US Housing Crash Continues
Who disagrees that house prices will continue to fall?
Real estate related businesses disagree, because they don't make money if buyers do not buy. These businesses have a large financial interest in misleading the public about the foolishness of buying a house now.- Buyers' agents get nothing if there is no sale, so they want their clients
to buy no matter how bad the deal is, the exact opposite of the buyer's best
interest. Agents take $100 billion each year in commissions from buyers.
Agents claim the seller pays the commission, but always fail to mention that the
seller gets that money from the buyer. Think about it: who brings the money to
the table - the seller or the buyer? All money comes from buyers. No buyer, no
money.
If a stock broker were to charge 6% on the sale of stock, he would quickly go out of business. Real estate brokers don't do much more than stock brokers, so why should you give up nearly two years of your working life earning money to pay a realtor for the few hours they may put into helping you buy or sell a house? 6% of the 30 years it takes to pay off a house is 1.8 years of donating your working time to your realtor.
There are good buyer's agents who really believe they are helping the buyer, but they're in denial about their conflict of interests. Author Upton Sinclair had a great explanation for this: "It is difficult to get a man to understand something when his salary depends on his not understanding it."
- Mortgage brokers take a percentage of the loan, so they want buyers to take out the biggest loan possible. Even worse - mortgage brokers get paid according to how BAD the deal is for the buyer. The worse the deal is (higher interest rate, points, fees, etc) the more the mortgage broker gets!
- Banks get origination fees and then sell most mortgages, so they do not care
about the bankruptcy of borrowers. They will lend way beyond what buyers can
afford because they lose nothing if the buyer defaults. Banks sell most loans
to the government agencies Fannie Mae or Freddie Mac. The conversion of
low-quality housing debt into "high" quality Fannie Mae debt with the implicit
backing of the federal government is the main support for the housing bubble.
That is ending as Fannie Mae shrinks.
The other way for banks to dump the risk of loan default has been the Wall Street market for mortgage backed securities. Now that mass foreclosures have eliminated the subprime portion of the loan-resale market, banks are under pressure to increase loan quality.
- Appraisers are hired by mortgage brokers and banks, so they are going to give the appraisals that mortgage brokers and banks want to see, not the truth. Appraisers that kill a deal by telling the truth do not get called back to do other appraisals.
- Newspapers earn money from advertising placed by realtors, lenders, and
mortgage brokers, so papers are pressured by that money to publish the real
estate industry's unrealistic forecasts, and to avoid the fatal words: "prices
are falling". Instead, we may sometimes hear about "softening" or "easing"
prices, which sounds so pleasant. At worst, you may hear about a "housing slump",
but you will never hear the mainstream press talk about a crash in prices.
Worse, realtors have a near-monopoly on sale price information, and newspaper reporters never ask realtors hard questions like "how do we know you're not lying about those prices?" The result is an endless stream of stories reporting that the National Association of Realtors (NAR) says it's a good time to buy. Asking the NAR about housing is like walking into a used car dealership and asking the salesman if today would be a good day to buy a car.
- Owners themselves do not want to believe they are going to lose huge amounts of money.