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Housing Bubble… Housing Collapse

December 14, 2010

P R O P E R T Y   S E A R C H

R E S T I V O – H E C H T M A N    T E A M

“What caused the housing market collapse?”   The Restivo Team was asked that by a group of FIU students researching the real estate market in South Florida.

A bit of this … a bit of that …    Did it have something to do with Hurricane Katrina or Wilma or some other natural disaster?  Was it because of the threat of, or a specific act of terrorism?    

“I think actually the bubble burst more as a result of  overinflated housing prices… historically low interest rates…astronomical real estate appreciation… loans beyond what we as homeowners could repay… and a subsequence drop in real estate values that caused many of us to wake up one day to negative equity.” 

“Home values increased by leaps and bounds (almost doubling!) and prices peaked in 2005.  They began dropping  in 2006 and  2007 and as mortgage debt  began to exceed the value of the property, we started seeing an increase in foreclosures.  Homeowners began walking away as a strategy.   By 2008 the US government began allocating funds in order to rescue Fannie Mae, Freddie Mac …  FHA.  And by 2009 Florida was one of several states that was hardest hit by foreclosure. ”

“As buyers, we certainly overextended ourselves…. looking through rose-colored glasses.   We stretched in order to afford homes that were beyond our means, mortgaging them to the max, with debt obligations coming out of our ears. Many of us began (and continue to!) struggle.  We refinanced home loans… and as the value of our homes increased, many of us withdrew equity so we could buy more ‘toys’ and  take nicer vacations.  Interest rates on our loans ballooned.  The subprime mortgage crisis of 2007 hit. Sub-prime lenders declared bankruptcy and lenders went belly up. Many homeowners found ourselves in way over our heads as our interest rates reverted to regular interest rates …   and we found ourselves in a situation of having negative equity.  Along with real estate, our stocks, bonds and mortgage-backed securities took a hit.  We became concerned.  Investors became fearful.  Confidence dropped.  Mortgage rates went up.  Wall Street felt the effects.  Investment banks that traded in morgage backed securities were in danger.” 

“Lenders began requiring larger down-payments.  Loans for foreign investors became scarce.  We woke up from an illusion that real estate might appreciating forever.. and realized the cycle was headed down.  Real estate was overvalued and it was time for a correction.   Historically, real estate is a SOLID LONG TERM INVESTMENT … but it’s NOT all uphill all the time.  It is cyclical. And we are now waiting for the upturn… which WILL come!”   

“The good news is that in resort destinations like South Florida and Southern California, real estate is historically a really good long-term investment.  With diminishing buildable land, and limited waterfront property, prices will inch upward… again. Those who invest now will likely look back wishing they’d done more.  Those who wait may wait too long to reap the benefits of buying at the bottom of the market.”

“The bubble had to burst.  Home values have now dropped in some sectors up to 40-50%… but they will go up again especially in coastal areas like South Florida. ”

Looking to buy, sell or invest in real estate?  Using a top local Realtor can make all the difference.  Contact Vicki and Alexandra Restivo for all your real estate needs   305 -793-1365 or 305-632-0164

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