I’ve been waiting for the housing crash for awhile. I’m not an expert, but it has seemed to me that we have:
- a lot of empty existing units;
- a ridiculous excess of new units being built;
- absolutely insane financing deals being offered; and
- accelerating foreclosure numbers.
In other words, a perfect storm is brewing.
This has been especially true here in Denver, where despite dangerously high foreclosure rates and significant empty inventory levels, they seem to build a new suburb every week. To make matters worse, even a novice like me can smell disaster in the wind when I start hearing ads on the radio for 50-year mortgages and sub-interest only financing. We’d love to buy a house now that we’ve decided we’re going to be back in Colorado for good, but buying right now seems like suicide.
Well, the bubble may be finally be bursting. Bonddad, who knows this stuff a lot better than I do, sums it up:
Basically we have a glut of homes on the market and have had a glut of homes on the market for some time.Starting is say mid-2004 lenders started to get really aggressive in lending to people with bad credit. The basic issue here is lenders had pretty much exhausted the pool of solid credit risk, but lenders still wanted to make money. Hence, the easy liquidity.
Now lenders are returning to “prudent lending standards”, basically meaning they are returning to the traditional way to doing business. That means concepts like a track record of paying bills is now important again.
So let’s add all of these factors together.
— Inventory of new and existing homes is incredibly high
— Lenders are tightening Credit standards
— The pool of good mortgage risk is small
That means the housing market is going to be facing a terrible remainder of the year.
I guess my layman’s sense is that a correction has been due. But can we get a healthy correction without triggering a nasty recession?
Guess we’ll see. Meanwhile, we’re going to rent for another year or two, if that’s okay with everybody…