But
first . . .
ARE WE NEAR A BOTTOM? LEFRAK ON REAL ESTATE
A
friend listened to one of New York’s
top real estate moguls, Richard Lefrak, a couple of months ago, and took
notes:
Lefrak said that the current crisis is likely to take
about another THREE years (give or take one or two) for a few very simple
reasons:
First – We have the highest inventory of unsold
homes/condos/apartments nationwide in 20 years.
Second – We know that home inventories will RISE for at least another year,
due to a huge coming wave of foreclosures.
Third – Banks and mortgage companies do not have cash or
credit available to lend to potential buyers.
This won’t turn around until the real estate market itself turns around –
so we have a catch-22.
Fourth – The high price of oil and food (which is
largely being caused by growth in emerging markets: China,
Russia, India, Middle East, South America) is putting
even more pressure on over-indebted consumers in the US.
Even if oil demand falls in the US, demand from overseas will suck
it up. A 30% decline in oil (to $100 a
barrel) will not solve the problem. It
will still be too high to offer any significant help to the consumer.
Fifth – The US government will need to keep US
interest rates low to try to help the consumer and real estate markets. Low interest rates will keep the US Dollar
under pressure. Even if the dollar
doesn't fall much further, it certainly won’t be rising much anytime soon – and
this will cause even higher consumer prices since we import almost all our
consumer goods.
As for why NYC hasn’t yet been affected, but eventually
will be (in a very big way):
For 30 years, the NYC real estate market has been
largely driven by Wall Street profits. Until
the beginning of this year, most Wall Street firms were actually MAKING money
on the real estate and credit crisis, but that ended early this year. Mortgage and credit trading was the major
source of income for Wall Street for the last 10 years – and that has now dried
up. This doesn’t spell the end of Wall Street. Eventually, something will come along to
replace real estate – but that won’t happen overnight. Nobody knows how low prices will fall in any
given market, but the crisis on Wall Street is the worst in 20 years – so it’s
hard to imagine that this will only have a minor or temporary impact on NY real
estate. NY metro saw the biggest price
rise in a generation over the past 5 years.
A 10-15% decline does not correct a 300% price rise. Never has, never will.
The US
real estate bubble took 10 years to build.
Something that takes 10 years to build cannot be wiped clean in 6 months
or a year. After the Gold bubble burst
in 1980, it took 4 years for gold to hit bottom. After the S&L crisis of 1988, it took 5
years for banking to hit bottom. After
the NASDAQ bubble burst in 2000, it took 3 years for the NASDAQ to hit
bottom.
People are generally optimistic when it comes to
economic issues because MOST of the time the economy is growing. But when a crisis does occur, it lasts a lot
longer and goes a lot deeper than most people expect. During the good times, we tend to forget how
bad things occasionally get. And
financial advisors (and real estate brokers) are paid to give people good news,
not bad news. Eventually, everything
will work out fine. Real estate prices
will rise again and Wall Street and the stock market will boom, but that’s
years away.
F It should be noted that Congress in 1994 gave the Fed the authority
to regulate the “non-bank” mortgage originators, but – in classic
no-regulation-is-ever-good Republican fashion – Chairman Greenspan chose not to
use it. What possible harm could
come from a real estate bubble fueled by the granting of massive credit to
unqualified borrowers? (Greenspan is the
author of the book that Senator McCain has promised to read to bone up on economics.)
Using
the Fed’s regulatory authority would have required cracking down on, among
other things, “liars’ loans” – where borrowers were not required to document
their creditworthiness – and this would have significantly moderated the real
estate bubble.
While
it may be several years too late (horses, barn doors), Chairman Bernanke is
planning to use this authority.
It
should also be noted that, within the bounds of what’s possible, Congress and Treasury
Secretary Paulson did a good job with the recently enacted housing bill. The overarching idea was to make it harder
for people to get mortgages who can’t afford to pay them back – but easier for
people to get them who can. One especially
noteworthy provision: a $7,500 no-interest 15-year loan (in the
form of a refundable tax credit) that Congressman Barney Frank insisted be included to help first-time home buyers get a foothold on
homeownership. Another: a substantial increase
in the ceiling on mortgages the FHA will insure, to over $600,000. For more about these and other homeowner benefits
of the bill, click here. For the macro view, here.
(And
what of the charge it’s all a bail out for the shareholders of Fannie Mae and
Freddie Mac? When a former Treasury Secretary
ribbed one of the principle authors of the bill with that charge, the author
shot back: “Are you buying shares?” To which the answer, perhaps instructive to us
peons as well, was, “Umm, well, no.”)
MARY MATALIN PUBLISHES GARBAGE
I
was on her radio show for an hour once and enjoyed it. But she long since began to grate – and now her
imprint at Simon & Schuster has published this.
It debuts the day after tomorrow at the top of the New York Times best-seller list:
. . . In its timing,
authorship and style of reporting, the book is strikingly reminiscent of the
one [the same author] wrote with John O’Neill about Mr. Kerry, “Unfit for
Command,” which included various
accusations that were ultimately undermined by news reports pointing out
the contradictions. (Some critics of Mr. Kerry quoted in the book had earlier
praised his bravery in incidents they were now asserting he had fabricated; one had earned a medal for bravery in a gun
battle he accused Mr. Kerry of concocting.) . . .
F So having done it to Vice President Gore
and Senator Kerry, they now rev up the character assassination of Barack Obama. (Two
websites to bookmark: fightthesmears.com and lowroadexpress.com.)
Speaking of which . . .
A VIDEO YOU MUST SEE
How
Fox misleads its viewers about Obama – take 4 minutes to watch.
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