The Brick Wall

In mid-August of 2007 the mortgage lending industry hit the brick wall of the monetary market’s adjustment to the risk of funding sub-prime loans. The adjustment, which had been widely predicted since March of 2007, was really not an adjustment so much as a cessation of lending. The difficulty for Wall Street was mixing sub-prime with prime loans in portfolios, and therefore not being able to really determine the value of a “package of loans”. That stark reality seemed to hit everyone at the same time, and the reaction was to stop lending. That led to a crises in liquidity in world wide financial markets, and central banks had to step in to “shore up” the monetary market’s so as restore confidence in the system. Following is part of the effect of the “Brick Wall”:

Mortgage lenders are severely hampered in their ability to make loans.

Realtors are finding it difficult to sell homes to those consumers that cannot obtain a loan.

Home owners cannot sell their homes.

Home prices recede as inventory piles up. (remember: The more of something you have, the less it is worth.)

Home Builders slow or stop building new homes.

Builders, lenders, title insurers, and real estate brokerages lay off employees right and left.

Looking at the Mortgage Finance Forecast released on September 19, 2007, by the Mortgage Bankers Association, the immediate future for the nation as a whole is not as bad as most people are believing today:

www.mbaa.org/files/Bulletin/InternalResource/56942_.pdf

Existing home sales will remain solid, if not quite at 2006 levels. Interest rates will remain stable for the next 18 months. Buyers will recover from the “Brick Wall”effect and return to the market.

The home builders however, have a problem. They are projected to sell 30% less homes nationally than at their peak in early 2006. I believe that to a large degree, the large national home builders lost their focus on home building and fixated on their stock prices. It’s not the first time segments of American industry have had that problem, it’s just very noticeable because home ownership is a big piece of the American Dream, and most of the public (and the media) notice the problem.

Next, in “Brick Wall 2″, we will examine just how the Denver market is affected by the larger market.

-that’s 30-

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content