Are you asking me if a 30% reduction in values will send the State spiraling into a recession? We do not think so if we act.
But it will certainly be ugly if the stakeholders continue to behave in an irresponsible manner.
As they say, "the medicine may not taste good but it will certainly cure you".
Everyone knows what the medicine tastes like but still hopes for a miraculous cure.
And this is not going to happen.
You have to understand that prices must come down for the market to be in equilibrium unless someone finds a real way to stimulate demand.
And I say REAL because we do not need more short term creative ways to stimulate demand.
We need to strengthen the fundamentals in order to create a sustainable market.
And this is not easy.
The fundamentals to strengthen demand are weak and the supply continues to grow.
The condo glut is for real yet more are coming.
What are we doing? Are we insane? How many people are going to get hurt before we get out of this state of denial? We did not get to where we are overnight or by accident.
A very good friend of mine used the term "echoes of shadows"..
..
and I cannot think of a better choice of words to describe thereal estate world of the last few years.
This crisis has been building up for quite some time.
And many people and organizations contributed to the creation of an environment that promoted the irrational growth in demand and supply.
Take your pick: (1) Wall Street hedge funds; (2) Greedy lenders; (3) Unscrupulous mortgage brokers; (4) Inexperienced speculators; (5) Special interests and on and on.
Some of these are already paying the price.
The sub prime mortgage crisis has already claimed a few casualties with more to come...
Citibank, Merrill Lynch, Countrywide and hundreds of other supporting actors.
And who knows who will be next.
The result of this irrational period of growth was simple: unsustainable prices.
And now, sellers are sitting in the eye of the storm fearing for what is coming next and looking for reasons to support that nothing is going to happen.
How do they save their home? How do they save their credit? How do they catch a falling sword without cutting their hand? Everybody knows what is coming.
The fundamentals are not there to support a quick recovery.
Supply continues to grow with no immediate relief in sight as more new properties hit the market (on top of what we already have!) and the number of foreclosures increases.
To make matters more challenging, the demand is shrinking; speculators are now hibernating and marginal buyers are out of the market as lending institutions really tighten underwriting requirements.
In essence, there are fewer real buyers and the inventory is much larger than a year ago.
And you cannot expect locals, retirees and foreign buyers to absorb the total differential.
Yes, the interest rates are still relatively low.
But even if the rate is further reduced, which is not likely, the days of creative financing are over.
This simply means that marginal buyers are out.
The answer can be found in Economics 101: "Only prices can equilibrate supply and demand.
" This has to happen before things can improve.
And the sooner the price correction, the smoother the landing.
But it will certainly be ugly if the stakeholders continue to behave in an irresponsible manner.
As they say, "the medicine may not taste good but it will certainly cure you".
Everyone knows what the medicine tastes like but still hopes for a miraculous cure.
And this is not going to happen.
You have to understand that prices must come down for the market to be in equilibrium unless someone finds a real way to stimulate demand.
And I say REAL because we do not need more short term creative ways to stimulate demand.
We need to strengthen the fundamentals in order to create a sustainable market.
And this is not easy.
The fundamentals to strengthen demand are weak and the supply continues to grow.
The condo glut is for real yet more are coming.
What are we doing? Are we insane? How many people are going to get hurt before we get out of this state of denial? We did not get to where we are overnight or by accident.
A very good friend of mine used the term "echoes of shadows"..
..
and I cannot think of a better choice of words to describe thereal estate world of the last few years.
This crisis has been building up for quite some time.
And many people and organizations contributed to the creation of an environment that promoted the irrational growth in demand and supply.
Take your pick: (1) Wall Street hedge funds; (2) Greedy lenders; (3) Unscrupulous mortgage brokers; (4) Inexperienced speculators; (5) Special interests and on and on.
Some of these are already paying the price.
The sub prime mortgage crisis has already claimed a few casualties with more to come...
Citibank, Merrill Lynch, Countrywide and hundreds of other supporting actors.
And who knows who will be next.
The result of this irrational period of growth was simple: unsustainable prices.
And now, sellers are sitting in the eye of the storm fearing for what is coming next and looking for reasons to support that nothing is going to happen.
How do they save their home? How do they save their credit? How do they catch a falling sword without cutting their hand? Everybody knows what is coming.
The fundamentals are not there to support a quick recovery.
Supply continues to grow with no immediate relief in sight as more new properties hit the market (on top of what we already have!) and the number of foreclosures increases.
To make matters more challenging, the demand is shrinking; speculators are now hibernating and marginal buyers are out of the market as lending institutions really tighten underwriting requirements.
In essence, there are fewer real buyers and the inventory is much larger than a year ago.
And you cannot expect locals, retirees and foreign buyers to absorb the total differential.
Yes, the interest rates are still relatively low.
But even if the rate is further reduced, which is not likely, the days of creative financing are over.
This simply means that marginal buyers are out.
The answer can be found in Economics 101: "Only prices can equilibrate supply and demand.
" This has to happen before things can improve.
And the sooner the price correction, the smoother the landing.
Source...