The Seattle Real Estate Market and the “New Normal”
Our legislators, regulators and corporate executives started out by being in denial about the mischief they were creating, and then ended by lying about it. Finally last month Congress decided to take the cure and passed the $700 billion bailout legislation that the whole world is looking to for relief from the economic misery affecting the financial and real estate markets. We can only hope it will have the intended effect and calm the fears of those markets, as well as the anxiety of millions of American taxpayers. Will it work to quickly improve the financial world most of us live in? And once we calm our anxiety, will you be able to determine how these developments impact your investments and financial planning?
In 23 years of selling real estate, I have never experienced this combination of cascading negative factors. In just a few months, everything changed. We are now faced with increased loan down payment requirements. Lenders demand much higher credit report scores. Many banks as well as non-bank mortgage lenders (the institutions that are partially to blame for this mess in the first place) have disappeared, while those remaining drastically changed their underwriting standards. Finally, we have the problems of stagnant real estate values and the shrinking pool of buyers who can qualify for loans. This situation will correct itself…eventually. When will the logjam break? How will all of these factors impact you and your investments? And what does this all mean when you seek to answer the question – does the real estate I own still serve the purpose for which it was originally intended?
The situation will stabilize itself, but for years nothing will be the same. What will these changes mean to you and your investments? We know that from now on, having excessive debt on real estate will be toxic. People with a plan will strive to reduce their loan amounts to close to zero, particularly if they intend to use their real estate as a part of their retirement. There are many questions to be addressed and most of the answers will need to consider not only current market factors, but also the plans you put in place to protect yourself for the next 5, 10 and 20 years. It is now time to do the hard work, to make those plans.
What the United States is going through is a reversion to the mean, back to a historical long-term rate of appreciation of asset value. What we are experiencing, painful though it may be, is not a global economic collapse. Rather, it is the shock of America and its citizens being taken in to the global economy. We should get used to it, because it will be the new normal. And we as individuals will be able to adapt successfully to what the global economy will require of us, as long as we realize it is happening, and make plans to deal with it. What’s your plan?
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