Today if all goes well the Senate will vote on the new housing bill and by next week may be law.
If you are ignoring this bill thinking that it is only for a few people in dire need of help think again.
Yes, the bill does focus heavily on homeowners in serious trouble but the bill has many other features as well, here is a brief list of what is in the bill:
RENEGOTIATING MORTGAGES: Creation of a program that may allow some people to replace old loans with new fixed rate loans. The troubled loan must have originated before Jan. 1, 2008 and the loan must be on your primary residence. Income verification will be required. Your loan to income payments must exceed 31% of your monthly income.
Lenders are not required to give you a better deal under the new law even if you do meet the new qualifications unless they feel that you are in fact close to default.
If you do get the new loan you may not do a home equity loan for 5 years and an additional fee will be required and the government will be guaranteeing this loan so they will share in any gain. Sell the home in less than 5 years and the government may get all of the gain.
FIRST TIME BUYERS: If you are buying a home for the first time as your primary residence a buyer may be eligible for a tax credit of $7,500 or 10% of the purchase price, which ever is smaller. As always there are catches and if you make more than $95,000 as a single person you are out of luck and if married you are on your own after $170,000 in income. But for buyers in more modest income ranges this is a nice boost.
In addition the buyer will be paying this credit back over a 15 year period of time so it may be better to think of this as an interest free loan.
Oh, the tax credit is retroactive to April 9, 2008. Any home bought from Jan. 1, 2009- June 30, 2009 can be used on the 2008 tax return. See your accountant for full information.
ADDITIONAL DEDUCTIONS: Your accountant per this bill may give you good news in that you get a federal tax deduction for $500 or $1,000 (if married) from your property taxes. Again see your accountant for the full details.
REVERSE MORTGAGE CHANGES: For older Americans the reverse mortgage has been a boom and to some degrees a disaster. The new bill attempts to address two problem areas. First a limit on origination fees at 2% up to $200,000 and 1% beyond up to a maximum of $6,000. In addition the borrowers cannot be forced to purchase an annuity or other financial insurance.
Last the maximum amount that can be borrowed has been raised and the nationwide cap is now $625,000 up from $400,000.
REDEFINITION OF JUMBO LOANS: This one is a bit hazy but it appears that our friends Freddie and Fannie can now buy loans up to $625,000. There is a 115% rule that will affect the actual amount so depending on where you are the new jumbo rate may be less than $625,000.
VETERANS: Lenders will have to wait 9 months, not 90 days to start foreclosure proceedings on homes owned by veterans.
This is a quick re-cap, things probably will change a bit but as you can see the bill does offer assistance to a much broader spectrum of the population that most people realize and many people here in Reno will benefit from the legislation.
Have a great day!
Friday, July 25, 2008
Thursday, July 24, 2008
Housing Sales Up and Prices Flat
On Tuesday the front page of the Reno Gazette-Journal had the headline "Housing Sales Up as Prices Stay Flat," while the Wall Street Journal and other sources say sales are down in June. So who do you believe?
As the author of this blog entry, my issue is with how information is given to you, the consumer. What is right, what is wrong and what to believe.
Heck, I'm all for good news but let's make it real. The Wall Street Journal is in fact correct, sales are down in June and probably in July as well.
My numbers only reflect the resale market and new home sales that are included in the MLS system. I do this because I feel that it is in fact the resale market that is our reality check on what is going on in the real estate market. Selling new homes is great for developers but as a home owner the question is, can you sell your home and for how much in what given period of time? All new homes sales quickly become possible sellers in the resale market over time, so what happens in the resale market is critical to the health of our business.
In the first quarter of 2007 838 homes sold and in the second quarter 1,013 homes sold for an increase in activity of 18%.
In the first quarter of 2008 597 homes sold and in the second quarter 991 homes sold for a increase in activity of 40%.
I realize that I am drawing from one set of numbers but from what I see, we have positive growth and that needs to be publicized, this is GREAT news!
Unfortunately, the press seems to want to make extremes out of news, either stating things worse than they are or better than they are. My issue is that when one pumps up the good news it opens the door to the next reporter to make the negative news look worse than it is.
The fact is that as of today, July of 2008 is running 30% behind July of 2007. So does that mean that we have fallen down?
The fact is that our market did well in the first six months of this year despite all that we are dealing with and we ARE working out our issues slowly but surely. The REO/short sale market is not unlimited and unless, as a buyer, you only want to buy within a fairly restricted area of the market, the depressed prices elsewhere will stabilize sooner than you realize. No, I did not say prices are going to rise but prices are going to stabilize sooner than you think. For sellers, all this means is that to sell you need to price to the real numbers that are being reported and to wait out this market, and get substantial returns for waiting, is going to be a very, very long wait.
Let's focus on the good news that we're seeing positive growth in the market and keep working in the right direction. The combined efforts of agents, buyers and sellers will help make this "adjustment" a thing of the past.
As the author of this blog entry, my issue is with how information is given to you, the consumer. What is right, what is wrong and what to believe.
Heck, I'm all for good news but let's make it real. The Wall Street Journal is in fact correct, sales are down in June and probably in July as well.
