According to America’s Watchdog (AW), the National Association of Realtors recently said that home prices will gradually start to increase in 2008. But in a Dec. 16 press release, AW emphatically asserts such optimism is just “another lie from a desperate trade group willing to say anything to improve sales for starving real estate agents.” Further, AW says, home valuations nationwide will decrease yet another 10 percent in 2008; in some markets like Southern California, there will be 15 percent decreases.
AW’s predictions are nothing new. The group and its National Mortgage Complaint Center have been warning of pending disaster in the real estate market for a couple of years, recently going so far as to say that the 2008 real estate market will make the 2007 market look like a “walk in the park.”
Few, if any, would argue that the real estate market is in crisis, and most lay the blame on sub-prime mortgages and predatory lenders. But AW says the crisis is more about banks, mortgage lenders and home builders inflating the values of homes than it is about sub-prime loans. No doubt home buyers are responsible for buying over their heads and falling for exotic loan offers and great sales pitches. However, according to AW, the greed of builders, banks and mortgage companies is the power that drove the real estate market to where it is today.
AW says that between 2002 and 2006, builders, bankers and mortgage companies were doing everything possible to get home values inflated, including telling real estate appraisers to either “come up with inflated values, or we will find someone else who will.” Once the appraisals were met, bankers and mortgage lenders sold consumers a bill of goods, claiming they could take advantage of “instant real estate equity” in their new purchase. What consumers didn’t realize was that their real estate really had no equity. In fact, consumers who bought new homes after 2003 possibly paid as much as 20 percent more than the house was actually worth.
AW goes on to explain: “What we find astonishing is the wizards on Wall Street dismissing the seriousness of the real estate/economic issues now facing the U.S. It’s not sub-prime; its value. If the 15 million U.S. homeowners elect to walk away, because they figure out its better than paying on an upside down mortgage that cannot be refinanced, a deep recession is assured and we are not sure how you dig it out of it. Big banks and mortgage lenders were pushing artificial valuations. So were the top 20 home builders. Pushing values happened long before sub-prime; it started back in 2002. The Fed cannot fix this, even if they lower rates to zero. Valuations will first have to arrive at the real world, before that happens. In the meantime pension funds and others are going to have to start wondering who will be able to pick up the bar tab, after all the greed related to the non-stop real estate happy hour that actually ended a couple of years ago. We don’t think even the federal government will be able to pay it.”
So what are some things consumers and homeowners should consider?
If looking to buy, don’t fall for exotic mortgage loan terms like “no points, no fees.” These are little more than gimmicks that can lead to higher monthly payments because of undisclosed kick backs to the bank or what’s called a yield spread premium.
If you don’t have to buy in 2008, don’t. If AW’s predictions for 2008 are accurate, it makes no sense to buy a house in January 2008 that could be worth 10 to 15 percent less by the end of the year.
If you have a pay option adjustable rate mortgage and cannot get your bank to give you a fixed rate mortgage without any catches, AW says you may be better off to simply walk away the home if you cannot make the payments.
If you have a home to sell, give serious consideration to renting it until the housing market recovers. AW estimates recovery will start around 2010 to 2011.
Press release, “Americas Watchdog Calls Federal Reserve & Bush Administration’s Attempts to Fix US Real Estate Market Disaster Too Little and Too Late; http://www.prweb.com/releases/2007/12/prweb576807.htm