Greed was the main ingredient in the past real estate market. Do you really think that your home experienced great appreciation in the last 5 years by accident? The answer is no. While rates decreased with good intention, to allow the new home buyer to “afford” a home, the vultures in the Real Estate market were circling. It was just a matter of time, the Realtors and lenders saw green. Commissions were easy, so was lender acceptances to loans.
Many buyers were looking a homes, first affordable, and loans were approved. Realtors saw the easy money, so with each new home listed to sell, they raised the prices just a little, then a little more, then a lot more. Buyers kept coming. Lenders created even more relaxed conditions for approvals, so that as the homes increased in value, the loans would continue to be approved. You could even get a home or loan with no proof of income or no down and 110% financing…Wow, what a deal!
All of a sudden, a frenzy of loans, were passing through on existing homeowners. With all of the appreciation, one could get a 2nd or Equity Line of Credit on say $100k, $200K and $300K second loans with no proof of income to buy vacations, toys and home improvements. Life was good, for everyone, Banks, Lenders, and Realtors and the homeowners.
Then came the year 2006, Houses were too high to buy now. Interest rates started sliding upscale and the mortgage or loans were starting to increase. Buyers whose income was never verified started having trouble paying their mortgage. Realtors and Lenders stopped getting paid…no one can afford their mortgage or loans anymore and the money has just dried up! Gosh, what do we do now…Sell, Sell, Sell or Lose, Lose, Lose.
There are 6-8 months of home inventory on the market now 50% are close to short sales, and a fair percentage in Foreclosure? Now, lenders are very strict on loans, total verification is required. There are so many homes for sale that are not being sold, now Lenders are selling homes on-line by public auction. Advice, get a second job, rent out rooms not occupied and keep your home for the next couple of years. Do whatever it takes to keep your home.
Shame on all of us…Greed was the factor in this huge crunch. Shame on the Realtors that sold the homes for extreme commissions, the Lenders for the same. Shame on the all of us that took advantage of the free or easy money that we received to buy “things” that we couldn’t afford. Lesson learned from this experience: If you can afford it with the cash you “have” (in the bank), do not buy it…if you have to finance a large item, like a home, car or home improvement, make sure it does not take all your income, make sure you have reserves!