Here we are rounding the corner towards the last quarter of 2010…. Whew. We have lots of headwinds mostly expounded by our present administrations push towards a ‘market socialism’ via regulation, in decision (such as extend tax-breaks or not), and increased safety-nets (social programs such as health-care which carries uncertain costs). Whether you agree with me or not, one would not be open minded if you couldn’t at least agree that all the headwinds lead to uncertainty. Yes!?! OK. With uncertainty, we get lack of direction. A business owner is scared to hire, invest in new product, and/or markets. Investors hold off on buying mutual funds, stocks, businesses, and real estate. Consumers delay purchases of certain needs (let alone wants). Without certainty job creation will lag. Job creation should be one of the top two issues.
Now that we have that clear…
I worry that we are headed into a deflationary spiral similar to that of Japan in the 1990’s to present. Do you know what caused their issues? The lack of making an economic decision (versus saving face based on cultural perspective) by forcing their banks to write-off bad debts, closing businesses, layoffs, moving homes (and commercial properties), and allowing the ‘creative destruction’ of capitalism to heal the country. Our administration has stopped the financial crisis (of confidence), allowed banks to heal with (some) time and interest-rate spread; however, it is time to up the pressure and force dead assets (homes & land) to be purged from their balance sheets.
I know the Charlotte, NC housing market was slow in reaching the downturn; yet, I can tell you that the continuation of fear, panic, and capitulation in our real estate markets will only accelerate from here. The time is now. As I stated in “Wake Up Washington”, we need an RTC type program of providing government backed financing for real estate investors funded via the banks (just as witnessed in the early 90’s when 735+ Savings & Loan Institutions went under). The time is now –hopefully our leaders have the ability to make a decision that’s best for the country versus political career.
You may ask: “Why do I say it like that?”
In the short-term, this will put further pressure on real estate values to purge the ’shadow inventory’ of homes pent-up (in some form of default from pre-foreclosure to bank owned). With financing real estate investors will have the ability to soak up this supply, while the unknown is at what demand will investors state that value is (purchase price of home). Our nations health would be much better to go through this pain over 1-4 years versus the Japanese style of a decade plus. Which would you rather have? You see -the other focus (besides jobs) is our corresponding markets of finance and real estate.
Ok -so what does all this mean?
Don’t get me wrong. I believe in America, it’s ideals and all that it represents. I believe that sooner or later we will get it right. I believe that real estate is one asset that is worthy of investing in. Folks -I’m starting to see incredible deals locally. Deals that frankly wouldn’t be there if it weren’t for the lack of financing. I think this will persist and get worse until there is a change (ones such as that I suggest).
We will see incredible downward pressure (at least locally) of 5-10% corrections through the spring. Those that say our year over year average home sales price are up have it wrong! Why is that? It’s because the $350K+ home market is actually moving somewhat this year versus its catatonic state of last year -think a greater number of higher priced homes can move a market average? Think it might be masking what your neighbor can get for his home now versus last year or even 2-3 years ago? You bet it is.
No, I am not prognosticating DOOM here!
I’m hearing of two hints that are the very fore-front of this change. Fannie/Freddie is going to three auctions houses (vs. the present one) to move inventory and some bank institutions are now considering using the Fannie/Freddie 10 loan limit guideline versus sticking to the old 4 loan limit from last year. Is the faucet starting to drip?
I think the time is now. Do not load up all at once though. Plan on buying in over time at least until the signals are more clear. For now -focus on owner financing, options, and private money not to mention commercial loans (if applicable) and of coarse -positive cash flow to get you from point A to point B. I am personally preparing to take advantage of this opportunity and have outlined my plan. What are you doing to grow? Write out those goals all the way down to the individual property and how it must perform and all the way up to how will you take control of that property.
Stay focused on your goals and solutions – not the problem. Take action.
September 6th, 2010