Government Bail Out

[<Steve> 82]

So, here we are now with a possible huge government bail out. $700,000,000,000.00

 

Is this for real?

Did anyone think it would go this far?

Does the government really know what the hell they are doing?

Weren’t Fanny & Freddie the ones that said every person should have the American dream of home ownership?

Is there another way to help the economy besides a 700 billion dollar loan?

And why do we have to decide so quickly, in just days? Would a few weeks or months to debate and think about different possible options?

What will be the effects of such a huge loan down the road?

Are there still those out there who think the market should correct itself?

Don't these huge corporate investment banks have other connections beside the government to get them through their hard times?

Lastly, where did this idea come from that the world was coming to an end if we do not do this?

 

I'm not sure I'm buying it?

Is this another rush to judgment and not thinking out the consequences?

Is it the typical, "I want it now! syndrome?"

[MichaelC 160]

Steve, this is a very ugly, frightening time we are going through. I believe we are on the precipice of a financial disaster. Some have called this the Perfect Storm for a financial collapse. I like to think I'm a realist, and so I must reluctantly agree.

When I look around my own community, I see houses sitting unsold, at prices that are 35%, even 40%, less than three years ago. There are two Home Depots nearby. Used to be that even during the week, the parking lots of both were a damn nightmare to navigate. Three weeks ago I parked two spots from the front doors on a Saturday morning. The aisles inside were empty.

Washington Mutual just went under.

Restaurants are noticeably less crowded. I see and read about local retailers who are suffering. What was once a thriving mall in my area has shut down. An entire mall! It was foreclosed on by the lenders and has since been purchased by a group with an address in China. They had all sorts of grand plans, including a 600 unit condo conversion. Needless to say, it sits untouched for now.

Look at today's headline: New Home Sales Plunge Amid Record Price Declines

Am I happy about the government bailout? No. But I do think it's necessary or what we are seeing now will be considered the "good ol' days" compared to what will follow.

[smitchell210 0]

Hi Steve,

 

I think you missed a few zero's. It's $700 Billion. Almost makes $7 billion sound good.

[<Steve> 82]

Thanks Scott

 

I hear you MC. But the extreme pain felt in Florida and a few other states is not the same everywhere. What has happened in Florida is the result of the bust from an artificial economic real estate boom. And those failed businesses where most likely tied to that boom. I can remember the 25% to 40% appreciation at the time and in my area it was 2%.

 

This bail out will do nothing in stopping additional foreclosures. It only relieves the big boys, and passes their pain to someone else, the tax payer.

 

The national debt in this country is so huge; it's all we can do to just pay the interest. As the national debt grows the dollar gets weaker. A weaker dollar means high inflation. Higher inflation means a need to increase interest rates to equal the same amount of capital to pay the debt. Right now interest rates are still at record lows. It's artificial. As our national debt increases, the reality of increased interest rates will follow. And we have just seen what has happened with higher interest rates. The next increase will be long term; and borrowing more money won't get us out of it.

 

We are repeating the 1981 resection.

 

If the failed business practices of a few of the big boys has such a huge affect on the national economy than maybe they are to big and need to be scaled down. If the "want it now crowd" gets foreclosed, they knew the risk. In capitalism you have to take the good with the bad. It's because of capitalism that we can do our real estate business. Otherwise we would all need to be licensed to breath and would still need permission.

 

Off my soap box. Thanks for the vent.

[rbaras 0]

So now I'm going to ask all of you the questions that I'm surprised haven't been asked: How is this economy affecting YOUR lease option business? Can you find the tenant buyers with $5000 option consideration AND first month's rent ...??? How long is it taking you to find them??? How many deals are you doing a month? Is your business vastly different than it was 2 years ago??? I'll answer for myself: Easier to find motivated sellers. Harder to find tenant buyers. I want to pull in $10,000 a month and I'm not doing it. Wondering how much of my less than stellar business is due to the economy ... or not enough focused action on my part. Tell me that I'm wrong ... but I'm getting a little scared. Anybody out there making $10,000+ a month doing CA's, etc. in THIS economy???

 

Ronnie

 

PS I'm not on a soapbox. I'd love to see some responses.

[MichaelC 160]

Ronnie, no surprises here. Business has slowed down. If anyone says otherwise they aren't being truthful.

Finding motivated homeowners has never been easier. Finding buyers, tenants, and/or tenant/buyers is where my time and efforts go to these days. I imagine that's the same for most here on the board. What used to take three days, then three weeks, is now taking three months. Few in south FL have the inclination to want to buy with property prices in a free fall. For many, renting makes more sense these days. As a result, I convince most every homeowner to consider a straight rental as well as a Rent To Own. So that's what I find myself doing more of. Don't like it. I'd rather collect $5K option money over $1K rental fee. But when the environment changes, we need to adapt or we'll find ourselves going the way of the dinosaur.

Tough times, to be sure. But this, too, shall pass.

[randian 0]

What has happened in Florida is the result of the bust from an artificial economic real estate boom.

Not really. What happened to Florida is Smart Growth. Look at the states suffering a big bust. All of them have significant statewide growth restrictions. States not suffering a bust don't. Because builders cannot be responsive to demand, due to long lead times, cost, and in some cases impossibility, price volatility is massively increased. Small increases in demand foster huge upswings, and equally small decreases in demand cause huge downswings.

