Many years ago, there was a chap that robbed banks. He would commit the crime, get caught, and do the time. Upon release, he would wait a bit and then plan and rob another bank. He would be caught again and the cycle would continue. The gentleman was Willie Sutton. He was interviewed at one point and the reporter asked, "Why do you keep robbing banks?"
His answer was short and sweet and quite revealing. "That's where the money was."
Philosophically, Willie Sutton has lots of company today.
If you live anywhere in or close to Montgomery County, you must have noticed that there are homes for sale. There are homes for sale on the main roads, side roads, back roads and dirt roads. There are homes for sale in condo buildings (pick a floor and you will find a unit for sale in one of the buildings). There are homes for sale by every type of agent ( big names, little names and boutique companies). There are homes for sale by owner and homes for sale by banks.
You get the picture...........there are homes for sale.
There are more homes for sale now, than at anytime most people can remember. Did I mention there is pre-construction, new construction and re-sale homes in this mix. The amount of new homes for sale dwarfs the number of potential buyers that are looking for a new home.
Just like every industry that discovers a long running slowdown is occuring, the real estate industry has started using a new term - "the absorbtion rate". It sure sounds pretty impressive but it really only means - how long will it take to sell all these houses? Any agent worth his or her salt has been aware of this figure for a long time. We used to just say "how many months inventory is on the market". I guess that was too simple and as others have done, agents have determined that if we change the spin, maybe no one will notice how bad it has become.
"If you buy a house today, you will lose money!" was Jim Cramers most recent pontification. It was heard on the Today Show and has been heatedly debated in many quarters. (For the record, he was right and he was wrong. It depends on the total picture. For investment purposes, he is dead on...for awhile. For those that need a home ... he has missed the boat.)
Everyone has an opinion on what in the world happened. Fingers are being pointed at lenders and real estate agents. People are convinced that there is a relationship with illegal immigrants. Others think it must be "those" people that used sub-prime loans.
There were some bad lenders that failed to make sure that their customers understood the loan they were accepting. There were some really bad apples that did not care how accurate the application was as long as they could get the loan made. There were cases of loan fraud.
There were some real estate agents that were not concerned with their clients ability to pay for the home that they were seeking. There were agents that affiliated with lenders that would "get the loan done" and home inspectors "that would not pooch the deal." There were cases of failed fiduciary.
The immigration status of anyone that bought a home has no relationship to any default. You do not have to be a legal resident of the United States to purchase property in the United States.
Sub-prime loans were available and remain available for some borrowers. The product is not at fault. The problems created by sub-prime loans did not occur with the majority of people that borrowed money using that product.
All these fingers being pointed, and there is a "gorilla in our midst" that few will acknowledge, that is probably statistically the biggest offender. There is a group being overlooked in the equation and few fingers are pointed their way.
Homebuyers and home owners, this finger is for you. You were the consumer and most of you had every opportunity to make a better decision. You signed disclosure after disclosure. You knew what you could consistently afford to pay. You allowed the possibility of financial gain or the desire for things you really could not afford to cloud your vision. Yes, in most cases, you created the quagmire that you are attempting to escape.
The consumers, that purchased homes that they could not afford, will ultimately have to accept responsibility for their actions. The consumer that used one or more cash out refi's to increase their buying power will ultimately have to accept responsibility for their actions.
Not only accept responsibility but they will have to live with the consequences of their actions.
Before you get angry and stop reading.... play along with me here. Let's do a short version
of.......IF THE SHOE FITS......
- Did you ask your lender for a loan that would give you the smallest monthly payment?
- Did you ignore the fact that the payment might increase because you were sure that prices were going up and you could refinance before the rate went up?
- Did you succumb to the desire to own a home you could not afford because creative financing allowed you to get in the door?
- Did you tell your real estate agent the total amount of money you wanted to spend on a home?
- Did you think, in the back of your mind, well if I can't afford it, I can sell it for more than I am paying today?
- Did you think that the multiple disclosures that you signed, agreeing that you understood every aspect of the purchase, were just meaningless window dressing?
For a short period, people were buying and selling homes like cheap jewelry on E-Bay. The market was very hot. People got caught up in the rush. There was money to be made in the kitchen, the extra bathroom, the finished basement, etc.
People began viewing their home as a liquid asset. They dipped into their equity and bought cars, vacations, paid off credit cards and many things like that. They did not change their lifestyle. Now the car is old, they need a vacation and the credit cards are maxed out again.
The milk cow has run dry.
People can not afford to stay and they can not afford to go. Homes are on the market and no one is willing to pay the asking price. Buyers are not willing to subsidize the largess of the homeowners. The once perceived value does not exist anymore. Sellers will either reduce their price to an acceptable level or they will have to remain in the home. If they cannot afford to repay the money they have knowingly borrowed, they will have to accept foreclosure. In this area, short sales remain terribly overpriced. The stalemate has continued.
Sellers have been asked, "why would you mortgage yourself to the hilt?"
They all have the same type of reply...."That's where the money was."
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