My numbers only reflect the resale market and new home sales that are included in the MLS system. I do this because I feel that it is in fact the resale market that is our reality check on what is going on in the real estate market. Selling new homes is great for developers but as a home owner the question is, can you sell your home and for how much in what given period of time? All new homes sales quickly become possible sellers in the resale market over time, so what happens in the resale market is critical to the health of our business.
In the first quarter of 2007 838 homes sold and in the second quarter 1,013 homes sold for an increase in activity of 18%.
In the first quarter of 2008 597 homes sold and in the second quarter 991 homes sold for a increase in activity of 40%.
I realize that I am drawing from one set of numbers but from what I see, we have positive growth and that needs to be publicized, this is GREAT news!
Unfortunately, the press seems to want to make extremes out of news, either stating things worse than they are or better than they are. My issue is that when one pumps up the good news it opens the door to the next reporter to make the negative news look worse than it is.
The fact is that as of today, July of 2008 is running 30% behind July of 2007. So does that mean that we have fallen down?
The fact is that our market did well in the first six months of this year despite all that we are dealing with and we ARE working out our issues slowly but surely. The REO/short sale market is not unlimited and unless, as a buyer, you only want to buy within a fairly restricted area of the market, the depressed prices elsewhere will stabilize sooner than you realize. No, I did not say prices are going to rise but prices are going to stabilize sooner than you think. For sellers, all this means is that to sell you need to price to the real numbers that are being reported and to wait out this market, and get substantial returns for waiting, is going to be a very, very long wait.
Let's focus on the good news that we're seeing positive growth in the market and keep working in the right direction. The combined efforts of agents, buyers and sellers will help make this "adjustment" a thing of the past.
Tuesday, July 22, 2008
New York Times, good reading
I found this article from the New York Times and thought that it was well written and was worth passing on, oh it is a long article: My thoughts are at the bottom.
"July 19, 2008
Uncomfortable Answers to Questions on the Economy
By PETER S. GOODMAN
You have heard that Fannie and Freddie, their gentle names notwithstanding, may cripple the financial system without a large infusion of taxpayer money. You have gleaned that jobs are disappearing, housing prices are plummeting, and paychecks are effectively shrinking as food and energy prices soar. You have noted the disturbing talk of crisis hovering over Wall Street.
Something has clearly gone wrong with the economy. But how bad are things, really? And how bad might they get before better days return? Even to many economists who recently thought the gloom was overblown, the situation looks grim. The economy is in the midst of a very rough patch. The worst is probably still ahead.
Job losses will probably accelerate through this year and into 2009, and the job market will probably stay weak even longer. Home prices will probably keep falling, shrinking household wealth and eroding spending power.
“The open question is whether we’re in for a bad couple of years, or a bad decade,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund, now a professor at Harvard.
Is this a recession?
Officially, no. The economy is not in recession until a panel at a private institution called the National Bureau of Economic Research says so. Unofficially, many economists think a recession started six or seven months ago, even as the economy has continued to expand — albeit at a tepid pace.
Many assume that if the economy expands at all, then it isn’t a recession, but that’s not true. The bureau defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months.” If enough people lose their jobs, factories stop making things, stores stop selling things, and less money lands in people’s pockets, it is probably a recession.
Whatever it is called, it is a painful time for tens of millions of people. Indeed, this may turn out to be the most wrenching downturn since the two recessions in the early 1980s; almost surely worse than the recession that ended the technology bubble at the beginning of this decade; perhaps worse than the downturn of the early 1990s that followed the last dip in real estate prices.
But, despite what some doomsayers now proclaim, this is not the Great Depression, when unemployment spiked to 25 percent and millions of previously working people woke up in shantytowns. Not by any measure, even as your neighbors make cryptic remarks above dusting off lessons passed down from grandparents about how to turn a can of beans into a family meal.
How bad is housing?
Bad in many markets, awful in some, and still O.K. in a few.
The downturn has its roots in the real estate frenzy that turned lonely Nevada ranches into suburban ranch homes and swampland in Florida into condominiums. Speculators drove home prices beyond any historical connection to incomes. Gravity did the rest. After roughly doubling in value from 2000 to 2005, home prices have fallen about 17 percent — and more like 25 percent in inflation-adjusted terms — according to the widely watched Case-Shiller index.
Even so, most economists think house prices must fall an additional 10 to 15 percent to get back to reality. One useful measure is the relationship between the costs of buying and renting a home. From 1985 to 2002, the average American home sold for about 14 times the annual rent for a similar home, according to Moody’s Economy.com. By early 2006, home prices ballooned to 25 times rental prices. Since then, the ratio has dipped back to about 20 — still far above the historical norm.
With mortgages now hard to obtain and speculation no longer attractive, arithmetic has replaced momentum as the guiding force for housing prices. The fundamental equation points down: Even as construction grinds down, there are still many more houses on the market than there are people to buy them, and more on the way as more homeowners slip into foreclosure.
By the reckoning of Economy.com, enough houses are on the market to satisfy demand for the next two-and-a-half years without building a single new one.
The time it takes to sell a newly completed house has expanded from an average of four months in 2005 to about nine months, according to analysis by Dean Baker, co-director of the Center for Economic and Policy Research.
