Today Bloomberg News reported, that billionaire Warren Buffet, told reporters in a press conference in Frankfurt, Germany that the U.S. economy is not even halfway through the credit crisis that has already sent millions of hard working Americans in foreclosure on their home mortgages.
“I don't think the effects of the credit crunch are far from over at all," said Buffet to reporters as he expressed his belief that the current credit crisis has not reached the halfway mark.
What does this mean for Americans and economists’ outlooks for when the market will correct itself? It may give us a sign that the American homeowner is not out of the woods just yet.
As the sub-prime mortgage crisis continues to not only hurt large investment firms and put more financial stress on the families who wanted a slice of the American dream by owning a home, the American homeowner continues to be the one who loses the most. When the financial burdens become too great, American homeowners are being forced to foreclose. Those who are afraid to lose their only shelter and avert foreclosure are choosing to file for bankruptcy. The American Bankruptcy Institute (ABI), a nonpartisan research and education organization, reported two weeks ago that the number of U.S. consumer bankruptcy filing increased almost 48 percent nationally in April from the same time just a year ago.
How can we help homeowners? First, the media must change their consensus of focusing on the mistakes of consumers and the lenders of sub-prime mortgages. More attention must be given to how the whole mess originated with the decision of Wall Street to buy bundled mortgages. This would lead to such predatory lending practices such as the No Income, No Asset loan that required only a pulse and statement of what you owned to purchase a home that led many people to default on their first mortgage payment.
More must be done on the federal policy level. Cutting a check for $600 dollars to help a homeowner avoid foreclosure or bankruptcy on a payment that is already months behind and consumes a majority a person’s gross income is not a fix. It is not even a ban-aid. A band-aid helps heal something. Even comedian Jon Stewart of Comedy Central’s, The Daily Show, poked fun at President Bush’s stimulus package, by stating that the $600 stimulus package has no value in helping a homeowner it the real world.
“I think that will work out great if your home is made out of plastic and located on Baltic Avenue,” said Stewart referring to the cheapest property in the Monopoly board game.
Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Housing, Banking, and Urban Affairs has been working with the Senate to pass a comprehensive housing package that will do a lot more do prevent more foreclosures. This week, he announced that there is currently bipartisan support for a housing bill that will be up for consideration.
Whether Buffet will be correct in his prophecy is still yet to be determined. However, if it is true, how long will we let the American homeowner continue to lose ability to pursue happiness? Will potential sellers be stuck with houses they hoped to turn for a profit, while buyers find it impossible to get a loan?
For buyers and sellers this creates two different scenarios. As long as the credit crunch continues, and a potential buyer has an average credit score, this could mean getting a great house and a low price. It may be difficult since lenders are less likely to lend money during the credit crunch, but lenders will always want to lend. The American economy is known to recover from hard times and it is safe to assume that housing prices will eventually increase. However, don’t expect them to be at the artificial highs they were at during the bubble of 2003 – 06.
For sellers, this could mean that the storm clouds you were expecting to past very soon could hover a bit longer than expected. As long as the credit crunch drops buyer demand, you can expect it to be harder to sell a home you acquired during the bubble. What will be required is for you to do your homework and compare prices in your area for similar properties. Make sure you are pricing yourself out of an already tough market to sell in. Make sure you are not pricing yourself out of an already tough market. Some are finding it affective to start at a lower price than starting high and chipping away as time passes.
Robert Krueger is a communications associate at the Urban Land Institute (ULI). He is also a staff writer for ULI’s Urban Land Magazine.