Can Real Estate Markets Revive If Banks Are Reluctant to Lend?

As a result of my real estate activities, I am frequently questioned about the general trend of the markets. Over the past few years, my answer has been, “It’s very difficult to tell. All bets are off.”In fact, we have been through an extremely vexing time in which banks simply do not seem inclined to lend. The lack of available capital has created a situation in which real estate markets as we know them seem no longer to exist.Lately, however, some positive signs indicate a change is in the air. We appear to be embarking on a Darwinian process that, in time, could be quite beneficial. First, however, we need to face the facts.Notwithstanding the outrageously low interest rates that are touted for residential loans, I know of very few people who have actually been able to obtain a mortgage and take advantage of these historically low rates. On the contrary, banks that have been burned in the recent collapse of real estate values do not appear willing to lend for real estate purchases or refinancing.In recent years the majority of purchases have been for residential properties financed through FHA or VA loans, properties purchased with existing cash or credit lines that do not require traditional bank underwriting, or large bulk purchases made by highly sophisticated entities with ready access to investment capital. The new real estate market is a cash market in which buyers demand significant price reductions – or they buy somewhere else.Cash is king, and the clear reality at the present time is that the lack of readily available capital and the relatively few cash buyers continue to hold down values.But something is stirring. Real estate owners have begun to respond to the scarcity of capital by offering seller financing and other inducements to entice new buyers into the market. As this trend takes hold, prices will stabilize and values will begin to climb.In addition, I am seeing advertisements for young technology-driven lending companies who embrace new technologies and appear intent on conducting their lending businesses in a lean and mean fashion through reliance on the internet.The combination of seller financing and new lending businesses entering the market seem likely to alter the landscape of lending, providing access to capital and furnishing a much needed boost to the markets.When real estate prices begin to climb, the banks will most likely realize they are missing out and resume their traditional role of lending based upon reasonable underwriting requirements. The increased competition will be good for the markets, widening access to capital and fueling growth, and that will be good for everybody.

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