Most everyone saw it coming. This was not normal supply and demand influences on real estate values that happens in cycles. This run up on home values- driven by the wide availability of credit, opening the housing market to more buyers than could be supplied, compounded in layers like a house of cards. With double digit appreciation on an annual basis, it looked exactly like a bubble. It is funny on the heels of the .com stock market bubble that investors were wilding climbing onto the crest of this wave instead of running for cover! The more things change, the more they stay the same. There are rational steps to take when recognizing a bubble, but bubbles are themselves effectively irrational.
I can not begin to pinpoint blame. I honestly believe there were so many layers this bubble was built on that even as we stand with hindsight it is difficult to decipher what we are looking at clearly. It is so enormous! The reverberations from this mess are being felt worldwide and it may help to remember what history has taught us.
Markets ordinarily move in cycles. While these are not ordinary times as far as the scope of this cycle, it is yet another cycle. Banks are traditionally conservative and weigh risk with reward, but these were not all traditional banks! Bubbles create huge incentives for short term rewards, with little consideration for risk. Bubbles create frenzy, and there is nothing logical derived from frenzy. There have always been cycles in the market and often they are accompanied by a bubble, but we continue to move from one cycle to the next.
Timing is everything. It is easy to get crushed by the rush of overzealous investors in a bubble unless you time it just right. Many started to recognize the bubble in financial stocks as early as 3 years ago, but their rational instincts were punished by pulling out too soon. Those who held on through 2007 were more profitable- until the bubble burst. It is hard to outsmart the illogic of a bubble.
Real Estate is just that-Real. Even the bad loans are not worthless because they are attached to something very real and everyone needs a place to live. Although there are true losses and the credit system is due for a major overhaul, there is hope! Our houses do have value. We must be vigilant, however, in taking care that the ‘fixes’ are not so derived from panic, equally as powerful as the bubble itself, they result in anything as extreme or irrational.
I must add a few words in defense of my profession. Mortgage brokers are in general consumer friendly and cost effective. The banking system is in a battle to survive. Being profitable is their only interest. Brokers are able to take the borrowers best interest in mind. With tighter restrictions and multiple guideline changes, brokers are able to provide more competition among what appears to be a small monopoly of surviving lenders and place borrowers with the right match. We do not add a layer to the cost of your loan, and by being able to shop among the wholesale rates can typically save you and the lenders money. Brokers do not provide loan approvals or loan products. They are responsible only to facilitate the transaction. Mortgage Mart, Inc. is celebrating 20 years in the industry and we have over 30 years combined lending experience. Recently e-loan stopped doing mortgage lending. That speaks volumes. I believe it takes more than a good web-site and mortgage software to close a loan. It takes someone who can get the job done!! I look forward to working again with you or anyone you know who may need financing, or may just have questions. I love to help.
Deb Dickason Mortgage Mart, Inc. 206-686-4441 www.mortgagemartloans.com 510-MB-20034 Designated Broker
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