From Sonnypage on RealEstate
Here's one to lose some sleep over, I certainly will. Sometimes a small pebble, throw into a pond, can cause very large waves.
Many of you know that my wife and I are realtors. We live and work in the north Atlanta suburbs of Roswell and Alpharetta. Three months ago we listed Todd and Sarah's home in Alpharetta. It's a beautiful home and we had it under contract in about six weeks, which is about normal in our market. We were all set to close in three weeks. There was, of course, that contingency in the contract. You see, the buyers, in order to close on our listing, needed in turn to close on their present home, which is also in Alpharetta. They could not qualify to carry two mortgages. We agreed, and both closings were set for three weeks ago. They would have been back to back closings as we say. But wait, in order for the buyers' house to close, their buyers, in turn, had to close on their own home, which was down in Florida. It also was under contract, but to a buyer coming out of an apartment. There were no more homes in the chain. Our seller here is moving into new construction and does not need to sell to qualify.
Are you with me? Our buyer's buyer's buyer must qualify for his home loan, or the whole stack of cards collapses.Three weeks ago we received word from the realtor in Florida that a "complication" had arisen. The buyer's buyer's buyer in Florida still needed to supply some paperwork to their lender. There would be a short delay, that's all. The closing would still take place. A week later the word from Florida was that the buyer's buyer's buyer's mortgage lender was not being "responsive"; they were moving the loan package to a new lender. As late as Friday the word was, we have moved to a third mortgage lender, everything has been resolved, we close today. That night I had no word. My voice mail received no answer. At three this afternoon, one of the other agents called me on my cell. The buyer in Florida had now been denied by three lenders, it was over.That transaction would not take place.
In a very lenient, permissive lending environment, a buyer has been denied. Three transactions have died. Four families have had their plans and lives disrupted. The buyer's buyer was already here in Atlanta in a new job.His household goods here in storage, his wife still down in Florida sleeping on a mat in her parents' home. Both of the families here in Atlanta have had their lives put on hold. Perhaps reread my previous Real Estate 104 post. An enormeous amount of economic activity swirls around a single real estate transaction. In this case, three transactions died, and all of the economic activity that would have gone with it also died. Three other realtors and I used all of our skills over the past three weeks trying to hold this together, and failed. I can accept that perhaps this particular buyer had no business buying a home. Nevertheless,I had a lot of emotional energy invested in this one; I will not sleep well tonight.We have surmised, on this board, about a real estate bubble in this country. If there is indeed a bubble, and it is allowed to pop, or can't be prevented from popping, then I will suggest that the result will not be like tossing that pebble in a pond, but rather like dropping a 500 pound cement block. I believe that the economy of this country hangs on residential real estate. Hope and pray for that bubble.
If the Fed raises rates, even modestly, to support the dollar, tap down inflation, then the debt heavy American consumer rolls over and dies, and quickly.That also,of course,means residential real estate dies, and in spades!. Multiply the above three transactions dying by whatever number you choose. Don't raise rates? Then the dollar falls and inflation takes off. Still much pain, but pain deferred, perhaps spread out over time. Are we caught between the devil and the deep blue sea? Place your bets. I am still very long precious metals miners with a substantial side bet on REITs. I want hard assets. Any hike in rates and there will be immediate and dramatic hell to pay. I'm betting rates don't rise, the dollar falls, and why haven't you unloaded that gas guzzler SUV yet?
I wish you all well, and I still won't sleep tonight.
sonnypage |
