The economic news seems dire, to say the least: home prices taking their steepest fall in May—ever! As in, ever!

The Standard & Poor’s /Case-Shiller index of 20 cities dropped 15.8 percent in May compared with last year, reports the Associated Press.

And, that is an average, of course.

Las Vegas, for example, had home prices drop 28.4 percent in May.

But the current and somewhat related energy crisis may help provide a sort of blueprint on how to lift ourselves out of this credit,mortgage,housing debacle.

Consumers strike back!

After week upon week of a steady drumbeat of seemingly perpetually rising oil and gas prices, oil has now actually dipped to a seven week low, down more than $2 a barrel! And gas prices at the pump are also moving in a downward direction.

What happened?

What happened is the American consumer got fed up and revolted.

According to the U.S. Transportation Department, drivers in the U.S. logged almost 7 billion fewer vehicle miles in May, the biggest drop ever recorded during the normally gas guzzling summer vacation season.

To be sure, there are other factors at play—a stronger dollar, for one thing, that are having an effect on the price of oil.

But, at the end of the day, it appears pretty simple–Americans are driving less and using less fuel and that is primarily what is responsible for the fall- off in the price of oil.

The mortgage/credit mess is admittedly a much tougher challenge. Having said that, what is happening with oil may be showing us the light at the end of the tunnel?

More and more foreclosed houses are now on the market–but fewer and fewer people can afford to buy them because credit is so damn tight. But there will come a point when banks (if any remain standing?) will have to lower their credit barriers or risk permanently losing potentially lucrative customers.

Can consumers, then, help turn this around for the good? Yes–we can!!

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Tags: Economy, gas, housing, inflation, mortgage, oil

The last posting I had last week generated much discussion–I advanced the argument that the real estate mess we find ourselves in, and the resultant global credit crunch, is not likely to end anytime soon. And, that unless one happens to know what one is doing, this is not a very good time to learn the art and science of real estate investing.

Since just last week, the economic news had gotten considerably worse. In fact, I think that we are headed for a world-wide economic situation few of us have witnessed in our life times, unless we lived through the Great Depression.

Listen to this:

“Nothing of this scale has happened since the Great Depression. This is the toughest credit cycle I have seen in my years in the industry.”

That is a quote from Kerry K. Killinger, the chief executive of Washington Mutual, the nation’s largest savings and loan.

This week, Washington Mutual posted a $1.14 billion loss in the first quarter of 2008–the reason: the growing number of its mortgage borrowers going into default and eventual foreclosure.

Only a year earlier for the same period, the bank had a profit of $784 million. What a difference a year can make!

An enormous rise in foreclosures

The real estate data firm Realty/Trac, reports Reuters, says home foreclosure filings skyrocketed 57 percent in the year ended this March…..57 percent!!! And, bank repossessions went through the roof and beyond–rising 129 percent from just a year back.

And, it is far from over, folks.

“We’re going to see quite possibly a record amount of foreclosure activity in the third or fourth quarter,” Reuters quotes Rick Sharga, vice president of marketing at RealtyTrac, as saying.

Oil–the slippery slope

Making matters still worse, if that is possible, is that oil prices keep setting new records, week after week, if not day after day.

$114 a barrel on Tuesday–a staggering price that is contributing to the economic instability of the world’s interconnected economy.

We are way past being in trouble…but no one seems to really know just how past we are at the moment or what the near future holds?

Real estate may well end up being the eventual spark that will ignite a new fire to warm the economy up…but not now and not next week and maybe not even next year. Of this, I am certain.

Tags: foreclosure crisis, Foreclosures, housing crisis, Interest Rates, mortgage, oil, oil prices, real estate investing

Fuel prices are already taking a huge slice out of family budgets with soaring heating and energy cost; but thats only the beginning.

As gas prices skyrocket, the money to buy it must come from the family budget, making it even harder to keep up with the bills and the mortgage payments.

When many homeowners purchased their home during the housing boom of 2005 gas was sitting around $1.93 a gallon, with talk that it could go as high as $2.50. Now it’s sitting at about $3.59, and often climbs towards $4.00 (with $5.00 being on the horizon).