And many sales are falling through — more than 30 percent in some parts of California and Florida — as buyers fail to secure financing, exacerbating the glut of homes, Mr. Baker said.
No wonder that in Los Angeles, San Francisco, Phoenix and Las Vegas, house prices have in recent months declined at annual rates of more than 33 percent.
When will banks revive?
So far, they have written off more than $300 billion in loans. Many experts now predict the toll will rise to $1 trillion or more — a staggering sum that could cripple many institutions for years.
Back when home prices were multiplying, banks poured oceans of borrowed money into real estate loans. Unlike the dot-com companies at the heart of the last speculative investment bubble, the new gold rush was centered on something that seemed unimpeachably solid — the American home.
But the whole thing worked only as long as housing prices rose. Falling prices landed like a bomb. Homeowners fell behind on their loans and could not qualify for new ones: There was no value left in their house to borrow against. As millions of people defaulted, the banks confronted enormous losses in a bloody period of reckoning.
In March, the Federal Reserve helped engineer a deal for JPMorgan Chase to buy troubled investment bank Bear Stearns. Many assumed the worst was over. But, this month, the open distress of Fannie Mae and Freddie Mac — two huge, government sponsored institutions that together own or guarantee nearly half of the nation’s $12 trillion in outstanding mortgages — sent a signal that more ugly surprises may lie in wait.
To calm markets, the government last weekend hurriedly put together a rescue package for Fannie and Freddie that, if used, could cost as much as $300 billion. The urgent need for a rescue — together with another round of billion-dollar write-offs on Wall Street — has unnerved economists and investors.
“I was a relative optimist, but I’ve certainly become more pessimistic,” said Alan S. Blinder, an economist at Princeton, and a former vice chairman of the board of governors at the Federal Reserve. “The financial system looks substantially worse now than it did a month ago. If the Freddie and Fannie bailout were to fail, it could get a hell of a lot worse. If we get more bank failures, we have the possibility of seeing more of these pictures of people standing in line to pull their money out. That could really scare consumers.”
In one respect, Mr. Blinder added, this is like the Great Depression. “We haven’t seen this kind of travail in the financial markets since the 1930s,” he said.
More than two years ago, Nouriel Roubini, an economist at the Stern School of Business at New York University, said that the housing bubble would give way to a financial crisis and a recession. He was widely dismissed as an attention-seeking Chicken Little. Now, Mr. Roubini says the worst is yet to come, because the account-squaring has so far been confined mostly to bad mortgages, leaving other areas remaining — credit cards, auto loans, corporate and municipal debt.
Mr. Roubini says the cost of the financial system’s losses could reach $2 trillion. Even if it’s closer to $1 trillion, he adds, “we’re not even a third of the way there.”
Where will the banks raise the huge sums needed to replenish the capital they have apparently lost? And what will happen if they cannot?
The answers to these questions are unknown, an unsettling void that holds much of the economy at a standstill.
“We’re in a dangerous spot,” said Andrew Tilton, an economist at Goldman Sachs. “The big threat is more capital losses.”
Banks are a crucial piece of the economy’s arterial system, steering capital where it is needed to fuel spending and power growth. Now, they are holding tight to their dollars, starving businesses of loans they might use to expand, and depriving families of money they might use to buy houses and fill them with furniture and appliances.
From last June to this June, commercial bank lending declined more than 9 percent, according to an analysis of Federal Reserve data by Goldman Sachs.
“You have another wave of anxiety, another tightening of credit,” said Robert Barbera, chief economist at the research and trading firm ITG. “The idea that we’ll have a second half of the year recovery has gone by the boards.”
Is my job safe?
Economic slowdowns always mean job losses. Unemployment already has risen, and almost certainly will increase more.
The first signs of distress emerged in housing. Construction companies, real estate agencies, mortgage brokers and banks began laying people off. Next, jobs started being cut at factories making products linked to housing, from carpets and furniture to lighting and flooring.
But as the real estate bust spilled over into the broader economy, depleting household wealth, the impacts rippled out to retailers, beauty parlors, law offices and trucking companies, inflicting cutbacks throughout the economy, save for health care, farming and energy. Over the last six months, the economy has shed 485,000 private sector jobs, according to the Labor Department. Many people have seen hours reduced.
The unemployment rate still remains low by historical standards, at 5.5 percent. And so far, the job losses — about 65,000 a month this year — do not approach the magnitude of those seen in past downturns, particularly the twin recessions at the beginning of the 1980s, when the economy shed upward of 140,000 jobs a month and the unemployment rate exceeded 10 percent.
But Goldman Sachs assumes unemployment will reach 6.5 percent by the end of 2009, which translates into several hundred thousand more Americans out of work.
These losses are landing on top of what was, for most Americans, a remarkably weak period of expansion. From 1992 to 2000 — as the technology boom catalyzed spending and hiring — the economy added more than 22 million private sector jobs. Over the last eight years, only 5 million new jobs have been added.
The loss of work is hitting Americans along with an assortment of troubles — gasoline prices in excess of $4 a gallon, overall inflation of about 5 percent, and declining wages.
“In every dimension, people are worse off than they were,” said Mr. Roubini, the New York University economist.
