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June 23rd, 2011 9:00 AM by David W. Welch
One of the reasons I went into real estate was the relative immunity it had to recession. Nothing is recession proof, but basic necessities like food and shelter come as close as you will get. You can argue with me, but the fact is you have to live somewhere. If things are going well you might make a move up, but if things are not going so well you might be downsizing. Then along came the great recession and challenged everything. As a business, real estate became a whole lot more challenging. Of course, even during these tough times there are agents doing very well selling distressed properties. Still real estate has been in quite a bad state for some time. I would argue the great recession was cause to a great degree by real estate, and so real estate is a good place to start pulling us back out.
To do this, economic policies have to work together to make it happen. There are three keys to these. Fiscal, monetary and lending policies need to encourage a real estate turn around. I am not going to get into the details of fiscal and monetary policy, because they have been geared toward stimulating an overall economic recovery. They have not been terribly successful for several reasons, but the one I am concerned with for this post is lending policy. We have all heard of too big to fail as it relates to Fannie and Freddie, and many of us are probably a bit fed up with them. However, the lending policies established by them are key to turning around real estate and our economic recovery.
While fiscal and monetary policies have encouraged a huge decline in borrowing costs and pumped hundreds of billions, even trillions of dollars into the economy, lending has been pretty tight. Now is not the time to tighten lending when prices are so low and inventory is so high in many areas. The time for tighter lending was six years ago when housing affordability was at an all time low. Home prices have more than corrected since the big run-up, but many buyers are finding it difficult to purchase, because they cannot get financing. Investors and speculators had a lot to do with the big run-up in prices, and were equally responsible for pulling the rug out by walking away when the market got too high. Now, they are coming right back in and purchasing a huge percentage of the available inventory at much lower prices. Meanwhile, the percentage of first time home buyers is way down. Loosen up lending policies, and watch real estate begin to recover.
David Welch Real Estate Optimist, Orlando Real Estate, Any Home-Any Phone