A friend of mine sent me to this website: National Priorities Project

The headline on the page reads:

National Priorities Project analyzes and clarifies federal data so that people can understand and influence how their tax dollars are spent.

There is a link titled Affordable Housing Units on the page that tells you how many affordable housing units your city, county or state could have built had the money not been diverted to the war.

Since I live in a state where the foreclosure rate has been, and is still hovering around, 1 in 43 households, I wondered to myself if those dollars could have been used towards helping people keep their homes never mind building more. Or perhaps, those dollars could have been better used to maintain the infrastructure (bridges, roads, etc.) or better used in the education arena or better used well, just about anywhere else.< !–more–>

I am not endorsing the above website nor am I saying they are 100% on the mark. What I am saying is if this website is even 50% correct, do you suppose a percentage of our problem lies in the way our politicians throw away our dollars.

As it turns out, my eye wandered around on their home page and once again landed on their title line. Right there in plain view I saw a most glaring error. The website owners actually believe the PEOPLE not only can understand but influence how their tax dollars are spent. Obviously the website creators aren’t from Nevada…

The first and last time the people thought they could influence the way the government spent tax dollars, George Washington was president and he had to use soldiers to quell the rebellion. That’s right, the father of our country used armed force to crush the people’s spending wishes.

It appears the politicos have only changed modus operandi between then and now. Instead of using soldiers, they use foreclosure, bankruptcy, outsourcing, bailouts and other financial tools and ploys to quell the rebellion.

What rebellion you may be asking.

The rebellion symbolized by our children being displaced in the work force by people who have to sneak into the country under the cover of darkness rather than walk in during the day. The rebellion symbolized by gutless weasels like Mike Nifong and Jeremiah Wright.

I could go on with examples but I will spare both of us. All we have to do is open our eyes and there they are right in front of us.

I believe we instinctively know the only thing that keeps us from becoming a Zimbabwe or Beirut is trust. We trusted our representatives to do the right thing and they didn’t. Rather than keep the scoundrels from recreating another Savings & Loan crisis, they actively participated in giving birth to S&L revisited.

Unless you are completely devoid of feelings or thought, you know I’m correct. Trust is really all we have. We have to trust those we put in charge of the national treasury. We have to trust those we let make important, life changing decisions. And, we have to trust in each other.

Otherwise we will have 1 in 43 households not only in Nevada but in Texas, Florida, New York and every other state that starts with a letter of the alphabet.

P.S. Next week I will present a solution to the mess we are in that I think is absolutely on the money (no pun intended).

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Tags: Economy, Foreclosures, Housing, money, politics, public policy, real estate, recession, S&L

Before we can talk about the good news of a recession, lets define exactly what a recession is: 

 ”In macroeconomics, a recession is generally associated with a decline in a country’s real gross domestic product (GDP), or negative real economic growth.  According to widespread definition, a recession occurs when real growth is negative for two or more successive quarters of a year.” - Wikipedia

The biggest problem with current economy is that there great debate on whether we are in a recession or when it might of started.  So lets forget about the guessing game of a recession and take a look at few facts.

Since the 1940’s there have been 11 recessions.  On average the have lasted 10 months.  The good news on past recessions is not only are they short lived but the economy is generally already recovering by the time we declare that we are officially in a recession.

More good news on recessions. According to a 2007 report from The Wall Street Journal the stock market has actually rose seven times.  Further more, of the last 11 recessions the market has seen returns at a 3% average.   

So if we are in a recession now, what can investors take advantage of?

Interest Rates: Individuals that have equity in there property, this is a great time to do home equity lines of credit (HELOC).  Heloc’s are tied to prime and that is currently at 5.00%.  While most individuals just rolled their eyes and thought about how Chase, Wells Fargo and many other national lenders only go to 65-80% of the value of their property.  There are still a number of Portfolio lenders out there that still go to 95-100% of the value of your property.  See my other article about “How to Find a Portfolio Lender” if you are curious.

Awareness:  While a recession does not effect everyone in a the US, it certainly can create awareness.  This awareness can lead to individuals paying closer attention to their personal finances.  By this I mean, purchasing things one can not afford, paying down unsecured debt and actually saving money. 

