Understanding The Real Estate Crisis - Part II
Reader feedback is the heart and soul of the Tallahassee Real Estate Blog, and today we'll focus on a lengthy reply to perhaps the most trafficked real estate blog that we have posted in over a year. A little more than a month ago, I wrote an analogy of the current real estate market entitled "Real Estate and Lemonade" and we have seen over four thousand visitors to this article thus far.
Recently, reader "Lopez" wrote a long comment to "Real Estate and Lemonade" which can be viewed by clicking on the link and then scrolling to the bottom of the page. Rather than list the comment in its entirety, I have copied a few clips and provided my thoughts.
Respectfully, I think Sr. Lopez and I operate off of two very different sets of beliefs. So, by the numbers, let's see where we agree and disagree. He says
you compare people short selling to somehow cheating. ie, not paying off the loan in its entirety is somehow unfair... So what you're saying is that the banks themselves aren't somehow cheating in the first place.
I disagree with your interpretation of what I wrote. I compare people who are selling short with people who have the advantage of not selling for value or profit, but rather liquidation. My analogy poses "Jack" as the typical homeowner, whereas the "niche" marketeers are ones who do not have an investment in the selling process (they are able to sell below their cost).
The real problem here is that all the other kids in the neighborhood figured out a way to make lemonade without becoming indebted to the banks.
I do not understand how Sr. Lopez leaps to this point. In my analogy, Jack was focused on profit. He wanted to buy the ingredients to make lemonade and then sell it for more money than he invested. At no time in the analogy did I say that he borrowed money from banks to make his lemonade, for it was not germane to the analogy. This is a leap that Sr. Lopez makes so that he can digress and discuss his opinions of capitalism, the Bush administration, and his apparent disregard for people in the banking industry.
If the bankers had to go out and get a real job, ie, actually design or build a house, or farm a crop, or cook some food, or anything besides sit in an office and play with pencils and imaginary numbers contributing nothing real to society, then the dreamers and workers would be equal.
Apparently, Sr. Lopez has had bad experiences with Bankers and does not appreciate their position in society. I do not see where this actually fits in to the discussion or the analogy. I have worked with enough bankers (lenders) to tell you that I have a great respect for their impact on business and the economy. Without loans, only the wealthy could undertake most business endeavors, and only a small portion of society could own a home, with those less fortunate having to rent from the wealthy forever.
So, for those of you who have read the real estate analogy from the past blog, I'd love to see if your interpretation was the same as Sr. Lopez. If not, what did you gain from it? As a summary, here is the message that I had hoped the analogy would deliver:
- The Status Quo has changed. What a home used to be worth matters very little to a market with a glut of supply.
- There now exists a Niche Market player who can sell homes for less than they paid with little to no personal ramifications. This niche market can be viewed as "distressed properties."
- This has caused a Market Shift where normal homeowners cannot compete with the prices set by the niche market.
- There is now an Over Saturation of homes on the market causing extreme pricing pressures on all home sellers.
- External Pressures have caused many to take a "wait and see" approach, thus extending this problem into the indefinite future.
- Consumption of homes through the Obama Stimulus Program and incentives were applied to heal the market.
- Rebound will occur once the glut of homes returns to a market equilibrium, where the balance of supply and demand return to a "normal" level.
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