Thursday, June 5, 2008

There's No Shortage of Culprits in the Real Estate/Mortgage Meltdown

There's no doubt we in the City of Atlantic Beach, FL, along with the entire Jacksonville metro area, have felt the impact of what has come to be known as "the subprime mortgage meltdown."

You might be a homeowner who can't afford the adjusted payments on an ARM or wants/needs to sell, a REALTOR® who earns a living selling property in Atlantic Beach, a real estate attorney who had a large portion of your business in real estate closings, a contractor or subcontractor who provided services to home buyers and/or sellers, a surveyor or appraiser.

You may not be directly involved in real estate, but your finances may have been affected because all the people who do make a living in real estate - or are trying to sell their home - have less discretionary income to spend at your restaurant or your shop or for using your professional services.

Like you, I've read or listened to hundreds of articles and analyses regarding the current condition of the real estate and mortgage markets on national, state and local levels.

There has been finger pointing at almost every possible group responsible except one. Perhaps you've been one of the finger pointers. I was, too! Even Warren Buffet knows who's to blame. But the more I think about it, the more I conclude that all the usual suspects can take part of the blame, and I also include one lesser-blamed group: homeowners.

Which homeowners? All homeowners. The new homeowners who wanted to buy more than they could really afford, no matter the consequences down the road. The existing homeowners who used their new-found home equity as a cash machine to buys toys and trinkets, take vacations, or invest in speculative real estate, etc.

Today I read a great article in Townhall magazine that confirms the role of homeowners in the "blame game" - something we don't hear mainstream media talk much about. Unfortunately the article doesn't seem to appear on the Townhall website, only in this month's print edition. (You can sign up for a free subscription on the website- look in the left hand column.) The article is written by Terry Jones (Associate Editor of Investors Business Daily) and titled "Playing the Subprime Blame Game," and it squarely and accurately places some (well, ok, a lot!) of the responsibility for the current real estate and mortgage market correction on the shoulders of homeowners.

If you're a homeowner, maybe (hopefully) you were smart enough not to make the over-buying or over-refinancing mistakes.

Just like, if you're a mortgage broker or lender, maybe you were astute enough to see that customers would have problems down the road so you didn't offer them risky, "financing under any circumstances" loans. Maybe you didn't turn your head when your customers wanted to slightly overstate their income or understate their expenses, even if it meant losing the deal.

Or if you're an appraiser, maybe you were honest and conservative enough not to "stretch" the value of the home, even if it meant the buyer, seller or REALTOR® got mad at you.

Maybe you're an investment broker/analyst and advised against those CDOs for your client or employer's portfolio. Better yet, if you're an industry analyst, maybe you tried to warn the lenders and Wall Street about what might happen.

Finally, if you're a real estate investor (or wannabe) maybe you restrained yourself during the buying frenzy and bought only properties you would have bought anyway, or didn't buy real estate at all if you didn't know what you were doing, just "cuz everyone else is!" BTW - that's the very time not to invest! When "everyone" is doing it, and pretty much everyone was investing in real estate, that's equivalent to turning out the lights...the party's over and it's time to go home!

In any event, there are plenty of culprits to identify.

Let's stop finger pointing and get to the hard work of getting through the market correction.

Let's take our knocks, minimize them as much as we can, and go on about our business.

Let's hope the government doesn't get any more involved than it already has. Emergency assistance (read: bailouts) are for unpredictable (natural, terrorist, etc.) disasters, not for ridiculously optimistic people who thought real estate would continue double digit appreciation forever! And who's really getting bailed out, anyway? Seems to me it's less homeowner bailout and more (fill-in-the-blank) bailout. As Americans living in a free market, it's our legal and God-given right to live free in both our micro and macro economies. That means we are free to make choices and free to enjoy or suffer the results of those choices.

My guess is the next six or so months will continue to be slow, simply because we're facing that uncertainty that comes with a Presidential election. The signs of the times indicate improvement in the real estate market: job growth, low unemployment, continuing low interest rates, etc.

So let's forget about finger-pointing!

We can get through this by helping each other out.

So go on about your day and