| The
real estate market had not experienced a
major correction since the Depression era of the 1930s. |
| There
is no market that has not experienced major corrections over the
same period. |
| It is
unhealthy for any free market to not self correct or to be forced
into correction mode. Failure to correct requires exogenous forces
to artificially hold prices and present an appearance of stability
or expansion. That indicates that the specific market is not
operating as a free market. |
|
| Even
when economic problems developed, real estate valuations recovered
relatively quickly, or at least directly and commensurately with its
regional economy. An example of this is the S&L collapse and its
impact upon Texas real estate. |
|
Starting in the late 1930s (Fannie Mae, 1938) the government-created
institutions were designed and mandated to hold real estate
valuations up. Fannie Mae was losing potency, so the government
created Ginnie Mae in 1968. The government raised free money by
taking Fannie public in 1968. Real estate need additional buoyancy
and resiliency, so the government created Freddie Mac in 1970. |
| In 1978
the government legislated unfair housing and commercial real estate
models under the name CRA, Community Reinvestment Act. Over decades
starting in around 1970, additional separate legislation mandated
and correspondingly corrupted ownership at the lowest level -- by
controlling buyers & sellers -- within the real estate market. |
| The
product of this legislation was that this out of bounds federal and
state legislative activity forced neighborhood and community changes
in social and intellectual aspects. This was a byproduct of
requiring that anyone was to be allowed to buy and work in any
location. That is, inexperienced and under-educated minorities and
people of inferior social and economic status, means, and potential
were mandated to be eligible and assisted in their movement upward
into any location wherever and whenever they chose. CRA empowered
those who were not able on their own to move into neighborhoods
where they were not able to meet financial, intellectual, and
cultural standards of their new neighbors. |
| Real
estate markets became corrupted. Pricing, demand, supply, buyers,
and sellers were interacting in unnatural ways in residential real
estate. Commercial real estate devolved due corrupted market
activities because businesses were mandated to conform to similar
everyone-is-equal operational hiring and firing requirements. |
| Over
recent decades sets of requirements and legislation came into
confluence. These laws, rules, guidelines, and cultural mandates
operating commensurately caused the complete homogeneity and
corruption of real estate along with their valuations. |
| As a
final step in the destruction of the real estate market, the
securitization of substandard debt pushed the financial system into
collapse. That is, the underlying debt was not worthy of the
securitization instruments that were sold to individuals,
municipalities, financial institutions, and nations around the
world. In addition, the contrived financial instruments including
CDO, swaps, interest rate derivatives, and
complex variations of these redistributed risk in
massive magnitudes placed upon institutions incapable of meeting
call requirements. This network of inappropriate hidden chaos wound
valuations and assets into contrived and unsustainable
relationships. |
|
|
Recovery To Previous
Valuations |
| In
order for valuations to return to recent highs, it is required that
those valuations either were deserved or capable of being pumped up
again. |
| What
forces might be implemented in the next years to accomplish the goal
of real estate going to higher valuations? |
|
Potential forces include increasing demand, decreasing supply,
decreasing prices preceding increasing prices to create a bubble
psychology, increasing population of people and businesses, general
price inflation, lower interest rates, and increasing general
product and service industry activity. |
| Is
recovery to valuations even barely approaching prior bubble
valuations possible? |