market.  Over-priced junk and even quality homes are all in the basket and the little guys/girls may just win.

 After all, as the big guys are prone to say, it is a free market.

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9 Comments »

  1. premier said

    […]Nice topic[…)…]

  2. Great topic, about real estate. Yes. Funny things began to happen in the real estate market. As you mentioned, the first blush is called seller’s market where Homes that were in great neighborhoods suddenly escalated in price to double and then triple in price will be much helpful to the home buyers .

  3. rhbee said

    What I’d like to see is some discussion here about this sea change of events in the real estate market. Instead I appear to be being surfed by marketeers looking for clients.

  4. […] up, GRS-reader rhbee from Finance is Fun has some thoughts on the current real estate market. After the turmoil of the past few years, he notes, those who followed the tenets of smart personal […]

  5. Minimum Wage said

    Developers are always quick to fill a need?????

    I see a huge unmet need and developers won’t go anywhere near filling it.

    Wherever did you get the idea that developers are always quick to fill a need???

  6. Minimum Wage said

    These are the ones who lived within their means

    Where I work, we live within our means but none of us can buy our own homes. Where do you get these ideas?

  7. rhb said

    Hi Minimum,

    Long time no hear. First, out here in Cali when we say we say developer we mean the type of builder who sees a chance to make money out of the real estate by chopping up an acre into 12 plots, by building card board houses, by monsterizing those houses into 8 bed/9baths, and by walking away when the houses are sold to never be seen again. Second, I, like you apparently, wonder why a developer isn’t content to build what is practical and needed. Something like an apartment complex with studios, one bed, two bed, three bed, and four bed with amenities. Only instead of it being rentals, it’s units for sale so that all types of incomes and sizes of residents could buy their own.

    Third, in answer to your second comment, we happen to own several rentals in a town that has been hard hit by the bubble bursting. The town was way over built and suddenly there were foreclosures and bank owned signs everywhere. Rents went up and slowly but surely the prices of the homes for sale began to come down. In the last month, three of our renters told us that they were shopping. They all have good credit, though they are seniors, and their frugal habits have allowed them to save up enough for modest down payments. What’s more the sellers are now competing for their business by offering to pay the closing costs and points on the loans, and in one spectacular case, offering $20,000 worth of upgrades on new units while lowering the 2 bed/2bath price to under $200,000. Frugal shoppers can really find a deal in this market especially in areas where there are a lot of signs. And especially if they have FICO scores in the 700’s.

    In this market, a smart move would be to combine resourses and shop until you find what you want, then make an offer that fits your budget. Keep shopping, I am telling you it is only going to get better in this regard. Think, as they say, outside the feeling of always being boxed.

  8. Bob said

    Minimum, love ’em or hate ’em, the National Assoc of Realtors have actually been running an ad lately that makes a very accurate statement, “real estate is local.” In our market (northern IL), there are homes available for sale to any income level. I’ve worked with people who live on disability income, but they have practiced living within their means, kept their credit in good condition, and have purchased homes successfully. We work with employers who provide down payment assistance to their employees (and get tax credits in return), and we work with the state to provide matching funds. People are walking into $50,000 homes with $10,000 in assistance. Just because some ideas don’t fit in your market doesn’t mean that they don’t apply elsewhere.

  9. rhbee said

    Bob,
    Your program sounds great and it only makes me wonder why the heck does everything have to happen after instead of before? This kind of program should be the norm not the relief patch, though I am glad to hear about it at any time. Would you happen to know if it is available in Southern California, too?

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