Why do Buyers Lose on Real Estate Investment?

At the moment the investors on real estate are losing heavily. Oil rich Persian Gulf counties are believed to have lost 2.5 trillion dollars within a short span of four months of their investment in North American real estate property. The woes of the oil rich countries do not stop there. The oil prices have tumbled considerably since the boom time in July 2008. There are several reasons for that. Individual investors as well as institutional investors suffered equally. Global financial meltdown is the ultimate reason for such huge losses. Individuals lost their savings. Countries had to put on hold their development plans.  

The exact reason for the buyer to lose on investment in real estate is that the prices going down on property after purchase or investment. But why the prices went down on real estate in the first instance. Let us examine the possible reasons.

It all started in 2006 when many properties came into the market for sale as foreclosures. Many thought it was the normal defaults in making mortgage payments. But it was not the normal one. Foreclosures gathered momentum and thousands more foreclosures were looking for potential buyers. There were more properties on sale than the number of people who wanted to buy them. The prices tumbled. It did not affect the people who owned homes and had sufficient funds to pay the mortgage. But the investors lost heavily. There were no takers for the property they had to offer. They had to repay the loans and interest to the lenders in time. The investors too were sucked into the turmoil and lost heavily.

Why suddenly so many mortgages came in for foreclosures? Many economists are of the opinion that the lenders have to blame themselves. In their eagerness to keep their share in the loan market or increase it, the lenders started offering mortgages to everyone who came into their sight without due diligence. People without sufficient income to pay the monthly mortgage, those with poor credit history and individuals who have no intention to pay up even if there is an income were offered mortgages easily. The lenders thought that charging higher interest is the remedy for the high risk. But in actual practice it did not work. Foreclosures came in droves.  

In a falling market it is the buyer who suffers the brunt. It is the property which the buyer holds loses in value. So there is nothing unnatural in buyers losing in real estate in the current state of affairs. To compound the problem the unemployment figures increased in leaps and bounds.  

The silver lining is that things have started looking up now. The prices of real estate property are climbing back. The number of real estate deals is going up month after month. The tax credits and other measures taken by the government are bearing fruits. There is another area which requires immediate attention. The employment scene has to improve. Then only more money will be available with individuals to buy homes.  

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