Rebound:  Historically the economic cycle has never failed.  It cycles both up and down, and there have been winner and losers in each cycle.  From a real estate prospective we can all predict that the market will return to normal.  Investor and home owners can argue about what normal is, but when appreciation returns to your market, that is a least a starting point.  The good news that every market has begun to see this return of appreciation.  Across the board you can find major resets in housing prices, mostly facilitated through foreclosures and short sales.   While these foreclosures and short sales are a travesty to the individuals going through them, it is an opportunity for others.   92% of the US are not apart of the foreclosures, this along with a new affordable price point will bring back the first time home buyers and appreciation.

While there is nothing any one person a can do to change a recession there is plenty one can do to prepare for one.  Some will reduce their expenses, some will save money and others will find new affordable homes.  But we should all raise our awareness and plan for the future, do not be scared there is always good news to find.  

Tags: Economy, foreclosure, housing, Interest Rates, Real Estate Market, recession

Fannie Mae and Freddie Mac, combined, own or back up some $5 trillion dollars of debt. That is about half of ALL the mortgages in the U.S. They have already lost some $11 BILLION since the current mortgage/credit crisis began, so it is easy to see why there is profound concern about their fiscal health–or lack there of.

Concern turned to horror today after the New York Times reported that the U.S. government is thinking about a takeover of the mortgage giants–placing them in a conservatorship.

Should that happen, the shares of both could be worth almost nothing and taxpayers, you and me, would have to pick up the tab, says the Times, for “any losses on mortgages they own or guarantee–which could be staggering…”

This news brought about what the AFP news agency referred to in a headline as a “meltdown” of the share prices of both Fannie and Freddie.

According to Reuters, “Fannie shares closed at $10.25, down some 22 percent but well above the session low of $6.68. Freddie closed at $7.75, down 3 percent, after touching a low of $3.89 earlier in the session.”

And, here is the most amazing part of the story. Freddie and Fannie have lost almost 90 percent of their enture value just since August, says Reuters.

Doubts about bailout

As the day drew to a hectic close, Treasury Secretary Henry Paulson sent out signals that it is not likely there will be any federal bailout–However, Sen. Christopher Dodd of Connecticut, who is chairman of the Senate Banking Committee, said he spoke with both Paulson and Fed Chairman Ben Bernanke and that they are looking at options that would include “opening access to the discount window,” Reuters reports. The discount window allows the Fed to act as an emergency lender for the banking system.

Meantime, both Fannie Mae and Freddie Mac insisted they have enough capital to keep going and Sen. Dodd said both are “fundamentally sound and strong.”

Although both were originally formed by the federal government, they now function as private corporations, though there has always been an assumption that the government would never let either go under for fear of what might happen to the entire financial system in this country and, indeed, around the world.

How they got into trouble
To understand how they got into trouble, you must first understand what it is they do. Both buy up literally hundreds of billions of dollars in mortgages–then repackage them as securities.

In some cases, they hold on to these new securities, but they also sell them to investors.

That is why when the subprime mortgage crisis hit,Fannie and Freddie were hit hard. And, says the New York Times, “analysts expect the companies to announce a new round of write-downs and possibly be forced to raise capital by issuing additional shares.”

Stocks tumble then regain

At first, the fears of a Fannie/Freddie implosion plunged the Dow Jones Industrial Average down more than 200 points…but, by the end of the trading day, it closed down “just” 128.48 points.

Tags: bernanke, depression, fannie, fannie mae, freddie, freddie mac, lending, loand, loans, mortgage, Mortgages, paulson, recession

“BOOM!  Here comes the BOOM….ready or not!” - from the song Boom by P.O.D.

Greetings from the Metropolis of Cedar Crest, New Mexico!

With a torn achillies tendon, I hobbled my way into the gym and turned up my Ipod.  The song Boom by P.O.D. (one of the best workout songs there is) came on and I started to tear it up…pain and all.   Pull ups, bench press, back rows……..Arrggh!

