We’re bombarded with tales of the new normal. These narratives focus on the scary notion that unemployment and economic growth levels might stagnate right where they are today and stay there forever. But we’re also hearing about the people who make up the new normal. In just the last couple months of REALTOR® Magazine’s Daily News items alone, headlines question the opportunity the future holds, thanks to shifting demographics and changes in people’s economic values:
- First-Timers Make Up Smaller Share of Buyers
- Millennials Will Become Home Owners Later
- Financial Crisis Sparks Housing Commitment Phobia?
- Did the Housing Crash Affect Home Ownership Views?
Just last week we learned that the word “underwater,” as pertaining to home value vs. loan amount ratio, was added to the Merriam-Webster dictionary. Was there ever so concrete evidence that the Great Recession has entered our cultural lexicon?
Perhaps American consumers are entering a new phase. But is that necessarily a negative thing? And are you ready for it? Continue reading »
By Brian Summerfield, Online Editor, REALTOR® Magazine
Of all the books I’ve read that attempt to get at the central causes of the economic downturn, Matt Taibbi’s Griftopia (Spiegel & Grau, 2010) is the definitely the most vitriolic. It’s also the funniest, and the author’s humor and flair for language help push the reader through complicated, often depressing subject matter.
Interestingly, Taibbi draws many of the same conclusions about the financial meltdown of 2007-08 that Michael Lewis did in his book The Big Short — chiefly, that the system wasn’t brought to the brink by a few bad apples, but rather by extensive rot in the tree itself.
The main difference between his book and Lewis’ is that Taibbi covers a lot more ground. Whereas Lewis offers corresponding narratives of a handful of investors to explain why the financial system collapsed a few years ago, Taibbi focuses much more on the big picture, exploring complex business, political, and regulatory problems that have affected the U.S. economy for decades.
Taken together, these books can give anyone a comprehensible explanation of not just the recent financial crisis, but also how economic bubbles get inflated, then popped.
FROM THE BOOK: 5 LESSONS FOR REAL ESTATE
▪ Predatory lending is real: Although he generally doesn’t get into the impact of these macroeconomic issues on individuals, Taibbi does recount the interesting story of Eljon Williams. An African-American sheriff’s deputy from Dorchester, Mass., Williams owned a three-flat and rented out two stories. One day, he heard a “mortgage expert” on the radio talking about scams that targeted minority home buyers. Williams contacted this man, who then reviewed his mortgage and actually did find some irregular fees. Naturally, when Williams later sought to move up to a two-bedroom single-family home, he sought this individual’s help. However, despite Williams’ insistence on getting a fixed-rate loan, the man put him in an adjustable-rate mortgage. When Williams demanded an explanation after receiving a notice that his monthly payments were going up, the guy initially dodged inquiries, then disappeared. The reason Williams and so many other home buyers were put into ARMs, sometimes against their explicit wishes, was the fact that loan officers collected bigger fees on these loans than the standard, 30-year fixed mortgages. Continue reading »
By Brian Summerfield, Online Editor, REALTOR® Magazine
Following the subprime mortgage meltdown in 2007 and subsequent housing crisis, the line from most commentators was that no one saw it coming. The near-collapse of finance and credit in this country was like a bolt from the blue. Who could have possibly predicted it?
Another bit of post-meltdown conventional wisdom was that all the parties involved — Fannie and Freddie, government regulators and policy makers, Wall Street’s biggest banks, investment ratings agencies, mortgage brokers, borrowers, and even real estate practitioners — played some part in the collapse. The overall system was more or less healthy, but the selfish and shortsighted decisions of some “bad actors” from all of these groups led to market failure.
Michael Lewis, acclaimed author of Liar’s Poker, Moneyball, and The Blind Side, offers a contrarian perspective on both of these phenomena in his most recent book, The Big Short: Inside the Doomsday Machine (W.W. Norton & Co. Inc., 2010). Regarding the first point, there were at least a few people who figured out what was going on in the financial markets. For them, it was never a matter of whether there would be a day of reckoning or not — it was just a question of when. They invested accordingly, and their bets paid off big as the economic edifice came crashing down.
That part of the book is interesting, but the more important issue for readers is the second one. Lewis, who once worked on Wall Street, says the origins of the collapse were not in the rapacious greed of a few scoundrels from various groups, but rather in systemic problems — some of which have been in place for several decades — that create reckless investments and obfuscate risk. To that end, Lewis discusses the following details to make a very compelling case.
FROM THE BOOK: 5 LESSONS FOR THE REAL ESTATE INDUSTRY Continue reading »
The following is excerpted from Financial Shock: A 360-degree Look at the Subprime Mortgage Implosion and How to Avoid the Next Financial Crisis (Pearson Education, 2009) by Mark Zandi, chief economist and cofounder of Moody’s Economy.com. Here are four policy changes Zandi recommends to prevent the next financial crisis. Read all 10 in his book.
Policy Step #1: Adopt a voluntary mortgage write-down plan
Many troubled mortgages could be salvaged if lenders would agree to modify them, typically by reducing the principal owed. The borrower would get to stay in the house, the lender would avoid a costly foreclosure, and the economy might avoid falling into a destructive self-reinforcing cycle in which house price declines beget foreclosures which beget still more price declines. Thus it seems both reasonable and urgent to encourage this wherever possible.