Flooding the Market

I don't have a lot of time today to write (still have guests in town and I'm actually quite exhausted), but I wanted to toss out a couple of related thoughts.

1) Foreclosures are rising to un-heard of rates. People are defaulting and banks are getting stuck with over-priced housing.

2) If the banks put the houses back on the market, they'll essentially flood the market with "desperate sellers". Sellers who are looking for the best quick price, not the best possible price.

I've heard from friends in the industry that banks are sitting on houses that they don't want, because they fear that if they put all of their houses on the market right now, it'd completely destroy the housing industry. Entire towns could go through an extremely painful price correction (though no one mentions that those are the same towns that went through extreme price inflation to begin with).

As always, it's worth mentioning that paper profits are not profits until you cash them in.

Anyways, this currently leads me to two conclusions.

1) The housing price drops that we are seeing (of 1% or so) should be worse than they are, but the banks are trying to prevent al all-out panic. It could be a good long while before prices start to climb (bank inventory will continue to leak out in small doses for years).

2) The banks are going to take large hits for this. Holding houses costs them a lot of money, money that they can't use to generate other profits. Profits from investment banking will probably fall a bit over the next 5 years (unless there is another boom that they can reap "transaction fees" from, like the private equity boom).


Anonymous said...

I work for CurrentForeclosures.com, a foreclosures site, and we have seen a huge increase in the number of foreclosures on the market since January. I believe it is mainly because of subprime and ARM loans. I am skeptical about the news that banks are "sitting" on houses-everywhere you look there are thousands of foreclosures up for sale that are bringing down the prices of other homes. Maybe the banks are sitting on some houses, but the majority of houses are on the market, bringing down market prices.

OneYearGoal.com said...


I've been working since the age of 16, so I'm not speaking from a complete lack of experience. 6 years is enough time to know I don't want to be chained to the same desk every day for the rest of my life, unless it comes with flexibility. Judging by your real estate interests, you're not in love with the idea either.

I'm sorry about Chuck, but I'm not even a writer and I write more than one article per day.
While I won't win a Pulitzer for my work, I'll educate myself as well as my loyal readers about how to become successful. Maybe Chuck should consider reading my blog. Or editing it; I could mention him on an acknowledgment page.

What sort of work are/were you involved in?

One Man. One year. $100,000 online.

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