So even if a person fills-up their tank (22 gallon) just once a week, that’s an extra $146.08 a month they’re paying out. Based on my previous commuting experience, fill-ups are required about twice a week, so the cost is closer to $300 a month.

Higher oil prices also mean paying more elsewhere, as businesses are forced to pass on the increased costs. There are many items people don’t think about oil being in, such as roofing, plastic plumbing pipes and the drying process for lumber and bricks. Petroleum goes into many raw materials that are used in homebuilding.

Shock at the fuel pump is becoming a way of life, and the construction industry is feeling the effects of rising fuel costs as well. These increases are a major issue, not only driving up delivery costs but also the price of materials such as concrete, steel and drywall. Commercial, residential and road builders are all feeling the pressure.

How trucking rates are set varies widely around the country and, in most cases, truck owners have little control over what they’re paid. Many construction-truck operations support publicly funded road projects, where contracts are drawn up in advance and often do not provide for fuel-price spikes. The availability of Portland cement, copper, gypsum and PVC pipe became an issue in many parts of the US. during Hurricane reconstruction efforts in late 2005.

Increased fuel cost will also affect the selection process of the average homebuyer. People’s fears about the long commutes to work and the fuel costs associated with long drives twice per day, are causing people to change their minds about where they should live. Holders of real estate in more rural areas may find it hard to sell their homes (if they haven’t already), and even harder to foot the gas bill to commute to work in the city.

However, for those of you looking to invest in real estate, keep in mind that the demand for properties near larger employment areas (downtown) in major cities should be on the rise. This should help level-out some of the effects of the sliding housing market.

Investors (when buying real estate in today’s economy) should focus on areas that have the highest demand such as those within major urban city limits. In my own market, downtown Bellevue (Washington) has seen significant growth over the last few years, and still appears to be an excellent realty investment. Hopefully, for many years to come.

Apartment buildings have once again become a solid investment as people move out of homes they can no longer afford, and first time buyers find it impossible to qualify for a mortgage.

So as gas prices climb toward $5.00 a gallon, and then to $6.00, keep fuel cost in mind when selected your realty investments. It’s only a good buy, if people can afford to live there, and commute from there.

Tags: Economy, energy, energy prices, fuel, gas prices, gasoline, oil, oil prices, real estate, real estate investing

If someone were to have said, say a year ago, that there would be a crisis in the subprime mortgage market that would lead to world-wide economic chaos, that person would no doubt have been laughed at.

Sadly, though, that is exactly what has happened and the evidence just this week is overwhelming.

But, before the depressing news, how about a little uplifting news? You know you want it!

The Fed To The Rescue: Too Little Too Late?

The Federal Reserve has come up with a “rescue” plan that, as the Associated Press put it, “would pour as much as $200 billion into banks and investment houses and allow them to put up risky home-loan packages as collateral.”

Why does this matter?

Because the mortgage crisis induced credit collapse has made banks and other lending institutions not want to lend money to one another. And, in the end, that means they don’t want to lend money to you.

Under this plan, financial institutions can borrow from the Fed, and, in effect, exchange their questionable mortgage-backed securities for a sure thing: U.S. Treasury securities.

In theory, this should trickle down and make banks and others more likely to extend credit to all of us…and that includes new mortgages, which could help take some of those now empty foreclosed houses off the market.

Is this enough?

Says Ian Shepherdson, chief economist at High Frequency Economics, “This will not turn the economy around or fix all the problems in the markets but it should reduce the liquidity issue, at least for now,” according to the A.P.

Hold On. Here Comes The Promised Depressing News

Told you we’d get to this. If you are the weak knee type, you may want to stop reading right here and make yourself a cup of coffee…even though world coffee prices have jumped more than 20 percent in the past year.

But, if you are strong, read on and keep a tissue nearby. Better yet, keep a box of tissues nearby . . . although paper prices, too, have risen.

