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Housing Crisis Over? Hmmm.......

by Jeremy Larkin

I just came across a very interesing Wall Street Journal opinion column titled as much: "The Housing Crisis Is Over," stating that April 2008 may have been the "bottom" of housing crash that started in late 2005. A pretty wild healine indeed, yet if you take the time to read it I think you will see that this guy's opinion is largely based on fundamentals, not just the wishful thinking of another housing crash victim.

Let's just say that he is right.....prices should start coming back, right? Not so, says the writer: "For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor."

His logic is based on the following key points:

  • The current housing bust is nearly three years old (no longer a new thing)
  • New home sales are down a staggering 63% from peak levels of 1.4 million & ousing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
  • Residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever.
  • The very same thing that caused the bust will bring it back to life: Affordability. 

"Mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in."

I see some major logic in this guy's argument, and he certainly supports my personal theories that even if sales do increase, values will take a LONG time to recover. (See http://www.gostgeorge.com/blog_post.asp?post=14411)

By posting this I don't for a second imply that I agree with this opinion, but it makes for great conversation. What do you think? Somebody give me their take on this thing!

CLICK HERE FOR THE ENTIRE ARTICLE

FED Shut-down of ANB Perpetuates "Smoking Gun" Theories

by Jeremy Larkin

In case you didn’t know it already, Federal regulators shut down ANB Financial National Association banks (a.k.a “ANB”) last week after discovering "unsafe and unsound" business practices there.

 

If we were living in the gun-slinging Wild West as portrayed in the old John Wayne films, I think ANB (Arkansas National Bank for those who aren’t aware) could have certainly been considered an “Outlaw.”  Those who know anything at all about them today know that they were considered heroes during the real estate boom, yet in the nearly 3 years of decline since then there have been few kind words for their “aggressive” lending practices.

 

As a matter of fact, I have heard MANY very influential people, especially those in the banking industry, make fairly strong comments to the affect of ANB being one of the key “culprits” in creating the real estate troubles faced in Washington County today. Why?

 

Well for starters, because they didn’t lose $100 Million (wow) last year because their clients were writing bad checks. They lost it because they, like many others, appeared to be handing out loans like $.10 Oriental Trading Company party favors. Many in the community feel that the ANB’s of the world were fairly frivolously processing loans for too many people who had no business being in the business. And yes, there were many who did. I like to refer to it as the “$1,000,000 spec home loan on an $80,000 Income.” Looking back, it doesn’t make much sense, does it?

 

Personal Responsibility?

So it begs the question: can any ONE lending institution be solely at fault? Of course not. However, can any ONE lending institution be largely at fault? Who knows? But with ANB’s shut-down last week ‘smoking gun’ theories will be perpetuated, and a lot of people will say they “got what they deserved.”

 

It also brings up another interesting twist that many of us didn’t consider: guilt. As local commercial broker Graig Griffin so nicely put it in his recent blog post for Utah CEO Magazine, “There is no question that greed played a role in the rise and fall, but I did not expect remorse — no, this is real guilt.”  Me neither, but I guess I’m not surprised.

 

I think this is another “personal responsibility” issue, quite frankly, and our Nation’s economy is being torn to shreds because of the general lack of it. Everyone wants to point fingers, place blame, search for the “smoking gun.” The smoking gun is, quite simply, in the hands of the entire greedy public. We may all be to blame for the emotional wave of speculation and property appreciation, (which was largely smoke and mirrors we are finding out), that went on in recent years.

 

I guess we should have all seen this coming, but as I wrote in an earlier post this week, the prospect of easy money is so seductive that most people just ignore the obvious writing on the wall, or perhaps they just can’t read it?

 

Thankfully, FDIC will be insuring those who had deposits of less than $100k, and Little Rock’s own Pulaski Bank should be assuming all loans, but it doesn’t change the fact that a lot of people got themselves into some pretty stupid loans in the past few years.  I’ll bet a lot of starving spec builders are now wishing they would have taken the time to read the “fine print” on the walls of the real estate market some 3 years ago. What do you think?

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Jeremy Larkin - The Larkin Group
Keller Williams Realty
50 E 100 S, Suite 300
St. George UT 84770
435.767.9886
Fax: 435-359-5085

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