 

The other thing that's hammering Florida on the downswing is taxes. As an example, a friend's rental house took 50 years to get to $900 annual taxes. It took 3 years to hit $4,000 annual taxes. Local governments are taxing property on the basis of "get the most you can and spend it all" rather than on need created by population growth plus inflation. Then when a downturn hits (like today) they scream bloody murder about alleged "poverty". This exact kind of fiscal mismanagement and naked greed (massive overspending in good times followed by huge deficits in bad) on the part of government is why California is so dysfunctional. Heck, it's one of the reasons I left California!

 

States without Smart Growth are doing fine. Texas, which by all accounts is a booming state, hasn't seen these price swings because they don't have the development restrictions we do. Developers are allowed to meet demand with a minimum of bureaucratic bs getting in the way, so they can afford to build incrementally, keeping up with demand without development outstripping it. Prices go up, but they're pretty stable. By way of contrast, cost and lead times in Florida have been increasing at a rapid clip, due to the state's Smart Growth rules passed in '96 (?). You can't build incrementally, because it will take another X years and another round of hearings (read: expensive lawyers) to get development approval, and you can't sit on a current approval to wait for demand to catch up, because your approval will expire too quickly or worse, some meaningless lizard will show up and the environmentalists will shut you down. So you build a huge oversized project in one shot and hope demand will sell it out, because if it doesn't (as we see today) you're dead, and your oversupply of product contributes to the downturn. California is the quintessential practitioner of this misguided concept, and Florida caught the bug.

[MichaelC 160]

randian, Smart Growth was a part of the problem. But specific to FL was also the fact that the boom was fueled by speculators, not the retaill buyers. It was a modern day Gold Rush of sorts.

The Miami condo market is the poster child for everything that went wrong with the real estate market. Anyone and everyone I talked to back in '03 through '05 was asking, talking, and investing in condos. Pre-construction investing was all the rage. Money was easy, and no one gave a minute's thought to any sort of Plan B. You know, just in case that condo you bought wasn't worth $75K more in six months as promised.

Eventually, that market ran out of investors to sell to. And now we're seeing the ugly side of all that unbridled greed and short sightedness.

Here's a real world example from personal experience. My wife and I know a couple from South America. The husband is a very successful and wealthy business owner down there. Like any smart investor, I hit them up for some private money, explaining how they could earn a safe and secure 11% on their cash. They politely declined and I let it be, not one to mix friendship and business.

Last month they came here for a visit. We started talking and it turns out back in '04, (about two years before I ever approached them), a friend from South America advised them that the streets of Miami were paved with gold.

"Easy money", he said, "if you invest in condos. Everyone wants to live in Florida."

So they did. Not once, but twice. Buying two 1BR units in the heart of downtown Miami. Fast forward to today. The units are still not completed, ten months past the promised date. The builder is rumored to be broke. There are many units in this luxury development still unsold, and will probably remain unsold for years. Their "investment", $262K per unit, is now worth 40% less than what they paid. They can't sell, they can't rent, they can't live there. They're coming back in a few weeks to talk to an attorney and try and salvage something from this mess.

They are but one story in Gotham. There are many thousands more just like it.

[randian 0]

rrandian, Smart Growth was a part of the problem. But specific to FL was also the fact that the boom was fueled by speculators, not the retaill buyers. It was a modern day Gold Rush of sorts.

I see much gnashing of teeth about the role of speculators and banks in fueling the Gold Rush, but outside of the Cato Institute and such like zero talk about the role of land regulation in housing affordability and boom/bust cycles. I find this disturbing, because once this bust settles down affordability will still be a big problem in Florida, when it wasn't for many years. You cannot solve a problem if you can't name it. Rather than strike at the root of the problem, Florida legislators and county planners are talking about things like mandatory setasides for "affordable housing" and various ill-defined "initiatives" to solve the problem, the sort of remedies popular in California, despite their manifest failure everywhere they've been tried. The thing is, if you look carefully setasides are economically identical to rent control, and have the same effect: median prices go up, not down, paradoxically reducing affordability.

[BEV! 0]

...I'll answer for myself: Easier to find motivated sellers. Harder to find tenant buyers.

Hehe, welcome to my world (FRBO ... easy to get houses, but not as easy to get t/:wacko:

 

 

BEV!

[Doug Pretorius (ON) 9]

$700 billion ain't nowhere near ENOUGH! Think about it... the Fed has already pumped about $500 billion into bail outs but that's only the half of it that the media has covered with a bit of gusto. The Fed has also been *quietly* pumping hundreds of billions more into the market to "maintain liquidity", $50 billion here, $100 billion there, just last week it was over $250 billion.

 

If you can believe what Bush said the other night none of that money has done any good, the market/economy is still ready to collapse. So what good is another $700 billion going to do? If (and it's a big IF) printing a ton of money is the answer then no way is $700 billion going to be enough.

 

If the government wants to burst the bubble without it appearing to be a depression then they're going to have to print enough to dilute the value of the dollar by about 50% to maintain asset prices at current levels (assuming you believe housing et al reached twice the price it should have). To figure out how much we're talking you need to know how many dollars are in circulation, and double it. Most recent number I could find is for 2006 and the figure stood at approximately $11 trillion. That's the real figure of how big the bail out needs to be.

[<Steve> 82]

Good point Doug. Seems there is more to this than just bailing out a slumped housing market. . .