Those Who Disagree That The Housing Market Has Crashed
BATTLECALL GUEST EXPERT: Patrick Killelea, Real Estate Investor And Battlecall Contributor
Who disagrees that house prices will continue to fall? Real estate related businesses disagree, because they don't make money if buyers do not buy. These businesses have a large financial interest in misleading the public about the foolishness of buying a house now.
- Buyers' agents get nothing if there is no sale, so they want their clients to buy no matter how bad the deal is, the exact opposite of the buyer's best interest. Agents take $100 billion each year in commissions from buyers. Agents claim the seller pays the commission, but always fail to mention that the seller gets that money from the buyer.
There are good buyer's agents who really believe they are helping the buyer, but they often in denial about their conflict of interests.
- Mortgage brokers take a percentage of the loan, so they want buyers to take out the biggest loan possible.
- Banks get origination fees but sell most mortgages, so they do not care about the potential bankruptcy of borrowers, and will lend far beyond what buyers can afford. Banks sell most loans to Fannie Mae or Freddie Mac. The conversion of low-quality housing debt into "high" quality Fannie Mae debt with the implicit backing of the federal government is the main support for the housing bubble. That is ending as Fannie Mae shrinks.
It remains true, however, that banks are not required to get any appraisal at all for loans they sell to Fannie Mae or any government-guaranteed loans. This encourages banks to overstate values and sell bigger loans to Fannie, pushing the risk onto taxpayers.
Even for the "jumbo" loans that banks cannot sell to Fannie Mae and Freddie Mac, they have a motive to lend beyond what buyers can afford. Banks designate interest as "income" whether they receive it or not. As long as borrowers do not actually default, additional interest owed is counted as bank income, and banks can claim higher "earnings". That is going to end when those borrowers cannot even make the principal payments.
- Appraisers are hired by mortgage brokers and banks, so they are going to give the appraisals that brokers and banks want to see, not the truth.
- Newspapers earn money from advertising placed by Realtors®, so papers are pressured to publish the Realtors'® unrealistic forecasts.
Worse, Realtors® have a near-monopoly on sale price information, and newspaper reporters never ask Realtors® hard questions like "how do we know you're not lying about those prices?" The result is an endless stream of stories which quote David Lereah of the NAR saying it's a good time to buy, as if there were some news in hearing salesmen say that you should give them your money. To be optimistic about this market takes a real estate "professional". Everyone else speaks the truth too clearly.
- Owners themselves do not want to believe they are going to lose huge amounts of money.
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