Well, you have to pretty much live in a cave to not have heard about the “credit crunch” that has been affecting the U.S. real estate and most financial markets. While residential real estate lending is what the mainstream media reports on most of the time, just about every segment of the lending world has been adversely affected by the over-extension of credit and “cockyness” of many Wall St. bankers and investment houses. The main issue today for hard money and other real estate lenders is trying to accurately determine an asset’s value today and in the next year or two. What many people seeking financing today do not understand is that the types of loans that have been made available in the residential and commercial real estate markets over the past 5 to 7 years created an artificial demand for housing and investment property. This in turn has pumped up the value at a rate never seen before. This artificial demand is now gone and it will take quite a bit of time (read: years) before things return to a level that makes sense. There was a time when people used replacement costs, the cost of renting something versus buying and other metrics to determine when it was right for them to buy. Those methods have not been employed for a while now and it is a shame.

I hope we will see some rational behavior make its way back into the financial system and not see the government tap the taxpayer checkbook to help bail them out of their inflationary monetary policy of the past 10 years.

tags: credit crunch, financing, hard money, loan

Bloomberg.com is reporting today that US home sales dropped in July, over 11 percent from a year earlier according to the National Association of REALTORS (NAR). This report comes on the heels of a statement made by Chicago Fed President Michael Moskow said a sharp decline in housing, which by some estimates accounted for more than half of growth over the last three years. According to Moskow a sharp decline in the national housing market would be a risk to the economy.

Of course this should come as no surprise to anyone with half of a functioning brain. The FOMC is walking a very fine line right now trying to balance a measured slow down in the national housing market and still keep inflationary pressures in check.

tags: fed, fomc, housing, inflation, interest rates, nar, real estate