Some interesting things are going on in the world of real estate. Given that interesting things in the world of real estate were directly responsible for many of the not-fun things happening in the economy right now, I think it’s worth paying attention to them. Especially since many of these interesting things show that the banks are not doing what they are supposed to do or even what they said they would do.
As we all know, some big banks made some spectacularly bad loans which came crashing down around them, triggering a cascade effect in the financial sector. The government intervened with bailouts, but it also demanded some steps on the part of the banks, namely renegotiating loans to keep people in their homes, and underwriting new (and more sound) loans to keep the real estate market functional.
While both of these goals sound rather nice, in actuality, they aren’t being realized. People who are fully eligible for refinancing are being denied or are having to fight spectacularly for something which they are supposed to be able to easily access. And, as predicted by many economists, a second wave of foreclosures is starting as people who refinanced default on their refinanced loans. Why? Because their homes are still underwater, even with a better interest rate and more generous terms, because the banks refuse to write down home values. If you live in a $800,000 house and you have no job, even if you refinance, you still can’t make your mortgage payments.
As for underwriting new loans, scuttlebutt has it that loans are getting harder and harder to get. Which actually makes sense, from the point of view of banks, because interest rates are really low right now. That’s a disincentive to make loans because there’s not a lot of money to be made in loans at the moment. Even with excellent credit, people need to be prepared to put down a serious down payment for a loan, and they’d better prepared to walk a gauntlet of paperwork. The reluctance to write loans goes far beyond a desire to lend conservatively to avoid a repeat of prior problems, incidentally. It’s very clear that the banks don’t want to write loans.
Which is why it’s amusing to see real estate purchases being promoted right now. Buy now, they say, because the market can’t go any lower (funny, that’s what they said last year, and some of the houses I saw last year at “unbeatable” prices are still on the market, but at an even lower price). Buy now, because you can get a great interest rate on a loan (assuming you can get one). Buy now, because the market’s going to go up up up (where have we heard that before).
Are you buying yet? I know some people who have, in part because they got good deals, and in part because they had to or were planning on doing it anyway before all of this happened. Sales and prices are still dropping, stuff is still sitting unsold on the market, and it’s clear that a lot of people are waiting for the other shoe to drop. For us to get deeper into foreclosure 2.0, which is slowly starting to accelerate. To see where the market is going to go from here.
I am not, by any means, a financial maven. This should be obvious, given my perilous financial situation and my singular lack of assets. So I’m not offering advice or prognostications or anything of the kind here. I just think it’s interesting, as an observer, to see how the market is moving, and to see the ways in which real estate is being promoted.
It’s a great time to buy, they tell us, because they want to stimulate the market. And from a realtor’s point of view, the goal is to get commissions, and you can’t get commissions if stuff isn’t selling. And if you have clients who are waiting for prices to drop, you also can’t get the best deals for yourself, because when housing prices drop, so does your commission.
The promotion of real estate feeds very much into the idea that home ownership is a critical part of the American dream and that it is something we should all be striving to achieve. Something that will tell us we’ve made it and are now successful, or adults, or ahead, or whatever your landmark of achievement might be. And it feeds into the idea that we, as a society, should be fixing the mess that the banks, run by a handful of people, made.
We have a social obligation to clean up after people who made bad financial decisions? Why is it that we shame individuals who make poor financial choices or who are forced into bad financial situations, but we shoulder collective responsibility for institutions which do the same? The President slams credit unions for not taking on more bad debt and saving the banks. People are chided for walking out on their mortgages when the banks have effectively done the same thing. We are told that we have an obligation to buy to increase the demand for credit so that the credit market will move again, but the banks are given no obligations in return.
Indeed, we as citizens are apparently expected to repair something we didn’t create, didn’t want, and didn’t ask for. We are being ordered to protect the profits of huge companies even if it costs us, because those institutions are simply “too big to fail” and we can’t have that. Have we forgotten that every human life is precious and has value, and that an individual human is also too big to fail?