HOW DID IT START? WHO IS TO BLAME? IS THE WORST OVER?

Let's reflect and review the key factors relating to the recent real estate collapse.

1. The Federal Reserve began aggressively cutting rates after the September 11, 2001 terrorist attacks in order to avoid a possible economic recession. By mid-2003 the rates reached 1%

2. Mortgage rates fell from 8% in 2000 to 5.5% in mid-2003. Adjustable Rate Mortgages (ARMs) rates fell as well.

3. Housing sales volume and demand rose to successive highs in 2003, 2004 and 2005.

4. Home prices increased as well. For example, a one bedroom in Port Side Villas in Cape Canaveral sold pre-construction in 2004 for $113,900 and then resold on 11/11/05 for $200,000

5. With housing demand on a steep upward trend and a general weakness in the stock market, "easy" wealth gains were common for real estate owners. This demand required additional financing.

6. Chasing after high yields, global capital providers were eager to provide financing because rating agencies such as Moody's, Standard & Poor's and others viewed subprime products as 'safe' alternatives and ranked them as top Triple-A ratings.

7. There was so much liquidity available that even risky borrowers were able to secure financing with little or no income documentation.

8. This caused many "house-flippers" to enter real estate markets expanding demand for housing and driving house prices to even higher levels.

9. Inventories were down and homebuilders couldn't keep up the demand. Everyone was happy while making lots of money and equity from their real estate investments. Many books were bought on how to endlessly profit from real estate.

10. "What goes up must come down." Mortgage rates began to climb in 2005 when the Federal Reserve raised rates and caused housing demand to fall.

11. With demand decreasing and supply increasing, home pricing fell as well. For example, another one bedroom condo in newly built Port Side Villas is currently listed for $105,000.

12. Some "flippers" began walking away from contracts and developers were stuck with excess inventories.

13. Subprime loans and ARMs were resetting to higher interest rates. Refinancing was not possible for most since the value of their houses was lower than the value of their mortgages and many were forced to foreclose or short sale their investments.

14. Lenders began writing down their losses while more homeowners and flippers just walked away from their purchases.

15. Global capital providers stopped funding subprime loans after rating agencies no longer rated those investments as Triple-A quality.

16. The subprime market came to a halt and the global capital providers also stopped funding many other mortgage options including the jumbo loan market.

17. In mid-2007 the Federal Reserve began cutting rates again and is expected to make deeper cuts in the near future.

Yes, there is plenty of blame to go around but I mostly blame the rating agencies whom rated these loans as "Triple-A" quality. If they would have properly assessed the risk in lending hundreds of thousands of dollars to risky-borrowers with little documentation then the global capital would have never reached subprime homebuyers. Flippers are to blame as well but without subprime lending, many would have never been able to enter the market. There would have never been such of a housing boom.

I also blame those who took ARM's instead of fixed rates because they were able to buy more of a house at a lower rate and figured they could refinance at a fixed rate later on. What goes up must come down and what comes down must come up and that's what happened to interest rates.

Will this happen again? NO. The global capital providers will be very careful when lending money to our real estate market. We are going back to careful underwriting standards of verifying buyer's income and thoroughly checking the borrower's ability to repay the loan. If you can't pay, you won't be able to play.

Is the worst over? Hard to say but the facts are that we have an increase in signed sales contracts & mortgage applications. Local inventory is down and demand is increasing. For instance, Cocoa Beach and Cape Canaveral had 46 total closed condo sales this year. Currently there are 40 pending condo sales and that number is going up.

Inventory continues to drop every month since last year. Total condo inventory for Space Coast Association of Realtors in January 2007 was 1,678. This past January that number was reduced to 1,317.