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Richard Michael Abraham - Wish My Housing Report Could Be Positive - The 25% Doctrine

The U.S. Housing market never experienced a cyclical decline.

So often I hear, "prices will go up, it's just a cycle we're experiencing." I've been hearing these comments from others since the 2008 financial crisis.

A cycle did not occur. A housing hemorrhage took place.

The U.S. Government (and apparently REMAX) would like all Americans to forget that 75% of the once eligible U.S. home buyers were decimated by the financial crisis whether by loss of their wealth affect, net worth or credit.

Yes, by 2009, those with cash came out to buy distressed residential homes and properties, and at foreclosure prices even saw some appreciation gains or investment rental positive cash flow.

By 2011-2012, this investment strategy grew further and as the election year is well underway, each day, we hear about green shoots in the U.S. economy. Indeed, we've seen a stock market (DOW) mysteriously almost reach its 14,000 highs.

And so, it would seem to be a simple strategy to use cash to buy real estate at bargain prices.

Now, while 25% of the buying U.S. public may be in a position to undertake this strategy, and quality, well located housing is selling (at low prices), it is prudent to remember that the foundation for housing price support levels really will be determined by the 75% of U.S. consumers who are unable to take part in this home buying.

Without cash, you can't buy foreclosed properties. Without excellent credit, you cannot obtain mortgage financing.

And so, the absent swell of buying power underneath, and without the surge of buyers from the 75% who are out of the housing market, then, the reality remains that this translates to a hollow housing recover.

Making housing bets on the basis of what 25% of the U.S. buying public is doing successfully, (while the other 75% languish) is akin to buying a barrel of apples because the apple at the top looks fresh.

The underbelly of the U.S. Housing market cannot be fresh and sustainable when 75% of the customary U.S. home buyers are shut out.

Personally, in my travels and research across America, I can tell you it's hard to find a quality home that doesn't sell long before it's listed. These few quality homes, at low prices, sell fast to the 25% of U.S. buyers and investors in the market.

But for every quality home snapped up, I venture to estimate there's 1,000 inferior homes that cannot be sold and more will be coming on the market, and the army of 75% of the "former" U.S. buying public" cannot come to the rescue because they've not yet recovered from the 2008 crisis.

And so, though I wish I could be more positive, and it's in my best interest to spread positive housing news, since truth means more to me in my writings, and teachings of the Certification Real Estate Development Course, my research and instincts tell me that until the 75% of the U.S. traditional home buyers are made well financially, any housing recovery will be superficial and unsustainable.

And yet, I see no measures to make these 75% of Americans financially well again. And thus, I say, "Buyers Beware."


Richard Michael Abraham
The REDI Foundation

Posted by Richard Michael Abraham | Saturday, April 14 2012 at 12:16PM ET