I realize I am not the only guy on this planet who reads the “news” as presented both in the newspapers and on the Internet. Even if I didn’t read the news, I’d get a good dose of what people are calling reality. That dose comes from the mix of clients our insurance agency serves. Lucky me…
Here are two sentences taken from two separate news stories:
“The coffers of the Federal Deposit Insurance Corp. have been so depleted by the epidemic of collapsing financial institutions that analysts warn it could sink into the red by the end of this year.” – AP
“Pending U.S. home sales rose more than expected in July to the highest level in more than two years as first-time buyers rushed to take advantage of a tax credit that expires this fall.” – AP
Is it me or are these two sentences sending conflicting messages. If it is me, I apologize upfront. However, I don’t think it is me.
According to published reports, so far this year, 81 banks have failed. Last year only 25 went down the toilet while in 2007, if you’re counting, only three went south. These same sources project hundreds of more banks are expected to fall. The primary reason given is due to souring loans for commercial real estate.
If these projections are correct, that threatens to deplete the FDIC’s fund, as you might expect. Let’s back track a moment and look at those rosey July numbers. It doesn’t make much difference what those numbers are numerically because they are based solely on a gimmick called a tax credit.
Don’t get me wrong, I prefer credits over deductions, but nobody is talking about the ability of those buyers to pay their mortgages once they use their credit. $8,000 sounds like a lot of credit/money but once you put numbers on the 1040, it could be devoured in one year. Fast forward to year two and factor in the possibility of unemployment and a huge number of bank failures (depleting FDIC’s ability to keep the system solvent) and you have the genesis of a possible third round of a huge number of foreclosures.
Add In Health Care
Health care is, at least to me, the clinker in the above possibilities. If the bill passes as presently proposed, Americans would be fined up to $3,800 for failing to buy health insurance. If you aren’t keeping up with the health care shenanigans, you should be as it impacts your life in more than just a significant way.
The biggest way it will impact you, by the way, is it names the IRS as the oversight agency making sure you and I have purchased our health insurance. Ponder that for a while, ladies and gentlemen.
Using the above new home buyers as an example, what if a number of them are in the $3,800 fine range? Ouch. More punishment. Remember, this proposal is coming from the guy who said,
“Punishing families who can’t afford health care to begin with just doesn’t make sense,” during his party’s primaries.
If that isn’t what’s happening, I don’t know what is. If you are like me, you never in a million years would have factored in health care and/or health insurance into your real estate investing decisions.
Look Reality in the Eye
This post isn’t about health care or the FDIC, per se. It is about what you and I should know as the year comes to a close, at least if we want to remain a player in real estate.
If you are a landlord, these are the renters you need. If you are a flipper, these are the people who would ordinarily buy your property. If the FDIC actually gets overwhelmed, all of us, not just real estate people, will undergo a change in life style.
I’m watching a mini version of this scenario in my backyard so I can say first hand, I’m not out of the box with my writing. If everything happens as predicted, our business plan will be altered.
Isn’t it nice to know that Washington, D.C. can impact your entire life with one swipe of the pen? Remember, they have already mangled the auto industry, handed out trillions (per a Congressional hearing on the Federal Reserve) to Wall Street buddies with no accountability so why would anyone believe real estate will be exempt from Washington’s claws?
Reality isn’t pretty sometimes.