Are consumers done?
That is a major worry.
The fate of the economy now rests on the shoulders of the American consumer, whose spending amounts to 70 percent of all economic activity.
When people go to the mall and buy televisions and eat out, their money circulates through the economy. When they tighten their belts, austerity ripples out and chokes growth.
Through the years of the housing boom, many Americans came to treat their homes like automated teller machines that never required a deposit. They harvested cash through sales, second mortgages and home equity lines of credit — an artery of finance that reached $840 billion a year from 2004 to 2006, according to work by the economists James Kennedy and Alan Greenspan, the former Federal Reserve chairman. That allowed Americans to live far in excess of what they brought home from work.
But by the first three months of this year, that flow had constricted to an annual rate of about $200 billion.
Average household debt has swelled to 120 percent of annual income, up from 60 percent in 1984, according to the Federal Reserve.
And now the banks are turning off the credit taps.
“Credit is going to remain tight for a time potentially measured in years,” said Mr. Tilton, the Goldman Sachs economist.
This is the landscape that has so many economists convinced that consumer spending must dip, putting the squeeze on the economy for several years.
“The question is, will it get as bad as the 1970s?” asked Mr. Rogoff, recalling an era of spiking gas prices and double-digit inflation.
Long term, Americans may have no choice but to spend less, save more and reduce debts — in short, to live within their means.
“We’re getting a lot of the adjustment and it hurts,” said Kristin Forbes, a former member of the Council of Economic Advisers under President George W. Bush, and now a scholar at M.I.T.’s Sloan School of Management. “But it’s an adjustment we’re going to have to make.”
Who’s to blame?
There is plenty to go around.
In the estimation of many economists, it starts with the Federal Reserve. The central bank lowered interest rates following the calamitous end of the technology bubble in 2000, lowered them more after the terrorist attacks of Sept. 11, 2001, and then kept them low, even as speculators began to trade homes like dot-com stocks.
Meanwhile, the Fed sat back and watched as Wall Street’s financial wizards engineered diabolically complicated investments linked to mortgages, generating huge amounts of speculative capital that turned real estate into a conflagration.
“At the end of this movie, it’s clear that the Fed will have to care about excesses,” Mr. Barbera said.
Prices multiplied as many homeowners took on more property than they could afford, lured by low introductory interest rates that eventually reset higher, sending many people into foreclosure.
Mortgage brokers netted commissions as they lent almost indiscriminately, offering exotically lenient terms — no money down, no income or job required. Wall Street banks earned billions selling risky mortgage-linked securities around the world, aided by ratings agencies that branded them solid.
Through it all, a lot of ordinary Americans borrowed a lot more money then they could afford to pay back, running up enormous credit card bills and borrowing against the value of their homes. Now comes the day of reckoning."
I think that the author has presented an interesting case. I will tend to take a more simplistic look though and remind myself and others that it is very easy to see only the best at times and the worst at times. It is times like this that make you stop and realize that maybe it really is darkest before the dawn and opportunities abound if we change our outlooks when we read news like this.
"July 19, 2008
Uncomfortable Answers to Questions on the Economy
By PETER S. GOODMAN
You have heard that Fannie and Freddie, their gentle names notwithstanding, may cripple the financial system without a large infusion of taxpayer money. You have gleaned that jobs are disappearing, housing prices are plummeting, and paychecks are effectively shrinking as food and energy prices soar. You have noted the disturbing talk of crisis hovering over Wall Street.
Something has clearly gone wrong with the economy. But how bad are things, really? And how bad might they get before better days return? Even to many economists who recently thought the gloom was overblown, the situation looks grim. The economy is in the midst of a very rough patch. The worst is probably still ahead.
Job losses will probably accelerate through this year and into 2009, and the job market will probably stay weak even longer. Home prices will probably keep falling, shrinking household wealth and eroding spending power.
“The open question is whether we’re in for a bad couple of years, or a bad decade,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund, now a professor at Harvard.
Is this a recession?
Officially, no. The economy is not in recession until a panel at a private institution called the National Bureau of Economic Research says so. Unofficially, many economists think a recession started six or seven months ago, even as the economy has continued to expand — albeit at a tepid pace.
Many assume that if the economy expands at all, then it isn’t a recession, but that’s not true. The bureau defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months.” If enough people lose their jobs, factories stop making things, stores stop selling things, and less money lands in people’s pockets, it is probably a recession.
Whatever it is called, it is a painful time for tens of millions of people. Indeed, this may turn out to be the most wrenching downturn since the two recessions in the early 1980s; almost surely worse than the recession that ended the technology bubble at the beginning of this decade; perhaps worse than the downturn of the early 1990s that followed the last dip in real estate prices.
But, despite what some doomsayers now proclaim, this is not the Great Depression, when unemployment spiked to 25 percent and millions of previously working people woke up in shantytowns. Not by any measure, even as your neighbors make cryptic remarks above dusting off lessons passed down from grandparents about how to turn a can of beans into a family meal.
How bad is housing?
Bad in many markets, awful in some, and still O.K. in a few.
