This is a very unusual real estate market, and it is not like any market or cycle I’ve seen in 37 years in real estate. The market today is like a three dimensional market compared to past years in which the market was more like a two dimensional model. As a result, this is a very complicated market with more variables and uncertainty. Here’s what I mean. I count seven major factors that are in play.
First, we have never lived through a multi-trillion dollar mortgage debacle in the U.S. This is the result of many years of seeding the industry with artificially low government loan programs, no qualification loans, and loan to value ratios in excess of 100%. It’s also the result of inflated prices. And the secondary mortgage market and derivatives all played a major role in this disaster.
Second, we are living in a real estate market that has never seen this many foreclosures. This is partly the result of the excesses in the mortgage market, but it’s also a function of unemployment and reduced home values. Many struggling families have given up on homes that are upside down. In addition, some banks have been paying out billions to victims of illegal foreclosures. Politicians once again are passing laws to save us. Many of these new laws are not really helping the intended victims.
Third, new lending standards are hurting rather than helping qualified buyers. Underwriters are making irrational decisions based on pressure they are receiving from regulatory agencies and frivolous lawsuits.
Fourth, overlapping with the problem in changing lending standards are the problems in the appraisal industry. Like the mortgage industry, there were appraisers involved in fraud, and a host of new laws and rules and regulations in the appraisal industry that have unintended consequences.
Fifth, the banking industry is in chaos on loan modification programs. There are numerous programs that are constantly being adapted in this rapidly changing landscape as politicians, who do not have much experience in the mortgage or real estate industries, draft more laws.
Sixth, short sales are another entire industry, and talk about chaos! This real estate blog talks about each of these problem areas over the past few years, and one area I’ve written about that is in so much chaos is short sales.
The Dynamics of This Real Estate Market
Seventh, the U.S. has never had to build a national industry for short sales, a whole new set of laws and procedures for the mortgage industry and the appraisal industry, an entire system with multiple dimensions to handle millions of foreclosures, administrative rules to oversee all of these industries within each sector, and State and Federal agencies to create new procedures and requirements, written by people who are creating something new with little guidance from history. We’ve never been here before. Then there is the little problem of coordinating all of these various industries in some cohesive way in the real estate market.
No wonder this real estate market has been struggling to recover. I believe it will struggle for quite sometime, but it doesn’t mean sellers cannot sell their homes.
Real Estate Market Still Has Buyers
There is good news. Buyers are still buying in Sequim and Port Angeles, and there are qualified buyers who can either pay in cash or qualify for a loan with a large down payment. Sequim is one of the “10 Best Places to Retire” in the U.S., and retirees all around the country have learned this and are planning to move to Sequim on their own timeline. For many retirees, that timeline is now. This is good news for Sequim and Port Angeles, and it’s what strengthens our local real estate market.
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