Many of us in the office have discussed that despite all the bad news in the market, the banks remain happy to own real estate. It’s very strange. Banks usually like to purchase money at 5-6% and then loan it out at 8-18% so they can make quite a spread. But for some reason they like owning houses that not only cost them thousands of dollars each month to hold, but they are depreciating assets these days.
However, that is all about to change in my opinion. New accounting rules go in to effect November 15th and banks are going to have to write down at least another $100 billion in losses over and above what’s already been posted for losses with the subprime situation according to John Glover of Bloomberg News.
Banks are going to start dumping property because they are going to taking on water faster than they can bail the water out of their sinking ships.
It’s going to get interesting. If you’re an investor, 2008 should be a wonderful year.