Edd Gillespie Appraisal

Many real estate professionals have commented that the markets in all segments are “flat” or “slow.”  Certainly, we all look forward to a return to a more predictable, gradually rising market.  What must happen before the real estate markets will stabilize?

It is apparent now that the housing market was a bell-weather for an out-of-control credit glut.  At many levels the country was on a binge of credit consumption fueled by unsustainable speculative ventures that collapsed in September of 2008.  With the collapse of credit the real estate sales industry lost an indispensible ingredient of demand.  Sales slowed to a crawl as the sources of mortgage lending reacted by severely restricting the availability of mortgages.

Not only did mortgage money dry up for real estate transactions, business loans have become similarly hard to find and unemployment is rising.

The lack of lending is leading unemployment in southern Colorado.

The Federal Reserve Board periodically interviews senior loan officers in banks across the nation about their individual lending decisions and then publishes the aggregate results quarterly.   It turns out that most of the senior loan officers interviewed said their bank tightened its loan standards.  The last report indicates that there is not much sentiment to relax the standards.

Source: Federal Reserve Bank and Bureau of Labor and Employment

The recession of 2001 resulted in tighter loan standards after unemployment spiked.  In contrast, banks began tightening credit in 2007 and unemployment began to rise.

Conclusion:  unemployment will not decrease until lending is restored, but it is unlikely we will see lending as prolific as it was in the 2004-2006 period any time soon.  The pressure from unemployment could well produce lower prices, particularly in “affordable housing.”