What a Housing Crash Sounds Like- Real estate note buyer

According to mass media outlets and some politicians, the Great Correction to the Great Recession is going, well … great.  We all hear stories about unemployment going down, consumer confidence rising, and the housing market starting to rebound.  Don’t believe it – any of it.  Even if choice statistics show something to be off of the nadir doesn’t mean that it is improving or even good.

Unemployment, we are told, is only 8.5%, though any reasonable person looking at the data would see that the true figure is above 20%.  Similarly, inflation is not hanging around 2%, as the Fed would have us believe.  If we measure it as it was done in 1980, the inflation rate is above 10%.

Consumer confidence is still low and only showing improvement because so many people have become zombies in taking government statements as fact.  Confidence can change day-to-day or even minute-to-minute, so take that data with a grain of salt.

The chattering about how real estate is improving is what really gets my goat.  Only 302,000 homes were sold in 2011 – the lowest number since 1963, when the population was much lower.  The year 2011 was the worst year on record for construction of new homes.  Meanwhile, the median sales price in December declined to $210,330.

In the minds of economists, none of the above makes sense.  After all, mortgage rates have reached historical lows, the Fed has engorged banks with cash that they could lend out, and banks have been pressured to loosen their lending standards.  The Fed even promised this week to keep interest rates at rock bottom until the end of 2014 (continuing to punish savers, but that is another story).

Meanwhile, the Treasury Department just announced changes to HAMP, their ongoing effort to rescue the housing industry.  Everything that they have tried so far has failed.  Perhaps their slogan should be “if it fails miserably, then let’s do more of it.”  Treasury’s latest changes to HAMP include extending enrollment until the end of 2013, allowing borrowers to get more assistance by changing the debt-to-income calculation, and paying investors up to 63 cents on the dollar to reduce principal amounts owed to them.  While these ideas range from merely silly to outright stupid, they conveniently show that the administration is doing something.

Housing prices will continue to fall for several reasons.  First, average potential home buyers have neither the income nor the savings to buy a house and then maintain it.  Second, people perceive that real estate is still risky and the economic climate uncertain, so don’t want to make a bad decision on what is usually their biggest investment.  Third, rock-bottom interest rates have done little to goose home sales.  When rates kick up to more normal levels of 8-9%, home prices and the accompanying mortgage payments will become even more unaffordable.  And finally, our government is broke, with trillions of dollars in unfunded liabilities to Medicare and Social Security.  At some point, the government will not be able to get loans, and all hell will break loose.  By the way, neither the current president nor his Republican challengers have stated any real plans to address the deficit.

Does this mean that real estate is a bad investment these days?  Heck no, as long as good deals can be found and you know what you are doing.  I am actively serving as a  real estate note buyer but making sure that those notes are low risk.  Even in a shattered economy like ours, there are always financial opportunities, whether in precious metals, stocks, or alternative investments like being a real estate note buyer.

2 thoughts on “What a Housing Crash Sounds Like- Real estate note buyer

  • By Pat Rombach -

    Yes – Real Estate is bubbling again…. Why one asks… Because the some of the same stupid policies that caused the last crash are in place today… if the government artificially supports markets they bubble… fact of life… as you correctly state above…The Fed even promised this week to keep interest rates at rock bottom until the end of 2014 … stupid… this forces real estate to bubble… low interest rates mean people that should not buy houses buy houses… again too many homes will be built then people will say why did it crash again… the government should not support any industry period… if they do it will wreck the market they support and cause bubbles and crashes… just wait … housing will crash again shortly… i think i already hear it…. politicians are paid off by the housing industry and they make stupid decisions that help some in the short run (the big builders for example) but wreck the industry long term … bubbles and crashes… if you do the same behavior the same result will happen… Government should leave the housing industry alone period… then it will go up and down based on demand… housing in not an investment… your house starts to rot the day you finish building your new house… in one hundred years you will have to build it again… it is not a wealth creating endever like a business…actually it is in the wealth destruction business because it is guaranteed in 100 years to be worth nothing but the land… the only thing that has value is the land… prices only increase if the demand for the land goes up … do not confuse housing with investing… housing is something one lives in that costs money… if you are planning on our house price going up that is speculation not investing… from 1982 – 2000 housing rocked due to poor government policies that encouraged speculation… remember only the land has value the home has none… if you are next to a vacant lot… in one, two, five or ten years the person that owns that lot can put up a better house cheaper than you did … building materials get better and less expensive over time… this is true unless you expect rampant inflation in the next few years… I actually expect the rampant inflation… if one believes in rampant inflation that would would make your house price will go up… But there are many better ways to invest to capitalize on inflation rather than speculate in housing…

  • By Pat Rombach -

    All this being said, if one speculates in housing you better have someone like Alan Noblitt on your side or one risks making a poor decision. One needs expert advice in these difficult housing times. This is no time for amateurs.

Leave a Reply

Your email address will not be published.