With all the recent chatter about REO properties and short-sales flooding the market, I think some of the good news has gone un-noticed: Of all the residential Real Estate sales in California for the past year, nearly half were to first time home buyers!  And this is up from over 35% in 2008, according to the California Association of Realtors (CAR).  Read the entire article here.

So, even though there are a record number of “real estate owned” (REO) and short sales (by some accounts, over half of the assets that were sold in the state!), this has brought opportunity to many of those who were feeling “locked out” of the market only a few years ago.

The last time first time home Buyers were such a large segment of the market was the mid-90’s – right after another recession, the one in the early 1990’s.

Now, a lot of credit is going around for this surge in new home ownership.  There was the First-Time Home Buyer Tax Credit, which laws later expanded to include move-up Buyers.  Certainly, that played a huge role in reducing the cash burden for buying a home.  Then there are the historically low interest rates.

You can’t forget the lower home prices either!  It is a lot easier to find a bargain (read “a home we can afford”!) now than it was a few years back.

And, of course, FHA and conventional mortgage limits have been raised dramatically – allowing these Buyers to utilize this type of financing to buy that home.

We need the first time homeowners to bring new money into the market and allow “move up” Buyers to, umm, MOVE UP!  Without first time Buyers you will have no “next time” Buyers.

But this raises an interesting question:

With all the cheap money and relaxed lending standards of the early 2000’s (that many people said were necessary to get people into their first home) – what did that REALLY do?

Raised home prices to an unsustainable level and provided a false sense of wealth to ALL homeowners which ultimately brought our nation – and much of the world – into a deep recession.

And isn’t it ironic that the fallout from this financial debacle is the exact thing that actually achieves that goal!

One more thing – if you think this is only about home prices, think again.  Real Estate drives our whole economy.  If homeowners do not feel safe – financially safe – in their own home, they will hunker-down and stop spending.

And the consumer drives the economy! (Click here to read another interesting article!)

So, if you expect the Great Recession to come to an end without addressing the Real Estate crisis, you may have a very long wait with many disappointments along the way.

But more about this in my next post.

No related posts.