Back in 2008, the market meltdown was tied directly to the U.S. real estate markets. Too many people taking out mortgages they could not afford. Too many brokers willing to bend the old rules to qualify these people for loans they should not be getting. Too many houses being built to keep up with the demand now that everyone who fogs a mirror can get a home loan.
In the background, investment banks were hungry for more and more of these shady mortgages so that they could package them into unregulated derivitives called collateralized debt obligations and sell them to literally everyone in the world. Insurance companies were writing credit default swaps to ensure that risk was being handled responsibly and ratings agencies went along for the A-grade ride.
The whole thing was so insane, I was shocked that anyone tried it. I was even more shocked when I saw how many people bought into it. But they did and when things blew up as they were destined to do, real estate took the entire investing universe with it.
There was literally no place to hide back in September 2008. It was not that long ago when we all watched in horror as financial institutions started falling like dominos.
Forward to today, and when I turn on CNBC in the morning it is as if nothing happened. Pundits talk about earnings being solid and stocks being at 52-week highs. I cannot speak for all of you but it all seems a bit unreal to me these days.
I, like every other trader that wants to make a buck in this market wants to believe, but what's that old saying? "Fool me once, shame on you, fool me twice, shame on me."
I hear what the analysts all have to say, but not for one second do I believe that everything is back to normal. I watch the markets every day and still have that sense of anxiety you get when things are "just not right".
When solving a problem, it is often good to go back to the beginning and ask, did we fix the cause of the problem that almost lead to a total market meltdown or are we just tucking it away for later? How is real estate as an investment, changed since September 2008? For one thing, prices have come down quite a bit since that day. This is both good and bad, but let's look more at the bad since that has more spillover effect into other markets.
Prices have gone down as much as 50 percent in some markets. Inventories can be as long as several years out until they are back to normal. The way banks lend has changed a lot. People actually have to have assets, money for a down payment and a job now to get a home loan, so the pool of buyers has shrunk. And what about all the people sitting in houses they cannot sell because depreciation has gotten them "underwater." They owe more than their house is currently worth.
Modifications so far have been very slow and not easy to come by, so the folks holding those old loans are not very happy right now. They are paying twice what the guy that just bought the same model home they live in paid last month. These folks cannot relocate for new jobs, if they could actually find some. They are running on round 2 or perhaps 3 of unemployment benefits. Things are getting dire.
But to hear it on the cable news, things are rosy. Well I sure wish that rose garden would start growing around all the depreciated houses out here in Nevada.
My advice is do not buy into this new version of the same old story. Do not believe everyone who tells you they are qualified to invest for you, they understand these new markets. Get a second or even a third opinion if you want to. Be over cautious if you need to, but take it from someone who has been around during many market corrections, changes, bulls and bears. It is the same, nothing is new other than new ways to part you from your money. Do not get caught up in the "new normal."
• Carol Perry has been a Northern Nevada resident since 1983. You can reach her at carol_perry@worldnet.att.net or 267-5358.