Best,
Aklile

“When economic reality hits, the banks panic; ……”

Thank you, for your informative and timely article. The last statement is the main point to all of these problems. The headline news about City Bank, Country Wide, Merrill Lynch, and other big banks that were involved in sub prime loans makes it difficult to buy a house in the current market, especially if you are a first time home buyer with low FICO score.

I am a real estate professional. For me it would be easier and practical to talk about inventory, foreclosure and housing cost. Choosing from the vast numbers of empty houses makes it easy to choose and get a good deal. Two years ago, purchasers would be in line to buy new houses/condos development or sellers would have four or five offers above the asking price. Always the big question is, when is the right time to buy a house for first time purchaser and investors? Always, I tell my clients a quote that applies to any kind of investment properties that a smart business man said “Buy low, sell high”.

Other advantages, from public information, are there are now more homes in foreclosure than there have been in the past 40 years. At the same time super-low interest rates make it easier to make the right choice.

Just to add some statistics that are essential to know: According to the Federal Reserve, there are 128.2 million total homes in USA and the current value of residential housing is about $21 trillion. With this in mind and the population growth that are stated in the Mesfin’s article, housing is one of the best investments.

Thank you,
Aklile

As to the write down by the banks, what is really compounding the problem is the fact that many banks hold in their securities portfolio mortgage backed securities. Even if the securities are performing well, the fact that market uncertainty has created very low demand for such securities, the market value of the bonds declines. Further more, there is a lack of liquidity for such bonds when the investors ( banks) try to sell them in the open market; which of course, drives the value even lower. Then the accounting rules kick in, which forces the banks to write down the value of those securities to the net realizable value. Therefore, when you hear of write downs, it does not mean write down due to foreclosures only.It is the fact that the banks are forced to write down the securities in their portfolio that is creating the big losses.

Have we reached the bottom? I do not know if we have reached the bottom. My sense is that we are going to over correct some more before the values stabilize. We may not have much further to go. My guess is now is a good time to buy even if there is some more correction. When the market stabilizes, the likely hood is that it will bounce back about 20%; thereafter, you may have a more traditional real estate environment where the appreciation rate may be in the 3% to 4 % range per year.
keep in mind that in the last 60 years, the US population has increased from 136 million to 300 million! The next 30 years is expected to increase by another 100 million. As long as population growth creates demand, the trend will always be upward for real estate values.
If you have a time horizon of 5 to 10 years, it is time to buy now.
Hope this is helpful,
Best wishes,
Mesfin Ayenew

But right now, how do you know we’ve reached the bottom of the market? Prices might still be undergoing correction as banks still haven’t finished coming out with their billion dollar write downs. And how long do you have to wait for the market to come back up again so that you can make your healthy profit? Questions to consider before making your move.

Mesfin, aren’t you in real estate? Don’t you own/run http://www.hagerstownestates.com/? I am slightly surprised that your intimate background in real estate has not been made clear by Tadias. Anyway, interesting article. Looking forward to reading more from you.