It's an interesting thing to watch a real estate "boom" develop in front of your eyes, like we did just 5 short years ago. We saw low home prices, plumiting rates, loan product for which almost anyone with a pulse could qualify, and a shortage of lots in many markets. This increase in demand and decrease in supply (number of buyers vs. available homes) mixed with the vehicle to get buyers into homes (affordable loans with flexible guidelines) put us at the crossroads of where flame meets gun powder.....BOOM. The problem with booms is that they always leave a mess in their wake.
Well, another boom is close at hand, believe it or not. Firstly, prices have shrunk back to realistic ranges. Rates are low and getting lower, and loan product will come around, albeit not as accessible as it was before. Secondly, with larger than ever numbers of buyers set to hit the market over the course of the next several years from the 80 million babies born between the late 80's and the early 90's, we will see a rush of buyers that would make San Fransisco's goldrush of 1849 look like a Monday evening at the mall. The last and final ingredient in the real estate powder keg is the most interesting...lack of supply. Developers across the nation have been faced with the lack of funding for even the most conservative land projects out there. Stymied by next to zero money for entry level subdivisions, which sell most dependably and which balance demand and supply, real estate is set to explode again. Demand will outrun supply in the one year it takes future development to go from concept to market. With demand high and supply low, home prices will skyrocket increasing speculation resulting in over inflation. Kablam? Pow? No, you're right, BOOM! In the seemigly natural cycle of real estate booms, 2003 through 2006 could be compared to a nuclear explosion.
In that vein, 2007 and 2008 could be considered the nuclear fallout. And, who might be responsible for creating this disaster? Lenders. How could lenders be responsible, you pose. Just as with any profession, the lending industry seems wooed by projects with higher prominence when the market is booming, approving funding for endeavors which only work during a booming market. And, some would say, justifiably so. After all, when would you prefer to loan money on an $800,000 vacation cabin, if it weren't during a boom? Never. The problem is that the entry level projects get overlooked during those times because lenders are chasing dollars instead of common sense. When the market starts to slow down and those $800,000 cabins aren't marching out the door with a mission, but, instead are sitting on the inventory list like lazy hound dogs with no coons to chase, what then? Suddenly, and it does happen quite suddenly, fear sets in with lenders and their data convinces them there are no projects out there worth lending money on, even if the market data says the the opposite. Couple that fear with the lack of access to money in the wake of taking back failing projects, and you have no funding for projects with promise. Let's hope the lessons have been learned by lenders before the next boom that seems to be on its way, or we might find ourselves investing in Geiger counters instead of real estate.
Well, another boom is close at hand, believe it or not. Firstly, prices have shrunk back to realistic ranges. Rates are low and getting lower, and loan product will come around, albeit not as accessible as it was before. Secondly, with larger than ever numbers of buyers set to hit the market over the course of the next several years from the 80 million babies born between the late 80's and the early 90's, we will see a rush of buyers that would make San Fransisco's goldrush of 1849 look like a Monday evening at the mall. The last and final ingredient in the real estate powder keg is the most interesting...lack of supply. Developers across the nation have been faced with the lack of funding for even the most conservative land projects out there. Stymied by next to zero money for entry level subdivisions, which sell most dependably and which balance demand and supply, real estate is set to explode again. Demand will outrun supply in the one year it takes future development to go from concept to market. With demand high and supply low, home prices will skyrocket increasing speculation resulting in over inflation. Kablam? Pow? No, you're right, BOOM! In the seemigly natural cycle of real estate booms, 2003 through 2006 could be compared to a nuclear explosion.
In that vein, 2007 and 2008 could be considered the nuclear fallout. And, who might be responsible for creating this disaster? Lenders. How could lenders be responsible, you pose. Just as with any profession, the lending industry seems wooed by projects with higher prominence when the market is booming, approving funding for endeavors which only work during a booming market. And, some would say, justifiably so. After all, when would you prefer to loan money on an $800,000 vacation cabin, if it weren't during a boom? Never. The problem is that the entry level projects get overlooked during those times because lenders are chasing dollars instead of common sense. When the market starts to slow down and those $800,000 cabins aren't marching out the door with a mission, but, instead are sitting on the inventory list like lazy hound dogs with no coons to chase, what then? Suddenly, and it does happen quite suddenly, fear sets in with lenders and their data convinces them there are no projects out there worth lending money on, even if the market data says the the opposite. Couple that fear with the lack of access to money in the wake of taking back failing projects, and you have no funding for projects with promise. Let's hope the lessons have been learned by lenders before the next boom that seems to be on its way, or we might find ourselves investing in Geiger counters instead of real estate.
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