I hate working out…but I have a body type that if I do not workout I will ballon.  Bad memories of being called “fat tard” back in the sixth grade start to infiltrate my mind when I move up pant sizes.

Anyway…..

After my workout, I sat on a bench and listened to the song again…..and I started thinking real estate.  “Boom…here comes the Boom…ready or not!” The chorus continued to repeat itself in my mind..and I  thought long and hard about all the articles and books I have read in the past about what is to come in the Real Estate Market.  Unfortunately, the “boom” is not in regards to “good times”…but…bad times for most…and opportunistic times for the smart investor.

One thought that sticks in my mind is what I read in Harry S. Dent’s April 2008 newsletter “….due to the fact that we have three major concurrent bubbles - stocks, real estate, and commodities - all unwinding in a similar time frame within a global economy with very different demographic and bubble trends.  The last time all three major assets cycles peaked was the crash from 1835 to 1843, which led to the depression of the early 1840s”  (there is a lot more to the report….but this caught my eye and my simple mind).  Interesting huh?

“Obviously things are not going well.” - Captain Obvious

So….assuming things are going to get worse (which they are) and assuming real estate values you are going to plummet (which they are).  Also assume that gas prices go up (which they will) and the population starts to hoard it’s money (economics 101). One more thing….assume we are heading into what most experts agree…deflation.  Now the questions are….what is a real estate investor to do?  Is it too late?

What do the experts say?

Well… here are three schools of thought (there are hundreds more…but who would read all that?) that come from a range of so called experts (Harry S. Dent, Robert Kiyosaki, Nouriel Roubini,  Robert Prechter, and  John Williams) and they all have to do with the philosophy that “cash is king” (This is how I interpreted the information and by no means should you think that I interpreted the information correctly…do your own research please):

1. Raise as much cash as possible via LOC (lines of credit…if you can get one), HELOC (Home Equity Line of Credit…if you can get one)…then hold on.  Be a scavenger and cherry pick deals as they come up.  My feeling is you will not see the “cherries” until early next year.  Remember…when the market hits bottom…here is where you will make your money….on the purchase…and you will be ready if you have cash.
2. Sell everything….and hold on to your cash.  Same as number one…but with the thought that if you sell now, most experts believe you can buy it back at 40 - 50 cents on the dollar in the future.  Holy cow!
3. Sell your non-cash flowing properties (i.e. land) and under performing assets now (if you have a buyer).  Also sell your A and B properties.  Hold on to properties that serve lower income populations.  The thought process here is that class “C” apartments, mobile home parks, and retail shopping centers (retail that caters to lower income populations) will provide nice cash flow and probably over perform (if you purchased right) in the coming years.

Smart investors make their money in good markets and in bad ones……which one will you be?  Only time will tell.

OH…..I would love to hear what you are doing to prepare.  If you are not…I want to hear from you anyway..so please comment….

Until next time…..rob

Tags: cash, cashflow cash flow, depression, Economy, finance, Harry S. Dent, heloc, investor, real estate, Real Estate Investing, recession

To just about no one’s surprise, the U.S. Congress failed to act on a foreclosure prevention measure before closing down for the long July 4th weekend. And, some think the Congress won’t do all that much once the weekend is over, either.

A New York Times estimate is some 55,000 more homes will be in foreclosure by next Monday! Amazing.

Mind you, the bill being considered by the Senate is far from a cure-all: It is voluntary, for one thing, and it would ask lenders to issue new mortgages at a reduced rate of 85 percent of the current price of the home.

By many accounts, then, even passage of this measure would be a drop in the bucket. But a drop is better than a drought anytime.

Could it get much worse? What are you kidding!

Yeah, it could get worse. In fact, it already has.

Evidence:

Since January 1st, stocks have lost $2.1 TRILLION. I don’t even know how many zeros that is?
Last month, the market suffered its biggest June loss since the Depression.

U.S. auto sales are now officially at a 15 year low and dropping.

Even Starbucks is buckling–announcing it will layoff up to 12,000 employees and close down 600 stores.

