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by Willard Michlin
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rate was less than 2%. Two years latter the vacancy rate increased to 10%. After the Los Angeles riots in 1994 the vacancy rate increased to 18% in Hollywood. Building owners were loosing there building in foreclosure because they couldn’t get enough rent to pay the mortgage payments. The vacancy increase that took place immediately after the crash was caused by the unemployment that came about by the economic slow down of real estate and business. Single people living alone started to save money by doubling up with friends or moving back home and living with their parents. This vacancy increase happened very rapidly.
The Population Increase
This argument is true, the population will increase over a number of years, but this is not true in the short time period between last month and next month. Of course it also depends on the location we are talking about. The Sun Belt and the Western USA are going to continue to grow. The rust belt-North Eastern US still needs to first go through a rebirth, which it probably will in the next 25 years.
What really drives the market place?
Interest rates have always driven the market place. Rates go up the market dies, Rates go down the market goes up. Real simple. Rates have been going up ¼% every 3 months because that is what the Federal Reserve wants to happen. That alone will slowly drive buyers out of the market and has been, slowly.
There is one last item which has always destroyed hot real estate markets and it does it overnight. In 1980 the market was unbelievably hot and the Federal Reserve was worried. They notified the lenders to stop making investor loans. If you were buying a house as an investment, you couldn’t get a loan. The builders found overnight they had no buyers and the rest was history. One year later Ronald Regan’s administration wanted to slow down the economy and raised the prime rate to 18% or higher. That further killed a dying market. This week Citibank cancelled an approved loan to me because they didn’t like the comparables used in an appraisal. They were scared about the market. 5 minutes ago I received a phone call from a friend in Clearwater Florida who told me the lenders are tightening up on appraisals. That means they are going to prevent prices from going up. Last night, another friend told me Washington has told the banks to tighten up. The lenders, through their appraisal policy can kill any market overnight. GAME OVER.
What do you do next?
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