Interest rates going UP means that house prices will head DOWN. People can’t afford higher mortgage payments and the payments are already rock bottom and will only go UP, hurting prices.
Finally, there is a vast amount of shadow inventory which is sitting on the market, weighing it down.
Shadow inventory is in the form of:
1. The bank refuses to foreclose even though a borrower is months and months behind.
2. The bank owns the property that it has previously foreclosed on. But it won’t sell the property. It just holds onto it.
3. The homeowner is in a “trial period” for a loan mod. Under existing rules the loan mod is hopeless but the bank continues taking some income in from the homeowner and eventually the payments will stop and the homeowner who is under water will walk away.
There are so many millions of units of shadow inventory that these will weigh on the housing market and depress prices on a continual basis.
Even if the US government were to take over these 5 or 6 million houses, and rent them out, this would depress prices.
If the US government were to demolish these houses with the wrecking ball and bulldozers, that would also have a terrible effect as wealth is destroyed. But I wouldn’t be surprised if something like this is tried, quite frankly.
Yes, these are freaky times. The US government has taken over the housing market and crowded out market forces completely. You simply must account for what the government is doing when you decide what YOU should be doing.
So that’s what’s happening to financing. It’s all government now. And the government is strapped because it must raise ever more and more money from our friends in China and the Middle East.
These lenders are getting impatient. They don’t want to keep lending the US government more money.
At some point, these lenders such as China and the Middle East will start plowing their money more and more into buying companies, mines, and commodities.
They will also buy houses and anything they can get. But the trouble at that point is that the US dollar will be plummeting, with high inflation causing prices at the supermarket and the gas station to be much worse than they are now.
So in the end, unless we Americans in the know take proper precautions, we will end up like everyone else.
These issues are so profound that they will cause the housing market to fall further in 2010.
We haven’t seen the bottom yet. And the major “elephant in the room” is that people in the US can’t afford the houses they already own, and jobs are becoming more and more scarce.
Yes, we’ve had a partial recovery but this is ONLY because of the government’s “stimulus”.
The “first time home buyer’s credit” had an effect over the 2009 Summer but now people no longer care about it. Those who could buy have bought.
So what is the solution to all this? Here is my take on it.
1. It’s best to reduce your debts. Slash credit card debt, put the money you are using to give to the banks into your own savings instead.
2. Save money in various ways so you start to build a surplus you can use when things get even tighter, or to take advantage of upcoming investment opportunities.
3. For goodness sakes, don’t buy and hold onto real estate. Renting is great if you are the renter but not if you are the landlord.
4. Start focusing on making MONEY from today’s upcoming further decline in real estate prices. You can do flipping, including virtual flipping without ever leaving your house. You can help people who own commercial property to get new money, refinance, or work out their problems. There are numerous opportunities to make CLAMS by helping make today’s mess BETTER.
I will be introducing a new program that will help you achieve all of the above in 2010 and do so for an amazingly affordable price.
Remember, we do NOT want to end up camping out on that cold, hard smelly high school gym floor for weeks months or years. We want to be PREPARED and to be PROFITING from the grief we can see coming up clearly in 2010.
2010 can be our best year ever simply by realizing what is going on, and preparing to take advantage of it rather than just being a passive victim as this “hurricane” or “earthquake” predictably passes through our neighborhood.