And, as amazing it may now seem, these are but a few of the latest ramifications of the the subprime mortgage crisis that ignited this global fire.

While there are more vacant homes on the market, credit is so damn tight that fewer and fewer people can afford them, even at such “bargin” prices. In fact, the interest rate on a 30 year fixed mortgage is actually up, making it that much more difficult for a buyer to — well, buy!

In the months ahead, economists fear that credit card debt will strangle more and more people who will then miss payments to the bank or not pay at all.

For some, the answer to this entire problem is a simple one: Fix the housing mess and everything else will fall into place.

But I am not convinced it will be as easy as that.

After all, while we like to talk about this crisis as having been sparked by the mortgage debacle, the truth is far more complex than that. Bank and lender greed, lax government oversight, suspect credit evaluations, dubious exotic investment vehicles–all these and more interacted to bring us to where we are today. No single fix, then, of any single component of this puzzle will solve it.

But you have to start somewhere, so it might as well be with the foreclosure mess. And that is why Congress must come back after the 4th with the pedal to the metal or else witness the further destruction of the global economy as we know—knew?—it.

Tags: Economy, foreclosure bill, Foreclosures, housing, housing law, recession, senate

In the 60s, Sonny & Cher (before Sonny crashed into a tree while skiing) had a big hit with the song “And The Beat Goes On”–or something like that. Now, in real estate, 2008, a good song title might be “And The Debate Goes On!”

The “debate” is whether or not this is or isn’t a good time to invest in real estate. There are those who argue that real estate is always a good investment (see “Gone With The Wind” Chapter 6, page 147, paragraph 4, sentence 7, Scarlett’s dad to Scarlett : “There is always the land, Scarlett.”) And, as we know, in the end, it was the land that Scarlett returned to after the South got the s–t kicked out of it by the North (okay, I’m from New York, so I am partial to this version of reality..which happens also to be …well…reality!)

Now, the cool thing about fictional characters is–they are fictional. They don’t really have to feed their families or save for retirement or worry about paying for their kids’ education. Heck, all Scarlett had to do was hope that Rhett would come back one day and wisk her away to an even better chunk of real estate.

Time To Get Real. This Ain’t No Novel

That’s right. This is the real world. No authors to help us along our way by dreaming up another chapter or another character to save the day.

In the real world, a bad investment–and, yes, there is a Santa and, yes, there are real bad real estate deals–can actually hurt you. The point being, if you are going to invest in real estate in the current climate, you had better do your homework and know what you are up against.

The economic picture is bleak and seemingly getting bleaker each day.

Just this week, The National Association of Realtors said sales of existing single-family homes tumbled last month by 2 percent,while the median price of a home declined 7.7 percent from a year before.

Yes, there are pockets in the country where this is not the case. But, that is the exception and most certainly not the rule.

What began as a subprime mortgage crisis has ignited an economic fire burning around the world and devastating all sorts of different businesses…from banks, to brokers, to airlines (three of the biggest U.S. airlines this week reported large quarterly losses pegged to soaring fuel costs), to automakers, to newspapers, to broadcasting, to resorts, to …..well, you get the idea.

No one…no one…really knows where this recessionary train is taking us and how many stops there might be till we get to the terminal?

Conventional wisdom…not so wise

The “conventional wisdom” is to buy real estate when there are bargins to be had. And, under normal times, this makes total sense. But, the point is—these are far from “normal” times.

When times are not “normal”–so-called conventional wisdom gets tossed out the window.

This is not to say that no one should invest in real estate at this time. Someone has to. But, as I said before, this is NOT the time to learn on the job.

Tags: and the beat goes on, gone with the wind, home prices, median home prices, national association of realtors, real estate investing, Real Estate Market, recession, sonny & cher, subprime mortgage crisis

How is this for a blunt statement: If you are one of those who believes this subprime real estate debacle is going to turn around anytime soon, you are wrong! I’m not saying you are probably wrong. I’m not saying you may be wrong. I’m not even saying that more than likely you are wrong. I am saying…you are wrong! This is NOT going to get better soon and here is why:

What we are witnessesing is so far beyond a real estate/mortgage issue that it isn’t funny…and no one is laughing anyway.

