Nov. 29, 2008: Someday soon we may have to turn back the clock on home lending
Furniture stores are offering weekly payments. Department stores and jewelry stores are making Christmas easier with layaway plans.
Check the calendar. Did someone dial the clock back to 1968?
Not quite, but the credit crunch has got us looking backwards in time to try to remember how we used to do business, back before easy credit made things so easy.
Here's the dirty little secret no one shared with you: For many, many years, the business of America has been credit.
Car dealerships don't sell cars, they sell financing, selling your loan at a discount as soon as your tires hit the pavement.
Furniture stores don't sell furniture, they use your desire for new furniture to get you to sign a promissory note.
One of the best protections of your financial interests is called Regulation Z. The Z reportedly stands for Zales, the easy credit jewelry store.
New home builders are in the same game. That's why the incentives are so much better if you use the builders' lender.
And that's why there's no interest for the first six months. Or no payments at all for the first two years. And all it takes is one quick signature...
But those days are done. Consumers -- and corporations -- are defaulting on debt like never before in history. The buyers of promissory notes aren't buying any longer. Instead, they're in Washington begging for bailouts.
And that leaves the furniture stores and the jewelry stores back in the merchandise business. They need to come up with ways to get people with no money to part with what little they have -- a little at a time -- in order to have any sort of cash flow at all.
And all this will come to real estate, too. We still have easy credit, but when interest rates start to climb, we'll see our own kinds of "old fashioned" financing arrangements: Seller carrybacks, land contracts, wraps, lease purchases, etc.
We may be headed into tough times, but we still have a roadmap from 1968 to show us how to sell actual economic values and not just easy credit.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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