Mortgage Mess Meltdown 2009

As we enter 2009, many Americans are wondering whether the depreciating real estate industry and mortgage crisis will come to an end. Depending on where you live and what geographic market you are selling/buying in depends on how the question is answered. Forbes.com (CNN Money) cites the top ten worst real estate markets are basically in California, with Miami and Washington D.C. included in the mix. I wonder why these desirable areas are in such disarray? And will this affect the marketplace I live in? I then look at the dynamic that increased values in those areas.

Most of those areas resulted in an excess of building coupled with easy no doc loans to buyers, many of whom were buying investment or second properties. In other words, buyers purchased speculating a continuously appreciating market. In contrast, Philadelphia (my marketplace) did not have much room for growth of new housing. And most buyers purchased homes with the intent to reside in these homes. Our growth went up (literally, in center city) and those projects are possibly the most failing in the city. In my opinion, Philadelphia is not a city of residents desiring condo-style homes. There was a reason why Fannie requirements in the past were much more strict on condo buildings (particularly high-rises). They are simply more difficult to re-sell. I do think, however, there is a market in condo-cnversions to rentals. Let's think about condo-purhcases. Will the average purhcaser hold on to the property for more than 7 years? Again, since the lifestyle is not well-suited for families, logic demonstrates buyers would sell and move up to a larger property.

Current and future conditions resulted from many bad practices and bad decisions. Buyers, real estate agents, mortgage brokers, underwriters and sellers are all to blame, to name a few. In my industry, real estate agents spoke highly of new condo-developments and how wise of an investment purchasing one is, with little knowledge or factual statistics to back those claims up. Buyers (many educated as well) would "drink the kool-aid" and purchase with plans of turning around a quick profit.

One way to avoid many of these issues in the future is to resort to logic. As a real estate professional, my opinion is based on experience and data I compile. I never followed the condo boom for a reason: I thought it was destined to fail. There was insufficient data to support its growth. Philadelphian's, as I knew them, have always enjoyed there homes. Since property taxes are already low in Philadelphia, condo fees and the limitations condos have compared to single-family dwellings made them an inferior product, in my opinion. Yes, people will buy. Many, though, will be speculators. More may consider to buy now and in the future if the condo was significantly less than its single-family competitor. But builders purchased land too costly and building costs and materials at the time were expensive. In a nutshell, there were a lot of bad decisions all round to create this mess.

How can it be fixed? My previous blog proposed a similar question. I would like to hear every one's opinion, resolution or debate to any of my points. I encourage your thoughts! Thank You!

Mortgage Mess!

Most of us know by now how severely damaged the mortgage and real estate financial industries are; but what is still to come? And what measures can be taken to avoid a collapse that would be classified as a depression-like economic society? These are broad questions, and I am looking to both real estate professionals and consumers for their thoughts and ideas.

For example, will simply lowering interest rates stimulate the housing industry to rise above the current crisis? And what future ramifications would such a move create? What else should government do? What should government not do? Is too much government good or bad for our economy and our industries? Jay Leno joked that in Cuba, when Castro rose to power, he instantly demanded all private business and commerce was now public-owned, which we define as communism. In the U.S., however, we call that a bailout. As extreme and funny as that statement sounds, is there any truth to it? Recently, 60 minutes reported we are only in the 1st wave of the financial meltdown, and this crisis could snowball for the next 2-5 years.

There are also some scary similarities of the conditions of today compared to those during the great depression (ex. Obama policies compared to F.D.R policies). In fact, the depression did not end when F.D.R. took office. The economy (national and global economy) continued to worsen for years to come until after world war II (actually, the horrible global economy enabled one opportunistic dictator to rise to power - Adolf Hitler).

This blog is not intended to evoke political party affiliations or opinions towards either party. The goal is only to hear the every day American's opinion on how this can be corrected, if it can be at all. We also want to hear how future waves of credit demise could effect your presonal life and well-being. Think auto-loans, student loans, credit cards, etc... Thank you for your posts and thoughts. - JB