Not an easy question to answer, so I´ve been out asking a few ´City´ contacts for their take on the subject. They all appear to agree that the media have blown parts of the story out of proportion. Well that will be a first!!!!

Seriously though, few Bankers seem to think the overall financial markets are doomed, just correcting the imbalance created over the past few years. Financial worlds move in cycles, most cycles have had mitigating circumstances which prelong or prematurely shorten a cycle. This cycle in the US has been prelonged by a few factors, which makes the correction seem worse than it actually is. Tha main factor has been cheap lending, when lending is cheap, people borrow, the more they borrow, the more they spend, and Real Estate has been one of the most popular choices. However, the period of cheap borrowing came to an end starting with the first increases in interest rates. Multiple increases have squeezed lending and created problems for borrows over exposed to debatable markets. Therefore ´defaults´ (Mortgage payment arrears) have increased and ´foreclosures (Repossessions) have increased and should continue by 50% or more this year!

What does this mean to Real Estate values?

Basically, it means that buying property in the States is no way to make a fortune, property is now flooding onto the market is some areas and some owners are going to loose money as property prices continue to decrease.

So how much and how far?

In our humble opinion, the fall in some parts of the market will be more than a third, over a period of years, until demand and the ability to buy catches up with oversupply. Other areas probably won´t experience much of a fall, but a lot depends ion credit and ease of access and the cost, so long as the Banks can make money out of lending, then real estate will always have value.

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