The downturn has its roots in the real estate frenzy that turned lonely Nevada ranches into suburban ranch homes and swampland in Florida into condominiums. Speculators drove home prices beyond any historical connection to incomes. Gravity did the rest. After roughly doubling in value from 2000 to 2005, home prices have fallen about 17 percent — and more like 25 percent in inflation-adjusted terms — according to the widely watched Case-Shiller index.
Even so, most economists think house prices must fall an additional 10 to 15 percent to get back to reality. One useful measure is the relationship between the costs of buying and renting a home. From 1985 to 2002, the average American home sold for about 14 times the annual rent for a similar home, according to Moody’s Economy.com. By early 2006, home prices ballooned to 25 times rental prices. Since then, the ratio has dipped back to about 20 — still far above the historical norm.
With mortgages now hard to obtain and speculation no longer attractive, arithmetic has replaced momentum as the guiding force for housing prices. The fundamental equation points down: Even as construction grinds down, there are still many more houses on the market than there are people to buy them, and more on the way as more homeowners slip into foreclosure.
By the reckoning of Economy.com, enough houses are on the market to satisfy demand for the next two-and-a-half years without building a single new one.
The time it takes to sell a newly completed house has expanded from an average of four months in 2005 to about nine months, according to analysis by Dean Baker, co-director of the Center for Economic and Policy Research.
And many sales are falling through — more than 30 percent in some parts of California and Florida — as buyers fail to secure financing, exacerbating the glut of homes, Mr. Baker said.
No wonder that in Los Angeles, San Francisco, Phoenix and Las Vegas, house prices have in recent months declined at annual rates of more than 33 percent.
When will banks revive?
So far, they have written off more than $300 billion in loans. Many experts now predict the toll will rise to $1 trillion or more — a staggering sum that could cripple many institutions for years.
Back when home prices were multiplying, banks poured oceans of borrowed money into real estate loans. Unlike the dot-com companies at the heart of the last speculative investment bubble, the new gold rush was centered on something that seemed unimpeachably solid — the American home.
But the whole thing worked only as long as housing prices rose. Falling prices landed like a bomb. Homeowners fell behind on their loans and could not qualify for new ones: There was no value left in their house to borrow against. As millions of people defaulted, the banks confronted enormous losses in a bloody period of reckoning.
In March, the Federal Reserve helped engineer a deal for JPMorgan Chase to buy troubled investment bank Bear Stearns. Many assumed the worst was over. But, this month, the open distress of Fannie Mae and Freddie Mac — two huge, government sponsored institutions that together own or guarantee nearly half of the nation’s $12 trillion in outstanding mortgages — sent a signal that more ugly surprises may lie in wait.
To calm markets, the government last weekend hurriedly put together a rescue package for Fannie and Freddie that, if used, could cost as much as $300 billion. The urgent need for a rescue — together with another round of billion-dollar write-offs on Wall Street — has unnerved economists and investors.
“I was a relative optimist, but I’ve certainly become more pessimistic,” said Alan S. Blinder, an economist at Princeton, and a former vice chairman of the board of governors at the Federal Reserve. “The financial system looks substantially worse now than it did a month ago. If the Freddie and Fannie bailout were to fail, it could get a hell of a lot worse. If we get more bank failures, we have the possibility of seeing more of these pictures of people standing in line to pull their money out. That could really scare consumers.”
In one respect, Mr. Blinder added, this is like the Great Depression. “We haven’t seen this kind of travail in the financial markets since the 1930s,” he said.
More than two years ago, Nouriel Roubini, an economist at the Stern School of Business at New York University, said that the housing bubble would give way to a financial crisis and a recession. He was widely dismissed as an attention-seeking Chicken Little. Now, Mr. Roubini says the worst is yet to come, because the account-squaring has so far been confined mostly to bad mortgages, leaving other areas remaining — credit cards, auto loans, corporate and municipal debt.
Mr. Roubini says the cost of the financial system’s losses could reach $2 trillion. Even if it’s closer to $1 trillion, he adds, “we’re not even a third of the way there.”
Where will the banks raise the huge sums needed to replenish the capital they have apparently lost? And what will happen if they cannot?
The answers to these questions are unknown, an unsettling void that holds much of the economy at a standstill.
“We’re in a dangerous spot,” said Andrew Tilton, an economist at Goldman Sachs. “The big threat is more capital losses.”
Banks are a crucial piece of the economy’s arterial system, steering capital where it is needed to fuel spending and power growth. Now, they are holding tight to their dollars, starving businesses of loans they might use to expand, and depriving families of money they might use to buy houses and fill them with furniture and appliances.
From last June to this June, commercial bank lending declined more than 9 percent, according to an analysis of Federal Reserve data by Goldman Sachs.
“You have another wave of anxiety, another tightening of credit,” said Robert Barbera, chief economist at the research and trading firm ITG. “The idea that we’ll have a second half of the year recovery has gone by the boards.”
Is my job safe?
Economic slowdowns always mean job losses. Unemployment already has risen, and almost certainly will increase more.
The first signs of distress emerged in housing. Construction companies, real estate agencies, mortgage brokers and banks began laying people off. Next, jobs started being cut at factories making products linked to housing, from carpets and furniture to lighting and flooring.
