Thanks to the US Subprime Fallout and resulting economic decline, we're starting to see global markets collapse.
[b]
Stock markets around the world are down today across the board, with most of the largest and most important down between 5% and 8%. That's right - we're talking TODAY ALONE[/b]
Track global markets at:
http://finance.yahoo.com/intlindices?e=europe
http://finance.yahoo.com/intlindices?e=asia
http://finance.yahoo.com/intlindices?e=americas
http://finance.yahoo.com/intlindices?e=africa
Traders around the world fear a US Recession, and see little promise in President Bush's stimulus plan.
What's next?
Edited: 06/26/2010 at 04:33AM
Joshua Dorkin, BiggerPockets, Inc. E-Mail: webmaster@biggerpockets.com Telephone: 877-831-4704 Website:http://www.biggerpockets.com Be sure to check out the BiggerPockets Blog at http://www.BiggerPockets.com/renewsblog/
Don't be so quick to hope for lower rates. A simple law of physics states: Every action has an equal and opposite reaction. Lower interest rates from the Fed will lead to lower rates on investor savings. It will also cause an already weakened dollar to fall even further. This, in turn, will cause the cost of imported goods to rise. The major import is oil. After the last rate cut the price of oil hit the $100/ barrel mark. How much do you want to pay for gas? Lower short-term rates will lead to higher inflation. This will cause long-term interest rates to rise taking mortgage rates with it.
The Fed has to play a very dangerous game with interest rates. It is a balancing act. The primary purpose of the Federal Reserve is to provide liquidity to the markets, everything else is secondary to that. If they stray too far from that purpose very bad things can occur.
I think we could be in for the biggest recession since the great depression. We've got a BIG mess and the FED is in a box with no way out. Our manufacturing has moved overseas and our economy is a service economy based on consumer spending. The consumer is upside down on his mortgage; out of room on his credit cards; has no savings; and can't afford to put gas in his SUV. In addition, we have an entire class of victims who live off of the taxes of the few people who actually work. Game over!
I'm with Mike on this one. I see this as the biggest financial disaster to face the country and world since the Depression. It is only going to get worse, people.
Edited: 06/26/2010 at 04:34AM
Joshua Dorkin, BiggerPockets, Inc. E-Mail: webmaster@biggerpockets.com Telephone: 877-831-4704 Website:http://www.biggerpockets.com Be sure to check out the BiggerPockets Blog at http://www.BiggerPockets.com/renewsblog/
Gold might be the right strategy. But at $870/oz, pretty tough to stomach buying it. OTOH, we may look back in a year (or a month) when its $2000 and wish for that cheap $900 stuff.
You guys probably recall me mention Harry Dent's " The Next Great Bubble Boom" and John Talbott's " Sell Now" . Looks like both these guys may have been at least partially correct, but a fair ways off in their timing. Talbott's prediction of a significant fall in housing prices looks to have happened a couple of years early. Triggered, I think, but this whole subprime mess. Dent was predicting a significant runup in the dow until about 2009-2010, then a recession that would make the great depression look like the good old days. I'm afraid the credit crunch may have clipped stocks and started his reign of bad times even sooner than his predictions. I hate that -- when a prognosticator blows the good news but gets the bad news right.
In the other hand, we've been through recessions before, and recently. We've pulled through bad times before.
While I agree that there is a LOT of pain yet to come, I don't share all of MikeOH's gloom and doom. Some of it, yes. There are HUGE problems and we have politicians that have no clue about economics, but they sure understand "earmarks" as a way to get votes.
The negatives have been well documented.
On the plus side:
Our economy is huge and the world needs us for that reason. Someone has to buy all of that "stuff" that other countries produce. A large recession here becomes a worldwide recession pretty quickly
The FED is going to lower interest rates to some degree to fight off a recession. That will cause the dollar to fall even more than it already has. That will make it attractive for foreigners to buy our goods and to vacation here. That, in turn, helps to support our economy.