$6.1 billion dollars is how much Fannie Mae and Freddie Mac lost in the fourth quarter and they think they will suffer billions of dollars more in loses as we crawl through 2008.

The price of gas has gone up as of this writing to a new national record–$3.2272 a gallon, on average. And, in places such as Southern California, it costs even more. We’ve already seen some service stations charging $4 a gallon for regular gasoline.

In large measure, gas prices are now rising–they did lag a bit–because the price of light sweet crude oil keeps setting new records just about every day. It was trading at $109.72 at one point today (Tuesday) in the New York Mercantile Exchange.

120? Did I Hear 120? 120, Going Once, Going Twice, Sold To The Suckers Around the world.

That’s right, there are now serious projections that oil could rise to $120 a barrel.
And, ready for this? Maybe even higher??

Because U.S. dollars are so much cheaper now against many currencies, partly because of what began as a subprime mortgage crisis, and partly because of the ever expanding economies of China and India, the U.S. trade deficit in January rocketed to $58.2 billion from $57.9 billion the month before–this according to a Commerce Department report issued today.

Talking about China, and I was, our trade deficit with that country also got a lot bigger and is now $20.3 billion as of January. It was $18.8 billion in December 2007.

Even Google?

Yes, even Google, which pretty much owns the entire planet by now, is talking about possible layoffs soon! I mean, Google? You’d think they’d be able to Google for a solution to their problem, right?

I know what you are thinking. You’re thinking, yeah, this is pretty depressing stuff, but, boy, what about that stock market Tuesday which had its biggest one day rally in some six years, the Dow Jones industrials up 416.66 points!

Come on. We’re all adults here, right? Nice that the market went up so much on one day, but does anyone really think this will start a trend, what with all the bad and uncertain economic news out there? Shame on you if your answer is yes. Hate to introduce some more doom and gloom to this otherwise upbeat last few paragraphs, but you know the market is going to plunge again and probably lose whatever it gained in trading today. Of course you know it!

Like I said, if someone would have said a year ago that a subprime mortgage crisis would ignite all of this—-well, come to think of it, if someone had, that someone should have been made Secretary of the Treasury or even President. But, that’s a whole other story.

Tags: bailout, banks, China, dollar, Economy, Euro, gas, gold, google, government, housing, Interest Rates, oil, real estate, subprime

March is here and what else can I say about this past week other than — things aren’t looking good for the US. The cost of real goods continues to rise, with the price of everything from gasoline, oil, food, and commodities all continuing to climb at alarming rates.

Gold hit a new high near $980 an ounce, and crude oil set an all-time high of above $103 a barrel – both beating the real-terms peaks reached in 1979-80. Many traders believe that gold at $1,000 an ounce is now well within reach. - The Independent

Additionally, weakness in the dollar has driven the Euro to a record high of $1.5238 on Friday. While tourism and exports have increased, is this buoying the overall economy? It doesn’t look that way.

Lets leave all that behind for a little while and have a look at some of the interesting stories out there from this week:

Cool BiggerPockets Mentions

• NuWire Investor named BiggerPockets to its list of the Top 10 Real Estate Blogs, placing is in the company of some other great sites including Matrix and Business Week’s Hot Property.
• The Go Beyond MLS Blog also listed BiggerPockets in their list of top 10 blogs, and analyzes one of the factors that may influence popularity - frequency of posts.

Other quick reads for the week:

• The Real Estate Windfall Blog tells us 9 ideas on how to get and keep good tenants. Most of these important points have to do with servicing your tenants and treating them the right way. This is a MUST READ for any potential landlord.
• Learn what the difference is between getting pre-qualified and pre-approved for a loan from the Sacramento Real Estate Blog.
• Find out about the nine traits of the middle-class millionaire from My Money Blog.
• Jim Duncan cuts to the chase and tells us how not to sell your house. In the current buyer’s market, his words hold true.

