Blogging Real Estate and the Economy

Finally the treasury admits the next big concern is the "credit default swap".  Secretary Paulson announced that $350 billion of the bailout would be used for "credit default swaps".  These are derivative bonds created by packaging unsecured credit such as auto loans and corporate loans.  Just another bailout of the banking and investment industry.  As the economy slows and jobs disappear, more companies and individuals will be unable to meet their obligations.  Keep in mind that the government in this case will not be buying assets secured by real estate.

Next years's big bailout will be mortgages on commercial properties.  These mortgages normally amortize over 15 years with a full balloon payment in 5 years.  That means refinance by requalifying for the mortgage in five years.  With shrinking business, many companies are bankrupting or closing locations.  Empty shopping center and office building units will make it difficult or impossible for owners/investors to requalify for a new mortgage.  Lots of new commercial mortgages created in the 2002 through 2005 period.  Surely, the federal government can dig up another trillion or two to bail out this problem.

WHEN WILL THIS STOP!

We the people have elected Barack Hussein Obama as our 44th president.  Frankly, I didn't think we had come that far as a people.  However, I am glad we did.  So what's next.

First, we need to support him in every way possible.  Let his plans develop and try to right our economy.

Second, we should know that his new Chief of Staff, Rahm Emanuel, is a tough alley fighter in the political world.  Yay, Mr. President.  You will need a tough fighter on your side handling the congress.  There are already signs that Congressperson Nancy Pelosi thinks she is in charge of our country. The new president will have a tough fight to move his programs through this congress with her and Senator Harry Reid in charge.

Third, I can't believe how many idiots are demanding that the president get the dog of their choice  Folks, we don't own him, we just elected him.  Let him and his children make that a family choice.

I wonder if anybody visiting this blog has any idea what group caused this terrible financial mess we are in.  I laugh at those who blame President Bush for the problems.  Either they are totally unable to read and understand history, or they are suffering from the ostrich syndrome.

I can't bring myself to launch into an explanation of how this came about, but I would suggest you look very carefully at the activities and speeches of a few congressman during the last 15 years.  Surprise! Surprise!  This started a long time ago and has be covered up by Senator Dodd, Senator Schumer, Congressman Frank, and to a lesser degree by many others, mostly democrats.  To be fair, I would like to name a few republicans, but I don't know of any who are involved in creating this mess.

President Bush warned of this.  Senator McCain warned of this.  Chairman Greenspan warned of this.  The only reason to cover it up would have been that some personal benefit was being received.

Incidentally, I begin to wonder about Secretary Paulson and Chairman Bernanke.  Their bail-out plan reeks of socialism.  There are better ways to stabilize the economy than give away taxpayer money. 

It looks like obtaining a home mortgage is returning to the good, old 20% downpayment and full qualification proving you can repay the mortgage.  The only exceptions are FHA and VA loans where you can still buy a home with less than 5% downpayment.  However, you still have to prove you will be able to repay the loan.

That said, maybe it would be a good idea for our major banks and other financial institutions to have to qualify to do business by the same stringent standards.  Our current bunch of stupid regulators like Paulson and Bernanke are making a complete mess with bailouts and takeovers of any company claiming to be nearly bankrupt.  They need to take action as necessary, but they move too quickly without considering all the alternatives.

Government takeover of AIG yesterday seemed far too hasty considering AIG could have freed at least $35 million quickly and more given a bit more time.  Now the government will be carefully mismanaging Fannie, Freddy, and AIG.

Still too annoyed to discuss details.

In the last three months, new home sales have been stable while the inventory of new homes has been dropping.  In the last six months existing home sales have been oscillating around a stable number while the number of existing homes for sale has been trying to stabilize.  These statistics indicate a possible end to a falling real estate market in spite of the horrific financial markets.

I believe we may be seeing a stablizing of homes prices.  However, I don't expect home prices to begin any amount of return to normalcy until 2011.  What I expect is a long, long bottom to the market.  Beginning in 2011, I expect a gradual return to home value appreciation of 3 to 4 percent per year.

I would appreciate your opinions. 

More garbage from our Democratic Congress.  The bill is being advertised as helping the homeowner avoid foreclosure.  Don't be fooled, this bill does only two things.

First, It bails out Fannie Mae and Freddie Mac by empowering the government to provide funds to them if they can't raise funds on the open market.  This will guarantee the survival of both private corporations.  Since they purchased approximately 68% of all mortgages originated in 2008, the loss of these corporations would very seriously affect the ability of homebuyers to obtain a mortgage on a home.

If it becomes necessary to bail out Fannie and Freddie, it will be with taxpayer money.  Between the two companies they hold about $5 trillion dollars in mortgage backed securities.  The fed would have to print more dollars to bail them out to some degree.  The fed printing dollars means inflation and international devaluation of the dollar.

Second, The new law calls for background checks, testing, registration and annual continuing education for all bankers and mortgage brokers.  Here we have a new and expensive requirement laid on an industry that is on the edge of collapse as it is.  Typical congressional activity......do it wrong and do it too late.

Really, There have to be at least a hundred amendments to the bill.  In scanning the amendments, I couldn't find anything to help the homeowner.

Solution, Start by electing a whole new congress which would not be allowed to hire any current capitol hill assistants.  Incidentally, there is a solution for the average homeowner that could be made law, but there is no point in discussing it, as congress lacks the intestinal fortitude to enact the law.

Today the Internation Monetary Fund (IMF) said their research shows the U.S. home prices still have to drop another 8 to 20 percent. I have a problem with this forecast.

How can the price of a new home drop far below the current cost to build an identical new home? Materials, labor, fees and taxes have significantly increased since homes were valued at the IMF's predicted price.

So much of our economy is based on new home construction. What happens when we can't afford to build them, because they will sell below cost of construction?

I can see a number of scenarios, all unpleasant.  Do you have a viable answer for me?

On July 10th, I discussed a few thoughts on possible easing of gas prices in the U.S.  Last week oil prices were down some 12% which nearly coincides with the recently reported decrease in miles driven in this country alone.

The world's economies are slowing as ours has.  Speculation on oil futures should also slow if the U.S. continues to move forward with drilling for oil offshore and in Alaska.  We could see gasoline at $3.50 per gallon before the end of the summer.

Let's keep our eyes focused on congress to see if Nancy Pelosi and her henchmen can mess this up like they have done everything else they touch.