The following are older posts from this website.
On the “bailout”
There appears to be no direct impact on homeowners trying to save their homes, nor investors who own part of the 70%+ of the distressed housing market. Make no mistake, despite the spin that it was given. There is nothing in it for the mortgage holders. This bailout was strictly to alleviate pressure on the lenders (some of whom are paying obscene bonuses to their CEO’s even as they go under) holding bad mortgage, in the hopes that it would free up capital to lend, thereby infusing the financial markets which is currently undergoing a credit crunch.
“We still don’t see enough specifics in this bill to be sure neighborhoods will benefit from this instead of Wall Street,” said Alan Fisher, executive director of the California Reinvestment Coalition, a group of community-based organizations that lately has focused on preventing foreclosures. “Why not say, ‘Stop right now, don’t foreclose on any more people, let’s find a way to solve these problems.’ “*
Bottom line is you & I, the average tax payer now has a larger debt (thanks to the government), our money is worth less (that’s what happens when they print billions upon billions more of it) and it’s ending up in the pockets of companies that by all rights should just die. If you or I make a bad investment decision, or buy a home we didn’t have inspected and it comes back on us in the form of a devalued investment then we are forced to accept the losses and that’s really the way it should be. Why is it that companies that are losing money and yet paying their CEO’s billions of dollars in bonuses, rewarded for this behavior with our tax dollars?
On the bright side, if you have the money it’s a good period to be shopping.
* Of course part of the dirty little truth that people don’t want to talk about is that alot of investors and many homeowners that got in with little or no down are looking at the numbers and WANT to walk away, wililng to take the credit hit, so that they don’t end up in the tens, or hundreds of thousands of dollars in the hole. I know of an investor who, all told, if they kept their properties, they’d be a million negative equity. Do they want to keep it? nope. I don’t approve or condone this whole mess and I didn’t conduct my personal investments in that way either, but it is what it is. Let’s look at it realistically.
09/25/08
Hot off the press
As of today, Washington Mutual is owned by JP Morgan Chase. Remember you heard it here first. If you have money at both JP Morgan and WaMu, you’re ok for six months, after that time you are only covered by the FDIC as if (and in fact) they are one entity.
For the moment staff and branches all remain open but that will change over time.
09/16/08
It’s been a rough week for the US Financial markets.
The feds have made clear they’re not going to bail out the banks. The market reacted. Lehman Bros. has gone under. AIG is on the brink. Wamu’s credit rating has been downgraded to triple-B minus. The scope of what’s happening in some respects beats records set in the great depression.
Are the markets in danger of collapse? I don’t know. It is looking worse than before.
Times like this get me thinking about fiat dollar doomsday scenarios.
However here’s the reality, though, unless you’re rich enough to relocate somewhere else and keep on going, you’re going to stay in the USA for richer or poorer.
Note: At this point I started a deeper examination of the financial markets and the effect of a collapse of the fiat dollar etc… but realized it’s really not germane to this blog.
In simple terms, it really comes down to the same thing.
- spend less than you make
- keep bills in line
- be in a position to stay where you live, in the home you have, if things get bad
- if you move, do so wisely. buy something with solid value
09/13/08
Definitions and caveats
I’ll lump together some of the basic definitions and caveats used when I’m writing. My definitions are not the only definitions, but I explain them here in order to provide clarity to my posts.
Definition: flipping
The resale of a property (or assignment of right to purchase) in which the current holder/owner has not added value beyond the momentum of the market.
Definition: momentum
direction + velocity = momentum
Caveat: On long term future appreciation of the market.
Past is no indication of future performance. Yep. We’ve heard that. Here’s my expanded take on it. In the past we had single earner households. As prices increased, we had one household member take a part-time job, and then later a full time job to make up the difference. At the same time, the increased spending power of the home buying family fueled increased home prices. Now we’re at a place where there are frequently three jobs between two people and their individual incomes have increased as well. I wonder to myself “who are you going to put to work next?”. In order for prices to double yet again people need to have the income to support that. At the same time, those who do NOT have the income have two choices. Hold tight and keep what they have or move farther out to more affordable homes. Can homes continue to double roughly every 10 years? Only if buyer’s incomes continue to support it. Take my advice and always buy smart. Buy what you can afford. Stretch but don’t stretch yourself over a cliff. You might fall off.
Caveat: On the economy as a whole.
If you haven’t ever heard of the Fiat Dollar, you really should look into it. There are numerous videos on youtube, and many sites that explain it if you google it. If the fiat dollar crumbles then all bets are off. Frankly, I’ve given this a lot of thought. For me personally, I’m reducing debt, keeping a large part of my portfolio in real estate, and looking for ways to diversify a small part of my portfolio as a hedge. Outside of that I’m going to just going to refuse to bet all against the USA. There’s a certain amount of angst in all of it, as the gold sites do a great job spinning it a little into a nice scare story and even if you look just at the facts they don’t paint a rosy picture. At some point, though, I have to act and here’s how I figure it. I live here. My life, my assets, my family are all here in the USA. So I’m going to operate on the assumption that it will survive, economically and otherwise. Just to be safe, I’ll hedge my bets and have a nest egg if something horrible happens, but I’m not about to go selling everything off and buying a pile of gold or anything.
