By Denise Lones
Lately, it seems as if we are living through history every day. Not since the Great Depression has the United States seen such turmoil in the financial markets. What started in the subprime mortgage industry has now bled over into Wall Street.
When investment houses that have been around since the Civil War close their doors, it’s a sure sign that something’s gone terribly wrong. First Bear Stearns, then Lehman Brothers and then Merrill Lynch and Washington Mutual.
We all can’t help but be a little rattled by what’s going on. But while I and others have been pointing out that the markets are only going through a “correction”, you may be asking, “Denise, how much of a correction do we need to make?”
Obviously, a big one. Too much money lent to too many people who couldn’t afford to pay it back is a surefire recipe for disaster. Now it’s time to pay the price.
Some analysts are even comparing what’s going on now to the stock market crash of 1929. However, there is one major difference between then and now—we aren’t even close to being in the same economic hole our great grandparents fell into back then.
Case in point: The $700 billion bailout (or is it a buyout?) being debated by lawmakers as of this writing is a giant sum of money, the equivalent of which was not available in 1929.
Today, we are better prepared to handle such challenges as they arise—partly because we’ve learned from history. When the Great Depression began, there was no backup. The U.S. Government was in a much more “hands-off” position than today.
While some like to argue it’s a good thing for government to stay out of the free market, the new and upcoming legislation promises to bring at least some security back to the United States economy. The time for argument from political principle is over. Something has to be done—and thankfully our leaders are finally stepping up to actually do something about it. The question is will these leaders help the problem or add to it, only time will tell. As of this writing they still have not been able to get it together.
After four (or more) years of unsupervised lending, exotic loans, predatory practices, and the ensuing subprime mortgage meltdown, the government is finally taking measures to step in before it all spirals into oblivion.
Of course many are asking why Treasury Secretary Hank Paulson and Fed chair Ben Bernanke didn’t do something before this mess happened. While it’s true that nobody could predict how bad the fallout would be, it’s obvious that when banks start handing mortgages out like candy, something is amiss.
Two to three years ago, every time I heard a mortgage ad on the radio touting low numbers for adjustable rates, I winced. I wondered how long this could last. During the boom, it seemed like we could never run out. Now we’re suffering from a huge reality check.
So what does this mean for the average real estate agent? First of all, the media has it wrong. It’s not a bailout. It’s a buyout.
A bailout is when you give a corporation money while forgiving their debt. A buyout is when you come in to save the day—but there is an asset to be traded.
The latter is what the U.S. Government is proposing: supplying funds to take over the mortgages on real estate property. Real estate properties are assets. Therefore, by definition, this is a buyout.
Based on my own personal experience with the markets, I think the government could do quite well on this deal. Think about it. They step in, take over loans that are in trouble, and refinance them at a lower rate. It’s a win-win situation.
Ultimately, there is always money to be made in mortgages. Even if government restructures these mortgages, we all know that real estate is still the best long-term investment.
Which I believe will be the harbinger for the “great real estate appreciation of 2012”. Real estate will go back up again. It’s always rebounded. It always will. And all the major factors are pointing toward it going up anyway—population, immigration, migration, a senior community with buying power, higher divorce rates, and people living much longer than they used to.
Personally, I would like to see all of the corporate executives who led the failed companies down this horrific financial path be denied their bonuses. How can a CEO get a $22 million bonus when he’s bankrupted the company and left shareholders with the bag? To me, this is one of the most important parts of the mess to be cleaned up.
So only time will tell how long it takes for our leaders to get this right. What is for sure is that something has to be done!!!
And remember when the consumer gets nervous about Wall Street they tend to invest their money in real estate. So don’t jump to conclusions and believe that the real estate market is going down with Wall Street, it is the real estate market that will lead our economy back to where it should be.