Economics 101 - A Non-Economist’s View Of Real Estate Today!

Jim Walberg’s viewpoints regarding key factors impacting today’s real estate market results!

There are non-stop changes happening in residential real estate - locally and nationally. Also, there are a multitude of factors that are involved in the current condition of residential real estate. If one does not understand these factors then they will be stuck in the mental state of a “victim of the market”, or they will decide to be “paralyzed from taking action”. Neither of these conditions will have a positive outcome. Here are some of the pieces of the puzzle that need to be examined. The observations are being done by a non-economist - me.

Mortgage Industry: In the past 18 months over 250 mortgage lenders have closed their doors. The result for the consumer is that there are VERY FEW choices left for securing a home mortgage. In fact, the two emerging key players are Freddie Mac and Fanny Mae. The remaining few banks and mortgage lenders have been badly damaged financially from the poor decisions they made in making the wrong bet on lending products and the belief that future appreciation would support some of the “creative” interest only and/or negative amortization loans.

The result of the condition of today’s mortgage markets is an atmosphere of fear and over reactions as to who can be granted a home loan. It is as if they want your first born child pledged as collateral before a home loan will be granted. You had better have a GREAT credit rating and real money for a down payment if you want to purchase a home.

The good news within the remaining lenders is interest rates are still relatively low, even though they are contrary to what is happening with inflation rates - the highest in 20+ years! What this means to me is that interest rates will adjust higher before the year is over, maybe right after the election. The Feds may want to defer any more bad news regarding interest rates until a new president is elected. They will let him deal with the realities of rising inflation rates.

Consumer Fear: Remember my definition of FEAR? False Evidence Appearing Real. It has been a long time since home prices and interest rates have been so favorable. If this novice economist is correct, a real Buyer needs to lock their loan today and purchase a home. If a Seller does not need to sell their house they need to wait until a clearer picture of the future economy unfolds. If a Seller needs to sell their home today then do it NOW!

World Issues: What is happening in our local and National economy is not happening in a vacuum. We are in a World neighborhood where what happens in oil markets of the Middle East impacts the Bay Area. What is happening in Georgia, with the Russians in charge of their country because they want control of the oil pipeline running through Georgia, is impacting the economy of the rest of the world. What is unfolding in China and India as major consumer of oil within the next few years will determine the price of our oil no matter how much the U.S. can come up with conservations numbers.

So, are you getting a BIGGER picture that is causing your brain to take a moment to consider the issues that are impacting real estate and all other factors of our economic lives? I hope so. I welcome any of your thoughts about the experience you are currently having, and maybe even expressing what some of your fears are for the future. Until then…I promise to not stop keeping an eye on real estate and sharing my thoughts.

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