09/12/08
Why it’s not the end of the world.
A while back I wrote a blog entry that stated emphatically why I thought the world would never be the same again. In it, I explained about the increased consumption of China and India and its impact on our food and fuel supplies as well as many other resources.
Fast forward. We’re nearing what I believe to be the bottom of the real estate market and things are going to be just fine for most of us. (with one caveat, which I’ll cover at the end)
Typically home prices doubled every 10 or 12 years or so for the last half century. During the last run up it doubled twice or nearly in many areas. As prices retreat people talk about property values sinking to half their peak value. What that really means is that prices are adjusting to where they would have been before people began treating homes as if they were commodities. When people began buying homes to flip, I was concerned. I explained to many of my clients that if the market was treating homes as short term commodities, flipping them for profit and riding market momentum, they would begin to behave like commodities and therefore subject to drastic downward velocity as well as upward – something which hadn’t been experienced much in the market (I’ll have to add another caveat here too)before.
Sure enough we’re seeing that in weaker areas, in overdeveloped areas, and even in more stable areas, prices are retreating. In Stockton prices have dropped, for example, from $450,000 for a newly constructed tract home all the way down to $150,000. In other areas, like parts of San Francisco, prices haven’t dropped very much but overbids are less common and homes are on the market longer. In Pacifica, homes in the Linda Mar area have dropped from the $700,000 range, back down to the $600,000 range.
Ok. Back to why this isn’t the end of the world. If you bought your home roughly 2003 or before, you’re most likely doing fine with equity in your home. If you don’t need to move, then you’re fine. Hold tight and over time your home will most likely appreciate. At the same time you’re paying down your principle and eventually you’ll have a nice nest egg you can leverage off of or pass on to your heirs.
If you bought too high, you can still hold tight and in the long, long run you should be ok. Now, some financial experts will advise you that if you are negative equity a couple hundred thousand you should just walk away and rent and take the foreclosure, etc… I’ll be very frank here. I believe we have a moral obligation to repay our debts. The idea that we’re going to dump our bad debt on someone else just because we don’t want to pay it really rubs me the wrong way.
Now…how about those forclosures. Actually, many of them – and according to some statistics most of them are not owner occupied. What does that mean? It means that it’s not someone’s home and was someone’s investment. Although I’m pro-investor, I’m also pro-investor responsibility and as wildly unpopular as this notion may be, I don’t think the government or anyone else should come and bail them out because they made a bad choice in investments. They rolled the dice, leveraged up, and bought a couple (in some cases many) properties at the same time. They were hoping to flip them and rake in a nice profit and in many cases had done so several times already during the height of the market. They got caught at the end holding and now they have to deal with the consequences. As investors, we’re big boys & girls and we should be left to deal with it as we can. In some cases, we’re looking at some foreclosures, and losing some investment (downpayment and closing costs). However, with all the crazy financing that was going on, we weren’t looking at old school downpayments of 20% or even 15%. Many people got in with zero or very close to zero.
One thing more that has come to light in my conversations with various people in the mortgage industry. I have no eyewitness proof this happened but it really makes a lot of sense. From what i’ve been told, apparently there were alot of undocumented people (illegal aliens) buying homes using fake social security numbers. They’d get in with a no down or low down loan. Some got in with 100% – 103% (zero down + closing costs) loans and all they did was move in and start paying the mortage. Now that the homes are worth less, they are just choosing to walk away. Here’s the part that makes me really unhappy. They don’t have to deal with the hit on their credit because they’ll just dump the social security number, move, and get a new number. No consequences. Their total stake in the game? High “rent” payments. The possible prize? Home ownership. It’s just not right.
There are a people out there, I’m sure, who put in a sizable down payment, bought their home at the peak of market, and now due to death, loss of job, illness or some other circumstance, can no longer pay their monthly payment and are in danger of losing their home and all they’ve worked for. They are not in the majority by any means, but these people, these hardworking people struggling for a shot at the American dream, I feel for. If there are any you know and you think I can help them in some way, please don’t hesitate to have them contact me. I’ll do what I can to help them find an answer to mitigate the damage in their situation.
So to sum up. If you bought a while ago, you’re probably ok. Don’t move. Hang tight. If rising mortgage rates are getting you down, then look at possibly refinancing. If you need to get out, then talk to me.
and don’t forget there’s a silver lining.
As history has always proven, in times of chaos there’s always opportunity.
The vulture funds have already started shopping downtown Miami. Buyers with cash are coming out now, sensing what we’re close to the bottom and have begun shopping. If you have liquid capital, don’t try to wait for the absolute bottom. Just like people who were too greedy and kept flipping too late in the market, people who want the absolute floor will end up being late. Instead, give me a call and see what opportunities make sense.
I always believe in things that have long term value. Positive cash flow. Solid locations. Value.