Real Estate Lessons learned the hard way

First of all, Happy New Year! Now that the holidays are over, I am happy to resume writing again, and I was just waiting for the right inspiration to find something to blog about.

I just read one of the best, most informative, well written articles about the housing bust that has led to the subsequent credit market meltdown of 2008. As we must acknowledge in a new year-- out with the old, and in with the new. Still, I believe there's quite a bit to learn from the mistakes that were made that caused the housing and financial markets to crumble. The article from the Wall Street Journal, entitled, "Small House, Big Loan, Spells Owner Trouble" by Michael M. Phillips brilliantly details the multiplying domino effect of the "house of cards" that was created when easy credit allowed strapped homeowners (and home buyers for that matter) to overextend themselves to their breaking points. The story happens to take place (of all places) on the Hopi Reservation in Avondale, Arizona.

Here's a well know recipe for failure:

-Take one woman's financial struggle, and necessity to fuel spending by using her home as a piggy bank
-add a greedy mortgage originator who makes money only by generating new loans,
-throw in a bank that funds the loan then packages it and sells it off to foreign investors as "high quality secure" mortgage backed securities,
-mix in a ratings agency that uses SEC guidelines to rate the securities as AAA so investors are willing to take a higher risk for what they perceive to be a quality investment vehicle
-above all, bake in an oven with little to no government regulation and a ticking time bomb adjustable rate mortgage that will surely throw the "unsuspecting" homeowner completely off the financial Richter scale once baked
-remove in 6-9 months, and watch the homeowner become homeless and the investors' money evaporate!

You'll have to read the article to know how it played out, but I do feel that this article shows how greed and corruption caused the demise of our deregulated financial system to literally fall like a house of cards. Blame whomever you want (one editorial actually had the audacity to blame television itself, namely HGTV for the housing bust). But the result is the same- we have only ourselves to blame. Accountability, now that's a novel word for a new year! Hopefully we will learn from our mistakes and 2009 will be a recovery year for the real estate market.

Happy New Year to you. Please call me directly if you have any questions about the Tucson real estate market, Tucson home sales, or Tucson real estate in general.

Written by Sarah Ley,
BSBA, ABR, CRS, CHNSA
Realtor with Long Realty Company
www.sarahley.longrealty.com
sley@longrealty.com
(520) 404-0544