Something Wicked This Way Comes

Something Wicked This Way Comes

Sometimes I think the men and women we elect don't think anything they do when they enact new policies, guidelines for the housing industry. For every "give away" they don't realize there is at least an equal "take away."

Think about all the declared "moratoria" that lenders have been coerced into in order to get bailout funds - whether you agree with the latter or not - another topic entirely, there is a whole lot wrong with stacking up inventory in a declining market. Yes, it's still declining in most areas of the country, albeit slower, but still declining.

What do you think is going to happen when the gates to these backlogged "assets" begin to flow into the market in earnest? Do they think foreclosures are going to slow down in an economy that will hit 11% by mid-2010?

In the end, the money lenders - you know, the "bad guys," like your pension fund, IRA money, 401k funds, and  don't forget the Chinese who are sitting on $800 BILLION in cash, will actually want their money. They'll need it to pay out those 8% yields their actuaries and their customers have been anticipating all these years. The baby-boomers are coming - in earnest. They started retiring in 2008, and it's going to become a flood in the very near future. They'll want their retirement money, their Medicaid and Social Security, and they'll get it. Why? Because they will be one of the largest voting blocks in the country. Baby-boomers are 1/3 larger in numbers than the generation that replaces them. You don't think they are going to vote out their own welfare do you?

Now there's a dilemma. The way this government has been spending our grandchildren's future, there's going to be a "reality check" in the very near future with what we have available for income and what the expenditure side will be. So, all these promises of salvation for homeowners and every other voting block in the country is going to come to an abrupt halt in the not too distant future. My guess is just about election time 2010 the bloom will be off the roses.

What does that mean? The reality is that the HAMP program and their ilk are counting as a successful mortgage "save" if the defaulted homeowner makes ONE payment. Bank of America's internal statistics I'm told are that 50% of this type of "workout" defaulted homeowner defaults again within 6 months, and 70% default within a year.

So, all that cost, lost opportunity costs of sale of the asset in a higher market than what it will sell in again, when prices continue to decline, only adding to the deficit ultimately. Guess who pays? It's either the investors are going to take the hit, or the taxpayer pays. How long do you think it will take the Chinese to pull the plug on buying US Bonds if they think the Treasury is going to stick them with losses? 10 seconds? Maybe, but that might be stretching it on the long side a little. That means the tax payers will foot the bill yet again. So, not only do we get to pay for the incompetence of irresponsible homeowner borrowers who used their homes as "piggy banks" to finance excess, and their partners in crime - greedy and unscrupulous lenders who knew better; we'll get to pay even more for the politicians who are trying to make "points" to get re-elected, again and again - on your nickel.

When it doesn't "work out" yet again, these very same politicians who helped fuel the mess in the first place by getting FNMA to "relax the rules" to promote "homeownership," they'll be the first ones to claim: "well pointing fingers isn't a solution, I'm committed to solving...[pick the lie - the dilemma they created].

The only answer of course is to throw them out, but that is unlikely to happen on a wholesale basis since it hasn't yet.

So, what does this have to do with your business? Get ready. we're in this for the l-o-n-g haul. This is not going to cure itself quickly. My best guesstimate now is that we will still see abnormal foreclosure levels for the next 10 years between  residential and commercial real estate. 

Let's leave the current housing crisis dilemma just a moment, and project forward just a little. We all know there's a big commercial meltdown coming. There is absolutely NO political sympathy for "business." The commercial  sector is going to be on its own. That's why it will recover faster than the residential sector, but the cost will be  huge.

Another thing you might not have thought about. Who is going to buy all those McMansions of the late 90's and go-go 2000's - until he "great fall" of 2007? With the most likely candidates being the next generation that is 1/3rd smaller than their baby-boomer parents, do you think that bodes well or ill for McMansion pricing and future construction? You guessed it - not very well. That's why I believe this "crisis" is going to be with us longer than anyone cares to admit right now. Don't get me wrong. Houses sell in any market. In some cities in the US, there are whole blocks of inner city housing going for "peanuts," and if you're the broker, you're still selling them.

Chris Michaud

Acceptance Group

www.acceptancegroup.com