In economic bubbles signs that a collapse is coming can generally be identified well before the music stops. For me I was at a golf tournament in North Carolina when I overheard two very elderly ladies discussing their strategies for securing multiple condo units in a pre sale auction process. Two ladies, two different projects and apparently they had bought previously in other projects. Now this is not a sexist or ageist comment but on appearances their speculative activities did seem to be out of the norm. Similarly during the tech bubble the WSJ had regular articles discussing what stock the barber was buying and who didn’t have a friend that gave up his day job to take up day trading…We are now dealing with the aftermath of the speculative bubble in real estate. When I was underwriting condo financing in Florida in the nineties we insured that:
1. 100-120% of the loan amount was covered by pre sales and…
2. We limited the speculative investors in the project by limiting multiple purchases to a single buyer and restricting investor units (as opposed to primary or secondary home buyers).
These disciplines fell away in the heat of the market after 2001 but are sure to return as the market heals. Sometimes these types of restrictions are good not only for the lender but also serve to place a governor on an overly ambitious developer which benefits both parties when the “buyers” disappear.
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