But as the real estate bust spilled over into the broader economy, depleting household wealth, the impacts rippled out to retailers, beauty parlors, law offices and trucking companies, inflicting cutbacks throughout the economy, save for health care, farming and energy. Over the last six months, the economy has shed 485,000 private sector jobs, according to the Labor Department. Many people have seen hours reduced.
The unemployment rate still remains low by historical standards, at 5.5 percent. And so far, the job losses — about 65,000 a month this year — do not approach the magnitude of those seen in past downturns, particularly the twin recessions at the beginning of the 1980s, when the economy shed upward of 140,000 jobs a month and the unemployment rate exceeded 10 percent.
But Goldman Sachs assumes unemployment will reach 6.5 percent by the end of 2009, which translates into several hundred thousand more Americans out of work.
These losses are landing on top of what was, for most Americans, a remarkably weak period of expansion. From 1992 to 2000 — as the technology boom catalyzed spending and hiring — the economy added more than 22 million private sector jobs. Over the last eight years, only 5 million new jobs have been added.
The loss of work is hitting Americans along with an assortment of troubles — gasoline prices in excess of $4 a gallon, overall inflation of about 5 percent, and declining wages.
“In every dimension, people are worse off than they were,” said Mr. Roubini, the New York University economist.
Are consumers done?
That is a major worry.
The fate of the economy now rests on the shoulders of the American consumer, whose spending amounts to 70 percent of all economic activity.
When people go to the mall and buy televisions and eat out, their money circulates through the economy. When they tighten their belts, austerity ripples out and chokes growth.
Through the years of the housing boom, many Americans came to treat their homes like automated teller machines that never required a deposit. They harvested cash through sales, second mortgages and home equity lines of credit — an artery of finance that reached $840 billion a year from 2004 to 2006, according to work by the economists James Kennedy and Alan Greenspan, the former Federal Reserve chairman. That allowed Americans to live far in excess of what they brought home from work.
But by the first three months of this year, that flow had constricted to an annual rate of about $200 billion.
Average household debt has swelled to 120 percent of annual income, up from 60 percent in 1984, according to the Federal Reserve.
And now the banks are turning off the credit taps.
“Credit is going to remain tight for a time potentially measured in years,” said Mr. Tilton, the Goldman Sachs economist.
This is the landscape that has so many economists convinced that consumer spending must dip, putting the squeeze on the economy for several years.
“The question is, will it get as bad as the 1970s?” asked Mr. Rogoff, recalling an era of spiking gas prices and double-digit inflation.
Long term, Americans may have no choice but to spend less, save more and reduce debts — in short, to live within their means.
“We’re getting a lot of the adjustment and it hurts,” said Kristin Forbes, a former member of the Council of Economic Advisers under President George W. Bush, and now a scholar at M.I.T.’s Sloan School of Management. “But it’s an adjustment we’re going to have to make.”
Who’s to blame?
There is plenty to go around.
In the estimation of many economists, it starts with the Federal Reserve. The central bank lowered interest rates following the calamitous end of the technology bubble in 2000, lowered them more after the terrorist attacks of Sept. 11, 2001, and then kept them low, even as speculators began to trade homes like dot-com stocks.
Meanwhile, the Fed sat back and watched as Wall Street’s financial wizards engineered diabolically complicated investments linked to mortgages, generating huge amounts of speculative capital that turned real estate into a conflagration.
“At the end of this movie, it’s clear that the Fed will have to care about excesses,” Mr. Barbera said.
Prices multiplied as many homeowners took on more property than they could afford, lured by low introductory interest rates that eventually reset higher, sending many people into foreclosure.
Mortgage brokers netted commissions as they lent almost indiscriminately, offering exotically lenient terms — no money down, no income or job required. Wall Street banks earned billions selling risky mortgage-linked securities around the world, aided by ratings agencies that branded them solid.
Through it all, a lot of ordinary Americans borrowed a lot more money then they could afford to pay back, running up enormous credit card bills and borrowing against the value of their homes. Now comes the day of reckoning."
I think that the author has presented an interesting case. I will tend to take a more simplistic look though and remind myself and others that it is very easy to see only the best at times and the worst at times. It is times like this that make you stop and realize that maybe it really is darkest before the dawn and opportunities abound if we change our outlooks when we read news like this.
Friday, July 18, 2008
What the Heck is Going on Today?
Lately I have stayed away from writing about the market but that time has come. I am going to attach in my next blog my last newsletter and will in the future add my newsletters as I prepare them.
This last Sunday the RGJ.com/business section had two very good articles. One on "High-end home sales dive but bottom could be near" and the other one by Diane Cohn on local insight on "What's hot, what's not in the Reno-Sparks residential area.
When this market started to develop in the fall of 2005 at first the projections were that Reno would see a soft landing, those of us that had deep experience felt that at best we would see a real thumper of a market change (oh hindsight is wonderful, if we had only known what a "thumper" was waiting for us) and I felt that we could possibly see prices recede to early 2005 values.
As 2006 came to an end, the media was filled with the facts that maybe the market change might be a bit tougher than expected but no worries, the market change in real estate values would never affect the rest of the US economy.