Those of us who are old enough may recall the hysteria caused by a huge wave of Japanese investment. They were buying everything in sight because the Yen was so much stronger than the dollar. One example was their purchase of Rockefeller Center in NYC, people were outraged. Yet, a number of years later the Yen collapsed and they wound up liquidating their real estate holdings at huge losses.
It will be almost impossible for the FED to continue to fight inflation as well as they have. Not all aspects of inflation are bad. People with debt, such as real estate investors with mortgages, will be paying it back with cheaper dollars. Let's not forget who the largest debtor is. Uncle Sam will be paying back the trillions of national debt with these cheaper dollars.
People are up in arms over the immigration issue. However it is the low paid immigrants paying into the social security system that will keep it from collapsing. The trick is to get them documented so that they aren't working for cash and going untaxed.
The biggest problem is that politicians do not have the guts to do the things that must be done. Most of them don't even have a clue about the long-term ramifications of the legislation that they enact.
Overall, our economy is very resilient and will come through this. There will be pain but there will also be enormous opportunities to profit.
Although part of our manufacturing has moved overseas that move helped most of our companies boost their profits, which in the end is a plus for the American economy. As long as our companies thrive overseas I think there is no need to worry a big recession
So here's the million dollar question--how does this recessionary/collapsing financial environment affect what you guys are doing with respect to RE investing? In other words, is this a good time to sit on the sidelines, build up cash and wait for things to bottom out and pick up properties for pennies on the dollar, or just keep hunting and pecking for good deals?
Given the fact that today's bargain could be tomorrow's even bigger bargain, what are you guys looking to do over the next year or so?
I actually sat down with a lender on Saturday... the 3/4 points rate cut would save me about $40 a month on interest on a loan for a flip I'm probably going to do.
Not anything great but $400 a month in interest instead of $440 is something.
Hopefully I'll be in and out and have it sold in less than 3 months but if I can't sell it right away it helps with holding costs.
So here's the million dollar question--how does this recessionary/collapsing financial environment affect what you guys are doing with respect to RE investing?
Would you rather buy when prices are low or when they are high? It is impossible to call the exact bottom and very difficult for most people to buy an entire portfolio at any given instant. If you're in the flipping game, you've got no choice. You either keep buying and selling or you're out of business. If you're in the rental business, this is an excellent opportunity to buy properties at an even greater discount than normal.
A fed rate cut does NOT equate to a drop in mortgage rates. It could, in fact, have the opposite effect. The prime will drop which means lowers rates for things tied to it, like HELOCs. A drop in the Prime Rate can result in higher inflation, which, in turn, can cause long-term rates to rise. You will actually see mortgage rates rise if the 10-year bond rate goes higher since most fixed rate mortgages are tied to that.
He actually emailed me and told me about the drop and that I would be saving money. I am getting a rehab loan at prime + 1.5% in which they'll loan me 80% of ARV and give me all the money up front. I'd be paying interest only for up to 12 months, and then if the house hasn't sold I'll have to refi into a conventional loan.
Basically from my understanding I went from 8.75% down to 8.0%.
Which on a $50k loan should drop my monthly interest only payment down from $437.50 to $400.00.
I am new to this and it will be my first loan so if I'm wrong or missing something please let me know.
On a rehab loan tied to the prime rate you are correct. Many people are under the impression that fixed-rate loans are tied to Fed rate cuts, they are not.
I have mixed feelings when things like this happen because I know that I am positioned correctly and that's good, but on the other hand I 'm concerned because if things get too bad then I'm worried about the tenants (even the good ones) going broke and not being able to pay.
I'm seeing this as a fantastic time to own rental property. People cant buy and more people lose homes every day. They still all need to live somewhere. Not only are there more renters, but I think the odds of getting better quality renters have increased, just simply due to the simple laws of supply and demand.
Wish I owned some rental property right now...arggghhh....or could find cheap easy financing to buy some...! lol.
Jan 20 '08, 08:47 PM
