In a 2005 meeting between economists and then Federal Reserve Chairman Alan Greenspan as the housing market was continuing to inflate a chief economist named David Stockton remarked about how he had come across a television show where the “gist of the show was that with some spackling , a few strategically placed azaleas and access to a bank, you too could tap into the great real-estate wealth machine. It was enough to put even the most ardent believer in market efficiency into existential crisis”.

See Huffpo article- Fed Economist to Greenspan in 2005.

As a viewer of that program and the many others like it I have to agree. At the time I can recall being absolutely flabbergasted that an 800 sf home in California somewhere sold for over $400,000.00 after repairs with profits of about $150,000.00 for the investors. Or another one that was purchased for around $400,000.00 and some odd and sold later for over $1,000,000.00 It seems it was always a shock if they sold and the ones that didn’t sell were the only ones that really met expectations. If you ever watched it, you have to admit that it was insane ridiculous.

With that kind of insanity going on, what did we all expect?

While the housing crisis has been painful for many, we all need a place to live and having to pay over $400,000.00 for 800sf of living space could never be sustainable long-term (at least not now….wages would have to increase dramatically!)

And the bubble finally popped.

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Real Estate analysts from RealtyTrac Inc. are predicting that 2011 will be the height of the Real Estate crisis with an expected 1.2 million homes being repossessed. Lenders are poised to take back more homes than at any other time since the crisis began in 2006.

At this time there are 5 million borrowers who are at least 2 months behind on their house payments and in the month of December 257,747 homes in the United States received at least one foreclosure-related notice.

While the pace slowed during the last quarter of 2010 due to the banks reviewing their foreclosure processes because of allegations that they had been handled improperly, most evictions have been resumed and the foreclosure numbers are rising steadily.

The good news is that it is expected that the worst will come this year in 2011 and then things will pick up again. Whether prices will come back though is another story.

See Banks repossess 1 million homes in 2010.

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Check out this Huffington Post article which highlights 10 places where real estate prices were at least 30% of the inventory on the market slashed their prices.

If you’re looking for a Real Estate bargain, it’s definitely a buyer’s market in most places across the U.S.A.

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James K. Galbraith is the author of “The Predator State: How Conservatives Abandoned The Free Market and Why Liberals Should Too”. He is a professor at the University of Texas At Austin.

He states in an interesting Opinion piece at CBS news, “Banks Still Stand In Way Of Full Recovery” that at its deepest level the worst economic recession since the Great Depression was caused by a “breakdown in the rule of law” and that the first step toward prosperity is to restore the rule of law in the financial sector.

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Of course, the politicians have it all figured out. The current economic recession, that is.

The Democrats know that it was the greedy Wall Street bankers, Goldman Sachs in particular.

And the Republicans know that it was the government’s fault, meaning Fannie Mae and Freddie Mac.

The Libertarians think we need to just stop all of the “Big” government, of course.

And the Tea Partiers…….well, no comment.

But what if it is not so simple. What if it was all those things and more? With all of the bankers, traders, politicians and even the subprime borrowers playing their part in the tragedy?

In a new book “Fault Lines: How Hidden Fractures Still Threaten the World Economy” by Raghuram G. Rajan, an economist at the University of Chicago’s Booth School of Business, outlines how all of these factors played a part and how ultimately the problem was the widening gap between the rich and the poor and the use of the credit markets and unrestrained credit to bolster the people on the lower end of the income spectrum caused the widespread financial calamity that we are in now. In a catch phrase from the book “Let them eat credit”.

You can read an Interview with Raghuram G. Rajan here.

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Visa, Inc. has reported that second-quarter profits increased 33% over last year as the U.S. credit card spending has climbed for the first time in over a year.

Net income for the first 3 months of 2010 was $713 million or 96 cents a share compared to the 2009 income of just $536 million or 71 cents a share.

Credit card spending in the U.S. grew 15% in the first three weeks of the second quarter compared to the same period in 2009. Use of debit cards increased 22% and credit cards advanced 7%.

Economists are looking at this as a positive sign of the recovering economy.

Source- Bloomberg Business Week

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The richest of the rich with the highest mortgages are expected to see a sharp rise in foreclosures during 2010, thereby joining the middle class and even the poor in a situation that nobody wants to be in.

In the year 2009, there were 1312 houses with a mortgage of over $5 million that went to foreclosure auction. This year in just the month of February alone there were 352 homes scheduled for auction.

The overall numbers are rather small, however, the overall numbers of these types of loans are also small. There are not too many single family home mortgages over $5 million. And comparatively the current delinquency statistics are even higher for the high-end mortgages than the average mortgages.

According to economists the super-wealthy are the last to lose their homes or suffer the consequences of a bad economy because they usually have a higher rate of savings along with better access to credit and so forth. However, the rate of default is higher

Check out this article from the Wall Street Journal for more information.
And another one here, The Rich Are Different…

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In the late 1970’s interest rates were high, really high, about 17% or higher.
At the time I wasn’t old enough for it to really affect me, rather I was just old enough for it to scare me into thinking that my generation would be the first generation that could never buy a home, car or whatever. But it didn’t happen. All that catastrophic thinking added up to nothing. Isn’t that usually the way it goes?

Times changed and for the past 30 years Americans have enjoyed exceptionally low interest rates and even some times of loose lending standards. However, that bubble seems to have popped. Perhaps those loose lending standards were too loose there for a while. But no speculating on economics or politics or whatever, I’m sure we all have our opinions of how and why and whatever.

Now it seems that the recession is over. Yes, I know we still need jobs to come back. Yes, I know the real estate markets across the country are still plummeting. Yes, I know that there are millions of foreclosures and delinquencies in all the credit markets. But economists and the people who watch and chart such things say that we have stopped the decline and we are actually seeing some growth, which technically means that the recession is over. Well, that is good news.

However, now some top economists are predicting another financial woe. In fact, many say it is inevitable. Economists are predicting that interest rates will start to go up, and up, and up.

Who is to say how far, how much?

They say it will likely first hit the housing market. Okay. With all of the excess inventory that is on the market that can’t be good, can it? Actually they say it may have already started (?). The rate for a 30-year fixed rate mortgage is up half a point since December, at 5.31%. That makes it the highest it has been since last summer. Yes, the interest rate is up comparatively, but…

At 5.31% it’s nothing compared to 12%, 13%, 17%. Yes, when it got that high is when we started seeing those negative amortization loans. And those were nasty. Nasty is actually one of the nicer words to describe a mortgage where you ended up owing substantially, yes, substantially more on the loan than you paid for the house in the first place, with zero benefit for you, the consumer, except that it was probably the only possible way that a lot of people could even get into a house at the time.

So interest rates may be going up, or not.

I’ll check my crystal ball and let you know what it says.

In the mean time you can read this article about the potential bad news about interest rates.

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The total delinquency rate for non-mortgage or real estate related credit decreased in the final quarter of 2009.

Improved consumer spending along with modest job gains has many economists feeling optimistic about the recovery of the economy.

However, even with delinquency rates on the decrease they still remain high from a historical perspective. A composite index of delinquencies in all categories was 3.19% whereas, prior to the fourth quarter of 2008, the number had not exceeded 2.9% in over 20 years.

Unemployment still remains high and despite some significant gains in March the unemployment rate still remains around 9.7%.

See Survey: Fewer consumer loans are being paid late.

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Is real estate a local business driven by local conditions or does the national economy affect it? Do weather conditions play a factor? What about restrictions on building and construction?

For an interesting look at the potential trends in real estate see “Hometown Boom?”

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