Okay, so we hear all these news about bailouts and the like several times a day and I think we are all sick and tired of it. People have become numb to this type of news and just shrug their shoulders and say, "Oh well, what's new." Sad, but unfortunately, true. Where are all the activists and protesters when we need them most? I say, for now at least, put aside every single passion about something and let's all work together in working towards a solution to this problem.
What happened anyway? To sum it all up, a lot of people thought the real estate market would keep going up forever. People bought homes yesterday (not literally), secured by a loan that is 100% (sometimes 103%) of the house value, then a few months later, sell for a profit. They now either keep the profit to buy another one or two homes or upgrade to a bigger house, with an even bigger loan financed 100% by the banks. Eventually, entities (meaning, regular people, investors, businesses) started buying up more than just one property, speculating that the market will keep moving up. When everything finally blew up, the bubble burst and now we're all stuck in the deep mud that we all created during the heavy profit rainfall.
One of the main things that occurred is that the confidence level of the market went down, so the buyers' willingness to pay so much for real estate has deteriorated to a level well below current prices. Basic supply and demand. No more demand, supply will start going up slowly, then sharply. Then the glut of homes available for sale is now stuck in limbo. People now realize that their loans are way more than the house is worth, so they walk away. They walk away and sacrifice their credit that they built for so long.
Now, what would make homeowners and investors stay with the loans? How would you convince someone to keep paying a loan that is negative in value? These are the basic questions that most people forgot to ask when this whole crisis started. They were more concerned about the banks that they (except Sheila Bair, FDIC Chairwoman) forgot that behind these prime and subprime mortagages are people -- people who might be concerned about ruining their credit if they walk away, people who might be concerned how they can afford paying a loan if they lose their job today. If only the government helped homeowners while simultaneously helping banks, we would not be in this mess for so long.
My guess is that the housing market will not begin to recover unless something drastic is done to correct the main problem. Maybe this will start to taper off by 2010 and recovery slowly begins at the end of 2010 or first 2 quarters of 2011. Until then, we should brace ourselves for even worse news to come.
What happened anyway? To sum it all up, a lot of people thought the real estate market would keep going up forever. People bought homes yesterday (not literally), secured by a loan that is 100% (sometimes 103%) of the house value, then a few months later, sell for a profit. They now either keep the profit to buy another one or two homes or upgrade to a bigger house, with an even bigger loan financed 100% by the banks. Eventually, entities (meaning, regular people, investors, businesses) started buying up more than just one property, speculating that the market will keep moving up. When everything finally blew up, the bubble burst and now we're all stuck in the deep mud that we all created during the heavy profit rainfall.
One of the main things that occurred is that the confidence level of the market went down, so the buyers' willingness to pay so much for real estate has deteriorated to a level well below current prices. Basic supply and demand. No more demand, supply will start going up slowly, then sharply. Then the glut of homes available for sale is now stuck in limbo. People now realize that their loans are way more than the house is worth, so they walk away. They walk away and sacrifice their credit that they built for so long.
Now, what would make homeowners and investors stay with the loans? How would you convince someone to keep paying a loan that is negative in value? These are the basic questions that most people forgot to ask when this whole crisis started. They were more concerned about the banks that they (except Sheila Bair, FDIC Chairwoman) forgot that behind these prime and subprime mortagages are people -- people who might be concerned about ruining their credit if they walk away, people who might be concerned how they can afford paying a loan if they lose their job today. If only the government helped homeowners while simultaneously helping banks, we would not be in this mess for so long.
My guess is that the housing market will not begin to recover unless something drastic is done to correct the main problem. Maybe this will start to taper off by 2010 and recovery slowly begins at the end of 2010 or first 2 quarters of 2011. Until then, we should brace ourselves for even worse news to come.
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