Tags: biggerpockets, Economy, gold, oil, real estate, real estate blogs

If anyone had any doubt that the subprime mortgage/credit crisis is taking its grim toll on other aspects of the U.S. and world economy, here’s a sobering figure:The unemployment rate skyrocketed to 5 percent (and,yes, that is considered high for the U.S. and a sign of a faltering economy) while employers added only about 18 thousand jobs last month.

Many economists are now saying this could be a critical warning sign that the nation’s economy is slipping into a recession—defined as an extended period of a shrinking economy and growing unemployment at the same time. Sound familiar?

There are predictions that the Fed, yet again, will lower key interest rates for banks in an effort to inject some energy into the economy.

The stock market, of course, took its own nose dive the day the negative numbers were revealed and there is little reason to believe that the market won’t continue its wild roller coaster ride.

Sure, there are other factors impacting our economy–oil prices hitting $100 dollars a gallon,political instability in many parts of the world (hint: Pakistan!) not to mention the steady decline of the U.S. dollar against the Euro.

But, even these can be linked back to the sub mortgage crisis in the U.S. which,afterall, really became a credit crisis long ago. Banks, governments,businesses and people do not like the notion that credit, in a credit driven world, is now hard to come by, even for relatively good customers.

True, the glut of unsold houses is bringing the price down, but people thrown out of work, or unable to find jobs, or credit or both, are not likely to be buying up all those hulking shells.

Yes, there are small parts of the country where we do see some light–but don’t count on it being at the end of the tunnel.

2008 is likely, think many economists, to be a year of still more foreclosures, ever tightening credit markets, fewer jobs and maybe even an honest to goodness recession.

See why when it comes to the real estate market here the knee bone is very much connected to the leg bone—and that bone appears to be fractured.

Tags: Foreclosures, housing crisis, mortgage, oil, subprime

Mortgage Meltdown
Countrywide Rises Despite Loss

Countrywide Financial swung to a huge loss during its third-quarter, but investors were just glad that it wasn’t worse . . . Countrywide and other lenders are reeling as borrowers default on their loans at higher rates. The spiking defaults have forced Countrywide to lay off thousands of employees and line up billions of dollars in financing to stay afloat. ^Forbes

US Economy

Jim Rogers quits dollar after declaring US recession
Jim Rogers, the veteran investor who predicted the 1999 commodities rally, declared that the US economy was “in recession” as he said he would take flight from the dollar and switch his investments into currencies including the Chinese yuan. Mr Rogers, who ranks among the world’s best-known investment figures, said he was putting his faith in China’s politically-sensitive currency alongside the Japanese yen and the Swiss franc.

“The US economy is undoubtedly in recession,” he said. “Many parts of industry are actually in a state worse than recession. If it were not for [Federal Reserve Governor Ben] Bernanke putting huge amounts of money into the market, the stock market would probably be down much more than it is.” ^{Daily Telegraph}

Gold price strikes fresh 27-year peak
The price of gold rocketed Friday to the highest level since the start of 1980, as the precious metal won support from the weak dollar and record high crude oil prices, traders said.

Oil Briefly Spikes Above $92 a Barrel
Crude oil prices spiked above $92 in Asia Friday on growing tensions in the Middle East and renewed concern about oil supplies. The United States announced new sanctions against Iran Thursday, targeting the elite Revolutionary Guards, which Washington accused of backing Shiite militants in Iraq. A confrontation between the world’s largest oil consumer and its fourth largest oil producer could upend markets. ^MyWay

Dollar Sinks to New Low
The dollar fell to another new low against the euro Friday in midmorning trading on speculation that U.S. interest rates will be cut again.

After rising to a record $1.4375, the euro slipped back to $1.4369, higher than the $1.4319 it bought in late Thursday trading in New York. The euro last hit a record high against the dollar Monday, rising to $1.4348. The euro was lifted higher by a spate of sour economic reports from the United States, including a report that showed U.S. orders for durable goods dropped 1.7 percent in September, after an even bigger 5.3 percent plunge in August. That was the first back-to-back decline in more than a year and took economists by surprise. ^AP

Tags: Credit, dollar, Economy, gold, Jim Rogers, mortgage, oil