I'm no gloom and doom kind of guy but I am concerned. I've written a post about the government buying mortgages and how that has kept mortgage rates artificially low. I also wrote that once the fed stops buying mortgages that rates would be determined by the purchase and sale of mortgages on the bond market and that I believe rates will rise. Today on CNBC a short video clip was made available regarding this.
Some experts are speculating that the rates may remain the same or only jump .50%. Considering that most of the Nation's real estate is not recovering just yet (some places are) it's safe to say that if home values continue to drop in hard hit areas that these newer mortgages could default from borrowers walking away. Not likely, but possible. That possibility is the fear factor that I believe will drive away investors appetite for mortgage backed securities. Also, what will happen to interest rates when the fed starts to sell the mortgages that they bought?
I hope I am wrong and they are right. A 1% increase in rate would price some entry level buyers out of the market. Combine this with the proposed increase in FHA up front mortgage insurance premium, the monthly mortgage insurance premium and you have a "double whammy".
Many seasoned home owners are choosing to sit in their homes and do nothing and investors are preferring to swoop up deals with all cash offers. There are a limited number of cash buyers. If seasoned homeowners sit and entry level buyers are priced out of the market, this will certainly make our ability to make a living that much more challenging.
However, I also believe that the sooner the government gets out of our business and allows free market to control it the sooner we will see real recovery. The other large hurdle in real estate will be HVCC reform.
IS THERE MORE?
Yes. I've addressed real estate but haven't commented on the US economy. I found a video that is really interesting about what people predict to happen if the government doesn't get out of the "rescue" business. This is a business news clip not Glen Beck. It says Glen Beck but for those who do not like him he does not air until 8 minutes and 45 seconds into the video. Out of respect for my readers my political preferences remain private. Feel free to fast forward the first 90 seconds of video where the "good stuff" starts being discussed.
Hyper inflation, shortages and lines for food and energy, higher interest rates and a devalued dollar. Some think this can and will happen in America. I regretfully agree. Therefore I'm glad the Fed is finally beginning to step away from their current role but be prepared for the shorter term ripple effect in our industry. Short term meaning a couple of years. To survive I recommend you keep as much cash flow as possible (liquidity) even if it may not get you the best return. Save your money and refrain from spending on non essentials. Write a budget. A budget in your head rarely gets enforced. If you have to spend money, spend it on your business.
I hope that our government gets out of every facet of bailing out failed business models so we can get the recovery underway and allow entrepreneurship and small business to thrive. I'm in the same boat you are and if you and your referral partners meet and put together a plan of action it will make these bumps a little bit smoother. Unfortunately, some people don't have the luxury of time to be able and wait for the recovery. We should go out of our way to help them especially when they request our services.
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Regardless of anyone's political views, this is great information for anyone who is considering a home purchase. Like you mentioned, if interest rates go up even 1/2 a point, it could price some buyer's out of the market.
Nevin - Good points. I too agree that we are not totally out of the water yet with the financial recovery. There are many bank failures left to digest and the fact remains that there are some pockets of sovereign global debt that may default. In our own country there are states in trouble but I feel that we will see the chapter 9 used to a greater degree over the next 24 months to help municipalities "clear their books". I certainly hope we can avoid hyper inflation, shortages and the food lines you mentioned! My true hope is that real estate lead us into this monster recession and that it will lead us out eventually. ~Best, Doug
Craig - I agree. Political views have nothing to do with what's around ther corner. Political policies do but not views!
Doug - Thanks for commenting and including chapter 9 which is being overlooked. Municipalities are in deep trouble as some of their funding comes from municipal bonds and I believe also mello roos. As property owners leave their homes the tax revenue drops pushing these municipalities to the brink of bankruptcy.
Chapter 9 info
Nevin,
This is very interesting reading. Thank you for sharing it. We'll see what happens...
I almost didn't watch this because I'm NOT a fan of that frantic/fanatic GB. However, I took your advice, and watched the video.
Here's the thing . . . Hmmmmm . . . we DID SAVE!! People invested in their 401(k)'s, retirement accounts. Millions of people opted to have their income taken from their payroll and it was used to purchase . . . oh, investment vehicles. When Bear Stearns and Lehmann Bros were put to death in 2008, the SEC (the Securities and Exchange Commission) did absolutely nothing when the frauds were being perputrated on Wall St.
And what happened to all that 'SAVED' money that people -- I like to call them Americans -- invested? They LOST IT!! What they thought they would have as their 'nest egg' is not lining the beds of OTHER PEOPLE.
Funny how we forget. People LOST their retirement, they LOST their investments. They LOST their SAVINGS!!
The earned equity, unless they were smart enough to CLOSE their accounts -- oh, wait, EARLY WITHDRAWAL PENALITIES would be inflicted on them by the . . . whom?? Those pesky regulations that IMPEDE you and me from doing what we want with OUR HARD EARNED MONEY! From PULLING IT OUT when we want to. Yup, they got it all tied up. The Devil is certainly in the details.
Americans did (and does) SAVE -- but we are DAMNED if they DO, DAMNED if they DON'T. Most employees did SAVE and still do!
I'll say it before, and I'll say it again: Americans are being pimped. I'll say it before, and I'll say it again.
If people would have known that their retirement accounts were going to be wiped off the books early on, they probably would have opted to have the STIFFY penalities, compared to losing it all.
Captial gains, early withdrawal penalities, inheritance taxes -- you name it . . . if we think it's OUR money. . . it is NOT! The minute we relinguish the money -- to the control and "stewardship" of a third party entiry . . . we are FOOLED into thinking that the laws governing that will treat US (Americans) fairly.
Fool me once, shame on me. Fool me twice ... FVCK THAT!!
Glenn Beck is a rich man. He is not on my level of trying to survive. I don't listen to him or others that think they are doing me any good.