Wednesday, July 23, 2008
Housing Market in Shambles
OK. This isn't really news. It isn't even an attempt to deeply delve upon the lessons learned by this crises. It is the most profoundly damaging business failure of our times, the root cause of the worsening economy. This devastating economic development is affecting the US, and by extension, the world's financial health. The housing disaster has it's epicenter in the Valley, and in some ways, it's roots.
What is so disturbing about the housing crisis is the ease of predicting that something might be wrong--back in the "good times". Politicians didn't have it in their interests to warn about future problems as they enjoyed the support that good economic times bring. Real estate experts all also happened to be real estate agents, who had it in at least their partial interest to drive up prices to take a larger profit with their percentage. Developers liked the rising real estate market and the ease of obtaining loans, as it both provided a larger pool of customers and an easier path to obtaining financing for their own projects. Economists often warned of the boom and bust cycle of the U.S. economy, but many thought it would be a gentle decline. Any economists that released information warning about the overpriced nature of the housing market or the dangers of variable interest rates were rebuked in the media by financiers and real estate agents.
Well, people don't by umbrellas until the rain starts falling. No one worried until interest rates had to rise, and people that had been paying $1200 per month were now told to pay $1800. Obviously, a significant number could not, and abandoned their homes to banks. As the number of houses defaulted on increased, lenders reexamined their practices, reducing the demand for the houses. As loans were no longer payed for and banks could not unload repossessed properties, less money was available for investment in business loans or stocks. All this has precipitated into a depressed economy.
The Valley's houses have been recognized as being some of the most overpriced markets in the country. A financially distressed area of California loses even more wealth. Investment properties were everywhere. Communities were planned that have yet to be built, despite streets and even large high schools being placed in the middle of vacant lots. Movement from the Bay Area into the Valley was unprecedented. Now, all of that activity is squashed. It is likely that more economic developments will further disturb the Valley, with job loss and a dearth of financial investment.
What is so disturbing about the housing crisis is the ease of predicting that something might be wrong--back in the "good times". Politicians didn't have it in their interests to warn about future problems as they enjoyed the support that good economic times bring. Real estate experts all also happened to be real estate agents, who had it in at least their partial interest to drive up prices to take a larger profit with their percentage. Developers liked the rising real estate market and the ease of obtaining loans, as it both provided a larger pool of customers and an easier path to obtaining financing for their own projects. Economists often warned of the boom and bust cycle of the U.S. economy, but many thought it would be a gentle decline. Any economists that released information warning about the overpriced nature of the housing market or the dangers of variable interest rates were rebuked in the media by financiers and real estate agents.
Well, people don't by umbrellas until the rain starts falling. No one worried until interest rates had to rise, and people that had been paying $1200 per month were now told to pay $1800. Obviously, a significant number could not, and abandoned their homes to banks. As the number of houses defaulted on increased, lenders reexamined their practices, reducing the demand for the houses. As loans were no longer payed for and banks could not unload repossessed properties, less money was available for investment in business loans or stocks. All this has precipitated into a depressed economy.
The Valley's houses have been recognized as being some of the most overpriced markets in the country. A financially distressed area of California loses even more wealth. Investment properties were everywhere. Communities were planned that have yet to be built, despite streets and even large high schools being placed in the middle of vacant lots. Movement from the Bay Area into the Valley was unprecedented. Now, all of that activity is squashed. It is likely that more economic developments will further disturb the Valley, with job loss and a dearth of financial investment.
Labels: California Central Valley, development, housing crisis
