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.