Credit Crunch

Combined with the mortgage ills of late, it's all starting to look like a perfect storm for real estate. Consider how the chain of events may be playing out. A builder sets out to construct a new house. In recent years, there was no trouble finding willing buyers who would sign a contract to pay, say, $500,000 nine month from now, when the home was finished. Between today and nine months from now, there was a halfway decent chance that the $500,000 house would be worth more. That combined with easy credit made banks and other financial institutions eager to back the home buyer with a loan, regardless of the buyer's credit history. The deal was beneficial for all involved.
But the game has changed. The builder isn't so sure that he'll have a buyer who can find the necessary credit. One reason: it's not clear that the $500,000 house will be worth $500,000 nine months from now. And with mortgages tougher to come by, it's a lot easier to delay purchases, which only inspires builders to become defensive and cut back on construction plans.