Boulder Real Estate Didn’t Drive Sub-Prime Meltdown

Looking back at 2007, it seems clear to me that the sub-prime meltdown wasn’t connected to the Boulder real estate market.

However, even nationally, I’d say that the subprime meltdown was not so much a real estate driven crisis as much as a financial and structural crisis in the banking world.

Since the banks could easily sell off loans, the ended up financing lower-end users. It’s just about that simple. If the banks couldn’t sell off the loans on the market, they wouldn’t make the loans to the consumers.

The banks didn’t worry about the loans since they could bundle them up as mortgage backed securities, get them off their  balance sheet and repeat the process. The process moved like this faster and faster as other groups of bankers snatched them up about as fast as they could find them up for sale.

Their mistake was that they took on the mind-set that they weren’t buying a mortgage pool but rather were buying securities. The bizarre thing is that some people saw this coming 12 to 18 months ago. Partners at large banking institutions have admitted that they knew all along that what amounts to ‘ridiculous’ credit was being given out.  Further, they seemed clear at the top that lenders were making hay while the sun was shining and taking advantage of unsophisticated borrowers (most of the home buying public, I’d think we should admit).

While the door is closed and cash may be king. There are many folks in a position of still trying to find a way out of their situation. Tons of people have homes in the $450k to $900k price range that took ARMS’s in lieu of the high priced jumbo loans and now can’t refinance (at a decent rate) their ARM without popping their payment up by 30% to 50% in some cases.

The real estate market in Boulder and even beyond is still looking pretty good. In our case locally, buyers are seeing good values and better take action now. Those with good credit and some money to put down can get very good deals as we’ve been cruising along for a few years in the cyclical flat spot but that tide has turned and the market is getting active once again.

I imagine prices will rise a little more quickly this year and  it’ll turn towards a seller’s market again. Keep your eyes open.


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