I read many blogs by business people, mortgage brokers, Realtors and others talking about the "Credit Freeze" and how things will improve once it thaws.
Hmmmmm... Really?
I would submit to you that these people may not fully understand the problem.
1. Individuals with good credit scores and a reasonable down payment can get loans for houses and cars RIGHT NOW! Since that is true, consumer credit can't be really frozen. It may take a bit more paperwork and time but this financing is moving for those that are credit worthy.
2. Listen VERY carefully to the national news media's discussion about the "Credit Freeze" and you will hear about commercial lending... bank-to-bank and large business financing. These are the credit deals that are not moving regardless of credit worthiness. Consumer credit is still moving for those qualified (and interested).
3. A large segment of the consumer population that could get credit for a house or car in recent years should never have been approved. They were not, in the traditional sense, credit worthy.... just short-term policy worthy.
This segment of the population has now been removed from the list of people eligible for large credit (i.e., car or house) for years to come, maybe indefinitely. More available credit from a credit "thaw" does not make this group credit worthy and the financial institutions are now painfully aware of this.
These consumers are no longer credit candidates. Period. Do not make your plans assuming this will change and "return to normal" (which was not really normal either).
4. I would agree with many that the news headlines have influenced the consumers. The ongoing stream of "Credit Freeze" headlines likely has made may credit eligible people believe there is no money to borrow.... so they don't even try to borrow and do not consider purchases such as houses and cars, even if the deals are very good right now. Others are just be cautious and will wait before assuming more debt. (Perhaps that is how they became credit worth?)
So... What does this mean we should do?
I am sure many of you smart folks have some great ideas. I hope you'll add to my list below. My thoughts are:
1. Plan on fewer people eligible for credit for years to come, not just through the current slow cycle.
2. Plan on more people leaving the real estate industry. There are still way too many participants for way too few deals for all to survive the coming years, even with an upswing. If you do not want to change your approach to business nor willing to learn how to really work hard to survive in this industry, perhaps a professional change would be healthy for you and the industry.
3. Adapt. Not all things you may have done that worked in prior economies will work again for years. Think of real changes. (NOTE: You do NOT get credit for incremental tiny adjustments that you claim as proof of "change.")
4. Opportunity. With pain comes opportunities for those that will adapt, accept and embrace reality, and have the patience to understand how long market adjustments will require before prosperity returns (and it will return... the down cycle and the up cycle always repeat, just not in the exact same scenario).
Do you have more suggestions? I'd love to hear them. And you are welcome to tell me my entire premise is wrong. While I have no problem with a faster return to an economy on the upswing, I just don't see it until we finish a long cyle down to resolve the open issues.
This is not meant negative in any way. Understanding and embracing reality can be very healthy and is an outstanding platform for creating positives.
Glenn - I don't see a hard credit freeze here in Hawaii either. But a lot more scrutiny has certainly become the norm.
Richard Dolbeare (RA), ABR, CRS, e-PRO - Hawaii REALTOR® With BS & MS Degrees (Century 21 All Islands) Hi Richard, more scrutiny does abound but in the long run that is a good thing. A lack of scrutiny in the rush to lend to (almost) anyone that was a major contributing factor to our the depth of our current issues. Thanks!! G
I welcome tighter lending standards and wish we collectively listen to our grandparents and start saving some money. For long term stability the American people and the American government need to start saving more and spending less.
Great post, worthy of a "Featured post!" You separate credit fact from fiction, and leave us with realistic expectations.
Thanks for putting it so people can understand. I'm always amazed at the number of post I read where, everytime the government makes a move they're talking about "happy days are hear again" or will be in two weeks. Things are going to be different for a very long time.
Lovejoy Team (Re/Max Alliance) Hi Brad, you got it... appropriate and practical standards are very valuable and when forgotten can create much pain! Thanks, G
Jim Crawford ~ Atlanta Real Estate-ABR E-PRO (RE/MAX Greater Atlanta) Thanks Jim, While I don't subscribe to your blog (I don't subscribe to any), your blog is one of the few I repeatedly go to read regularly! So I am flattered by your post and appreciate the kind words. Thanks for visiting!! Glenn
Jerry Becker and Associates Hi Jerry, you are right. Things have changed and will remain different. In the long run, this will be a good thing but the transition will be challenging... even more so for the people you mentioned (the ones that think each new event is a return to the former glory days). Thanks for your posting!! G
We're having no problems getting loans for people with decent credit and good cash flow. The way it should be! We need to EDUCATE our clients that it's not frozen and impossible to get money.
Glenn- You have raised some really good points. I have found part of my business changing towards working closely with the same lenders as always buy in a new direction. We are working at assisting potential clients in correcting blemishes on their credit reports, and seeing that they get on the right path for their future credit. This way in six month to a year they can start thinking about looking at homes. The market may be changing but it doesn't have to mean doom and gloom. In the long run people will value their credit more like we did years ago.
Erica Ramus - Realty Executives - 570-622-6006 Hi Erica, educating the public is important. Too bad so many either don't want to be educated ("Just tell me what to sign") or think they already are educated. Still, a knowledgeable customer base is always a good thing for them and us. Thanks!! G
Marie LaVoise (Keller Williams Realty, Clarksville, TN) Hi Marie, you are very smart. Becoming a trusted advisor is so much better than being only a sales person (even if you are a great sales person) or an "order taker"! G
You are %100 on the money. What a great post. I will check back often. You make great sense when it comes to the market today.
T
Terry Miller ("Now What?" Training, Coaching and Motivation) Thanks Terry, Best of luck with you training endeavors!! Now is time people should leverage their time and look for ways to be better for survival and success! G
I agree. The media does not reflect reality, but that's not their job. They are there to sale a story. We have to decide if we want to buy into it.
Denise Gray (Coldwell Banker Stucky) - Denise, you nailed it about the media. We hear complaints but the media has a job to do and that is sell ratings. And the media is not necessarily the same as journalism, although those boundaries are unfortunately dissolving. We still do need to all think for ourselves and those that find success generally already do that! Thanks, G
Glenn:
I heard today that the mortgage money the fed is putting into the system will probably not be in till the end of the second quarter.
Not good!
Richard
Glenn,
The problem is getting the wrong out about available credit and getting consumers to believe it.
Richard Stabile Bergen County New Homes Builder Realtor (REMAX real estate associates) Hi Richard, even if the money were all available now... that is not the problem. If you have good credit and a down payment you can get a loan now! Thus, credit is not frozen... lending standards were just restored. I submit the Fed money will not be used as we expected but used to keep banks operating in the next year or two. Now that is not necessarily a bad thing but it does not have the trickle down many had falsely expected. Best of luck in business in 2009!! G
Brenda Harmon (Century 21 Beal, Inc College Station, Texas) Hi Brenda! Yes, the message from media is so much about the headlines and sound bytes... but the consumers bear responsibility of understanding money as well. If a consumer only understands sound bytes, then they may struggle to be the consumers we want and need. Still, you point is very valid as people tend to behave in a herd behavior. Thanks! G
Glenn - if credit would have been just a bit slushy we might not be in this situation. Everything I see indicates that the "thaw" won't start until next year.