Another Real Estate market crash may soon be upon us...

     As the title of this post insinuates, I believe that we may be on the verge of another Real Estate market crash, despite the down market.  Our own fear or apprehension to participate in the market may end up being the cause.  Let me explain:

A brief history lesson
 
     Up until the mid 20th century, US Dollars were backed by commodities such as gold and silver and, therefore, had a finite supply.  Money could not be printed at will since it needed to be backed by these commodities which were finite.  The investors that withdrew all of their money from the stock market during the crash that caused the Great Depression were simply holding on to it rather than reinvesting and so the cash basically dried up.  The depression was caused by the fact that no money was being spent, and therefore, no money was made by the manufacturers to pay their employees.  Now, President Richard Nixon signed a bill in 1971 which ended the backing of US currency by gold and created a new system where the Dollar was backed by debt.  This is what causes the value of our currency to decline over time, also know as inflation.  This also means that there is no limit to the amount of money that the government may print in order to stimulate the economy or bail out banks or large car companies from their imminent demise, they may print at will. 

More recent history
 

     The stock market, as we all know, began to bubble in the 1990s due to the DOT COM craze.  It grew to it's largest point in history due to speculation in all these new companies and reached it's peak in and began to decline in March of 2000.  As a result of the declining market, many investors began pulling their money out which caused the market to fall even more and caused even more investors to exit the declining market. This mass hysteria caused the stock market to crash and lost many investors money that took their entire lives to save.

     As a result of the stock market crash, the government decided to lower interest rates in order to stimulate the economy and keep it afloat.  They had learned their lesson from the crash that caused the Great Depression back in the 1920s and 1930s when the problem wasn't the value of the US Dollar, it was the absence of the Dollar.  The lower interest rates caused many people that couldn't afford a home prior to this period in time to suddenly qualify and the buying began.  The banks, motivated to write as many new mortgages as possible, began allowing many very questionable buyers to qualify with interest only mortgages, adjustable rate mortgages and other loans with great starting terms, but unforseeable destructive terms later on, which is partly what caused the current recession.  Investors, seeing the feeding frenzy, began doing what they do best, taking advantage of the demand, and began buying up properties to flip.  With the motivation of buyers desperate to buy a home, demand was soaring and, therefore, prices soared.  When the bubble finally burst, many a homeowner found themselves upside down in a home worth half of what they had paid for it and an unmanagable mortgage payment.  Banks began to foreclose, prices dropped even further in response and we found ourselves in our current market situation.

The crystal ball

     Now, why do I believe that we are in for another crash?  Well, since the market is extremely slow right now, prices have stabalized and we are flooded with foreclosures that noone is buying, Real Estate investors are buying them all.  They can't resist the deep discounts that are available and the potential millions to be made from a population either too afriad to buy or waiting to buy because they think prices will fall further, and are therefore renting.  Now, as we discussed above, the government has flooded the economy with bailout dollars that didn't exist prior to the recent market crash and is currently in negotiations to raise the defecit ceiling to provide more money for the budget.  The resistance of the House of Representatives will cause the government to seek out other forms of funding, one of which will likely be income from raising interest rates.  When the interest rates bagin to climb, we who were waiting patiently for prices to fall further will make a mad dash to buy a home while they can still secure a 5 or 6 percent rate as the rate continues to climb.  Who will we be buying these homes from?  You guessed it, from the same investors that bought them all during the recession, who will now be setting the prices and creating a new bubble.  This bubble will inevitably burst causing another crash, quite possibly worse than the one that we're currently in.

      Will this new crash occur?  I believe it will, but I also believe that it can be prevented.  Participation in today's housing market will help to clear off the inventory of distressed property currently available and will help to stabalize the reeling economy.  Interest rates will likely still rise, investors will likely still sell, but the impact can be far less if buyers are already happy and secure in their deeply discounted property aquired through taking advantage of the current down market.


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The Folly of FSBO

     For Sale by Owner, or FSBO, has become a fairly common factor in today's Real Estate market.  Any Realtor can likely think of at least one FSBO that they've passed recently while showing other homes in the area.  Just a few years ago, homes were entering and leaving the market so fast that after taking a listing, a Realtor could easily have 10 offers on the home before they were even able to get a sign in the yard.  The bravest of homeowners could put a FSBO sign in their front yard and could be fairly confident that the home would sell pretty quickly.  They may or may not have found their buyer with the help of a Realtor, but they definitely had the market activity to do it without. 

     Today, the market is extremely congested with foreclosures and short sales.  The average seller, at least in my neck of the woods, has so much competition that, unless they have the luxury of spending every day advertising their home and the money available to spend on the marketing, will not stand a chance without someone to represent their interests.  Furthermore, the far fewer active buyers are working with Realtors, in most cases.  Where are the Realtors seeking out the properties to show to their buyers?  I'd be willing to wager that they aren't driving them around looking for FSBO properties.  With our responsibility to our buyer-clients, we'd be doing them a disservice if we weren't relentlessly searching our local Multiple Listing Service or Foreclosures.com or Homepath.com for the best possible house at the lowest possible price.  Unless one is paying to advertise in every media resource available, a FSBO likely has only the traffic passing by each day, mostly neighbors and their houseguests, to actually see that the property is for sale.  If you live on a dead-end street, you can imagine the additional hardship. Unless one owns their home free and clear, is offering it for sale at a huge discount, and has the advertising available to attract attention, a FSBO is a hard property to sell.

      To quote one of my favorite writers, "Pay your brokers well... If they are truly professionals, their services should make you money."  I like to add my own extension to Robert Kiyosaki's phrase, mine being specifically geared toward the current market, "Their services should either make you money or save you as much as possible."  I add my extension since many homes are being sold short, meaning that they are being sold below the actual mortgage balance owed.  A Realtor should be able to point you in the right direction to find the advice necessary to negotiate with the bank and reduce the amount of the difference that you will end up having to pay by as much as possible.  Furthermore, a Realtor earns their commision for marketing your property in whatever way necessary to get it sold in the shortest time for the best price.  This includes not only advertising your home for sale and listing it the MLS, but also negotiating on your behalf and with your instructions when offers come in.  I could go on and on about the benefits of the lockbox that a Realtor might put on your home, depending on the area, so that your home can be shown while you're at work or on vacation or otherwise occupied and unavailable to show yourself, as you would be in a FSBO situation.

     Bottom line: the market has changed drastically and what worked a few years ago doesn't work as well today.  This is a challenging time for a seller and the assistance of a Realtor in getting a home sold may mean the difference between a sale and a long and stressful process that ends in disappointment.  If you want your home sold, I advise that you at least speak with a Realtor and learn what services they have to offer.  If you are steadfast in your goal to sell your home FSBO, I would advise speaking to a Realtor and exploring the possibility of paying a flat fee to get your home listed in the MLS to at least improve your pool of potential buyers.  If you choose option number 2, make sure that you or someone else is available at all times to answer calls and make the property available when buyers come to look.  I wish you luck, I do truly hope that your property sells, as it will improve the market in it's own way.

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A few words about my fellow Bloggers...

     I'd just like to take a few moments today and write about how wonderful I feel right now due to some of my fellow Bloggers. Steve Harney http://kcmblog.com/ and Amanda Wilson http://www.amandajwilson.com have both given me the great honor of quoting a comment that I made and reposting my first post, respectively.

     I'm so very touched that others have found what I say interesting enough to repost on their websites, as I am that those of you following my Blog have decided to do so. I highly encourage all of my followers to also follow these two individuals, they have very interesting things to say themselves about our Real Estate Market and how to improve our current situation. Thanks to everyone, please watch for more quality content coming soon!