This is about a lack of confidence in our financial institutions that have let us down; in our regulators who failed to regulate; in our politicial system that failed to act; in our collective greed which apparently knows no limit; in ourselves for being stupid enough to actually believe there is such a thing as a free lunch when, in reality, there isn’t even such a thing as a free cookie.

And now, we are all paying for it and will be for some time to come.

Look at the evidence and stop being dumb

I know I am sounding harsh. But, let’s face it folks, we’ve been pretty much living with our heads in the sand and the sand’s value is declining each year.

When one compares pending home sales to February of 2007, according to a real estate trade group, sales are down 21.4 percent. Let me repeat this number so it sinks in–21.4 percent–written out that would look something like this: twenty one point four percent.

One measure of the public’s economic optimism—generated by Investor’s Business Daily and TechnoMetrica Market Intelligence–shows a drop from 42.4 percent in March to 39.2 percent this month.

Retail Sales Weak

Because Easter came early this year, or at least that is the excuse, retail sales are hurting.

J.C. Penney Co says earnings for its first quarter could miss forecasts by as much as 38 percent, reports Reuters.

Wall Street is bracing for Thursday when other major stores are expected to report their Easter non-sales figures.

WaMu To Ax 3,000 jobs!

Seatle based Washington Mutual is (was??) the largest savings and loans bank in the United States. This week, it had to go begging for a $7 billion capital injection from a private equity firm and others because the mortgage crisis is expected to amount to a $1.1 billion quarterly loss for the thrift which will eliminate 3,000 jobs and shut down its 186 home loan offices.

Just since January, more than a dozen commercial and investment banks had to get cash bailouts after write downs of more than $200 billion mostly because of the housing and credit crisis.

Not since the Great Depression

What happened with Bear Stearns was the closest we have come to a run on the bank since the Great Depression…The 1929 market crash, contrary to what many believe, did not cause the depression–a run on banks over a protracted period of time did.

As we find ourselves in the middle of what has to be the world’s longest political campaign, there are those who foolishly believe that John McCain or Hillary Clinton or Barack Obama or Mickey Mouse will turn the world’s economy around.

Grow up people. Better still, take a course in American history. Or, economics. Or, both.

F.D.R did NOT get the U.S. out of the Great Depression–World War Two did. Wars force government to spend and print and spend and print money to keep them going. This causes inflation, to be sure, but, in the short run, wars actually help the economy. World War Two did, the Korean War did, the Vietnam War did and the Iraq war is doing!

I know, you’re saying, wait a minute! The Iraq war! Helping the economy?? It is sucking billions of dollars away from other causes.

Well, the problem with that thinking is, it is not the way the real world–or the Obama world–works. In fact, there has never been any evidence..not one ounce..that wars actually drain money from social programs or anything else for that matter. In other words, if we didn’t have the Iraq war, all that money being spent on it would not all of a sudden be freed up for education and housing and health care and whatever. It just wouldn’t exist!

The biggest dirty little secret

There are many reasons why the Iraq war is now in its fifth year…and one of them is, it is producing plenty of jobs in the so-called military-industrial-complex and enriching companies that are basically in the business of war and war support. Without the Iraq war, our economy would not be better, it would be worse! And, that is the dirty little secret that Washington understands and most people do not.

When will the economy turn around?

All this brings me back to where we began. The current subprime, mortgage, housing, credit, banking crisis is not going to end anytime soon. Some experts say maybe a year or two, some say maybe longer.

Will some people benefit from this? Of course. Some people will have the money to buy up those foreclosed houses at cheap prices and they will make the nightly news and we will read stories about how this is proof that people can take the bull by the horns. But, you know what? That is just bull. The reason why these people make the news in the first place is because their stories are unusual…they are not the norm.

If you don’t realize that, then you are probably one of those people who actually think a “Tall” at Starbucks is large, when it really is what used to be called—–small.

Tags: bank crisis, clinton, depression, Economy, federal reserve, housing, iraq, mccain, obama, recession, subprime, war