By late 2006 I knew that I was wrong on my feeling about what I expected in 2005 and now knew that we could easily roll back to 2004 values (I was laughed at, but then again I was laughed at in 2005 as well).
By the end of 2006 I was beginning to think that maybe, just maybe, a disconnect was going on in the economy with real estate and the rest of the market. Along came August of 2007 and in front of the whole world Wall Street undressed and exposed the true depth of the problem and as I speed up to July of 2008 it seems now that each month we wait eagerly for the next act in the drama playing out of Wall Street and the banking industry.
Today those of us active and knowledgeable in this business realize that we are working on triage with many of our clients. Just how bad or how good the markets are is going to be will depend on your viewpoint and the depth of your pocket book.
Sales in 2002 to July were 2,475 homes and today we are at 1,745 sales. Average sales price is higher in 2008 over 2002 by about $108,000. We have 3,168 homes for sale as a reference point.
I think that both articles were well written but lacked some important information. First the foreclosure/short sale market is eroding the markets and reducing our base values and how the banks look at foreclosures is interesting. I as a broker look at a home as to how to get the best value the banks look at the foreclosed home as a cost that needs to be disposed of at the least cost to bank and recover as much as possible of the bad debt. When the foreclosure rate was maybe a
less than 1% of the overall market such thinking was fine.
To measure a market and say that it is healthy to see a solid foundation develop is questionable due to how the banks are handling their sales.
Today with upwards of 42% of the sales in June being distressed sales the banks way of doing business is outdated and fueling our decline in values and is a leading cause of our seemingly bottomless drop in values. What are the fixes to this situation?
Well there are many suggestions but the primary fix needs to come from Washington, not with bail outs but with new regulations and incentives and tax credits, and programs. There are many suggestions and one that has been brought fourth is that the banks need to be encouraged to not dump the homes but much like new home builders they need to be allowed to offer "incentives" to borrowers. Incentives that FHA will allow and be acceptable to the government loan agencies. Incentives that will keep the lawn green, the home neat and encourage the buyer to pay real market values for the home and give the buyer some very strong bank approved incentives that allow the buyer to make major repairs or improvements without adding cash to the transaction. The banks need to be able of course write off the costs of the incentives to make such programs viable to them and the buyers need to be qualified buyers. For the moment at least investors need not apply.
In regards to the high end market it was the belief of many that the money issues would never rise to affect the well off. If the market had corrected in 2006 then that would have been true but by July of 2008 the time has come for many agents and their clients to understand that the rules really have changed.
The issue is what is normal, what is a good market? What are reasonable expectations? Are we at a bottom? A bottom of what?
As of July 17th in the greater Reno market place (this does not include Lake Tahoe but that we can talk about later as they now have their hands full) here is some food for thought:
High end is over $1 million dollars.
42 homes have sold in 2008 so far for an average price of $1,323,674
294 homes are for sale today for an average price of $1,357,500
11 homes are in escrow today for an average price of $1,228,043
(note I did not use two custom built homes in these numbers).
So, how long will it take Reno to sell all our current inventory? For a reference lets use 2006 as a guide for the top of the market. In the first 7 months of 2006, just before the market died off 79 homes sold for an average price of $1,395,000 or about 11.2 homes per month.
Today we have closed 42 homes for 6 sales per month. That means that we have OVER a 3 year supply of homes. The market needs to have a supply of high end homes of less than 18 months to become healthy and 12 month or less is where we really need to be.
Now lets stop here. First 42 sales is wonderful. The market is really strong and these are good numbers why, want to know what we sold in 2002? 22 homes for a $1,280!
Writers need to stop comparing numbers to 2005-2006. The funny money, stupid markets are gone and to make comparisons against those sales is only going to keep sellers fantasy's alive that some how they can still command silly numbers for their homes.
The sad facts are this: IF you bought during those markets your numbers are based on a foundation of quicksand. If you refinanced in those markets your issues are just as shaky. To talk about bottoms and floors first the REO markets must dry up and liquidity must return to the markets In addition expectations of the return to 10% + appreciation a year must be dropped.
It is in injustice for anyone, whether the media, the public or agents to keep measuring the markets by Wall Streets insanity and the results of an out of control market that was created in 2003-2006.
So where is the opportunity, every where, really. But there are just two rules, do not buy someone else's problem and buy for the long term (5 years). Oh and stop looking at price as your only option. More on that later.
This last Sunday the RGJ.com/business section had two very good articles. One on "High-end home sales dive but bottom could be near" and the other one by Diane Cohn on local insight on "What's hot, what's not in the Reno-Sparks residential area.
When this market started to develop in the fall of 2005 at first the projections were that Reno would see a soft landing, those of us that had deep experience felt that at best we would see a real thumper of a market change (oh hindsight is wonderful, if we had only known what a "thumper" was waiting for us) and I felt that we could possibly see prices recede to early 2005 values.
As 2006 came to an end, the media was filled with the facts that maybe the market change might be a bit tougher than expected but no worries, the market change in real estate values would never affect the rest of the US economy.
By late 2006 I knew that I was wrong on my feeling about what I expected in 2005 and now knew that we could easily roll back to 2004 values (I was laughed at, but then again I was laughed at in 2005 as well).
