Buyers! Buyers! Buyers!
Markets all function the exact same way – by the law of supply and demand. Right now the housing market is out of balance as we have more supply (excess inventory) then we have demand. We have more homes for sale than we have qualified buyers to buy them.
But there is a key word here that everyone needs to pay attention to and that is the word “Qualified”.
In order to be considered a true buyer, one must possess three qualities, one must be “ready”, willing” and most importantly “able”! With the term “able” almost being interchangeable with the word “qualified”. But there is one very subtle yet very important difference!
An “able” buyer has cash in hand. A “qualified” buyer has the banks cash in hand by way of a new loan commitment.
Right now in many markets almost half of the buyers in the market are “able” as they are cash investors, cherry picking bargains for investment. These are not the buyers that are going to go in and improve and preserve neighborhoods.
More often than not, as the number of investor owned homes rises within a neighborhood, the quality and stability of the neighborhood diminishes proportionately. Again – selling to investors is not the way to save neighborhoods.
The only way to save and preserve neighborhoods and restore home values within those very neighborhoods is by placing owner occupants in those homes particularly in the foreclosed properties that need to be renovated and cared for by a new family.
So this creates two problems now:
First there are not enough investors in the market to buy up all of the excess housing inventory and foreclosures. So the markets are still falling. (Not enough demand)
Second – these are not even the folks we want buying up homes as they will typically not improve the neighborhoods or raise property values – and usually they do just the opposite.
That brings us back to the “qualified” buyers – those able to get a loan to purchase a home that they will care for and live in. Exactly the type of buyers we want in the marketplace if we are to preserve neighborhoods and restore values. But where are they?
Let’s go back to the concept of ready, willing, and able. We have millions of Americans who are ready and willing. After all who doesn’t want to own a home of their own? The problem is “able” or more specifically in this case “qualified”.
There are millions of Americans out there who would love to own a home, but can’t because they are unable to obtain a mortgage under the current lending guidelines – most of which are being dictated by our government i.e. Fannie Mae, Freddie Mac, and FHA.
So creating more “qualified” buyers and thereby increasing demand for housing and stabilizing and restoring the housing markets is really a function of lending standards – which in turn are controlled by the federal government. So in fact – the government really can solve the housing crisis any time it wants to!
This is reality.
The argument you will hear against this is that the government cannot afford to do this. That is a lot of hogwash, for one twentieth of the money the government has spent bailing out the banks – they could have restored the housing markets.
If the people running our government had restored the housing market and values – the banks wouldn’t have had such losses and we wouldn’t have had to bail out the banks in the first place.
To put it quite simply: the government chose to ignore spending $1 for the real cure and instead spent $20 on snake oil that didn’t work anyway.
The real question is: who got rich selling that snake oil?
Would you like to know what the real cure for our housing market is?
Actually there are two possible cures and neither one will cost us poor taxpayers a dime.
Look for Part 2 tomorrow
Michael Krein