By the end of 2006 I was beginning to think that maybe, just maybe, a disconnect was going on in the economy with real estate and the rest of the market. Along came August of 2007 and in front of the whole world Wall Street undressed and exposed the true depth of the problem and as I speed up to July of 2008 it seems now that each month we wait eagerly for the next act in the drama playing out of Wall Street and the banking industry.
Today those of us active and knowledgeable in this business realize that we are working on triage with many of our clients. Just how bad or how good the markets are is going to be will depend on your viewpoint and the depth of your pocket book.
Sales in 2002 to July were 2,475 homes and today we are at 1,745 sales. Average sales price is higher in 2008 over 2002 by about $108,000. We have 3,168 homes for sale as a reference point.
I think that both articles were well written but lacked some important information. First the foreclosure/short sale market is eroding the markets and reducing our base values and how the banks look at foreclosures is interesting. I as a broker look at a home as to how to get the best value the banks look at the foreclosed home as a cost that needs to be disposed of at the least cost to bank and recover as much as possible of the bad debt. When the foreclosure rate was maybe a
less than 1% of the overall market such thinking was fine.
To measure a market and say that it is healthy to see a solid foundation develop is questionable due to how the banks are handling their sales.
Today with upwards of 42% of the sales in June being distressed sales the banks way of doing business is outdated and fueling our decline in values and is a leading cause of our seemingly bottomless drop in values. What are the fixes to this situation?
Well there are many suggestions but the primary fix needs to come from Washington, not with bail outs but with new regulations and incentives and tax credits, and programs. There are many suggestions and one that has been brought fourth is that the banks need to be encouraged to not dump the homes but much like new home builders they need to be allowed to offer "incentives" to borrowers. Incentives that FHA will allow and be acceptable to the government loan agencies. Incentives that will keep the lawn green, the home neat and encourage the buyer to pay real market values for the home and give the buyer some very strong bank approved incentives that allow the buyer to make major repairs or improvements without adding cash to the transaction. The banks need to be able of course write off the costs of the incentives to make such programs viable to them and the buyers need to be qualified buyers. For the moment at least investors need not apply.
In regards to the high end market it was the belief of many that the money issues would never rise to affect the well off. If the market had corrected in 2006 then that would have been true but by July of 2008 the time has come for many agents and their clients to understand that the rules really have changed.
The issue is what is normal, what is a good market? What are reasonable expectations? Are we at a bottom? A bottom of what?
As of July 17th in the greater Reno market place (this does not include Lake Tahoe but that we can talk about later as they now have their hands full) here is some food for thought:
High end is over $1 million dollars.
42 homes have sold in 2008 so far for an average price of $1,323,674
294 homes are for sale today for an average price of $1,357,500
11 homes are in escrow today for an average price of $1,228,043
(note I did not use two custom built homes in these numbers).
So, how long will it take Reno to sell all our current inventory? For a reference lets use 2006 as a guide for the top of the market. In the first 7 months of 2006, just before the market died off 79 homes sold for an average price of $1,395,000 or about 11.2 homes per month.
Today we have closed 42 homes for 6 sales per month. That means that we have OVER a 3 year supply of homes. The market needs to have a supply of high end homes of less than 18 months to become healthy and 12 month or less is where we really need to be.
Now lets stop here. First 42 sales is wonderful. The market is really strong and these are good numbers why, want to know what we sold in 2002? 22 homes for a $1,280!
Writers need to stop comparing numbers to 2005-2006. The funny money, stupid markets are gone and to make comparisons against those sales is only going to keep sellers fantasy's alive that some how they can still command silly numbers for their homes.
The sad facts are this: IF you bought during those markets your numbers are based on a foundation of quicksand. If you refinanced in those markets your issues are just as shaky. To talk about bottoms and floors first the REO markets must dry up and liquidity must return to the markets In addition expectations of the return to 10% + appreciation a year must be dropped.
It is in injustice for anyone, whether the media, the public or agents to keep measuring the markets by Wall Streets insanity and the results of an out of control market that was created in 2003-2006.
So where is the opportunity, every where, really. But there are just two rules, do not buy someone else's problem and buy for the long term (5 years). Oh and stop looking at price as your only option. More on that later.
Thursday, July 17, 2008
We Want Your Thoughts!
We're launching an online business directory that will include all types of service providers to offer a well-rounded resource for our clients and those who visit our website, who are looking for painters, landscapers, plumbers, babysitters, auto detailers, you name it!
So, we need you help to compile a list of high quality service providers of all sorts. People that you trust and use regularly that you would be happy to refer to your friends and family. Email your suggestions to shauna@dmorris.com or leave a comment right here on the blog!
So, we need you help to compile a list of high quality service providers of all sorts. People that you trust and use regularly that you would be happy to refer to your friends and family. Email your suggestions to shauna@dmorris.com or leave a comment right here on the blog!
Thank you for attending
We co-hosted a small client party this week with Ancora West Advisors and it was a lovely event. Shauna did the catering, which was delicious, and Ancora provided amazing Italian wines. We'd like to extend a quick thank you to all our guests who attended. It was a pleasure to see you and we hope you had a good time! We look forward to having more events in the future and seeing more of our valued clients in "the real world."
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