Inflation is a measurable increase in the costs of goods and services. Inflation is something that as ordinary citizens we deal with everyday. High costs at the the gas pumps, $4 a gallon for milk, higher prices at restaurants, food, produce, transportation...the list goes on. It is sticker shock! So how does it impact our business? First of all, buyers take a holiday, and then real estate sales cool for many reasons.
The first thing that happens wiht inflation is that consumers go into price shock, and their confidence on how things are going to turn out at the end of the story. Personal survival becomes a primary goal of the individual. The consumer becomes less likely to make high price purchases out of uncertainty of their future dollars worth and the impact it will have on their sucurity as it is measured in personal finance. Higher prices in our daily lives makes us very conscious of the increasing cost of living, and the impact on our budgets. We first become aware of the creeping inflation as our bills start to arrive in the mail. At first glance we are looking for a mistake or an error because we question how the bill could be this high. It is an easy situation to fall into when we rely on credit as opposed to cash. The sad thing about inflation on the economy is that it has to to be fixed, and cannot go unchecked. Inflation robs the economy of confidence. Inflation can break an economy as it did in Germany with hyper inflation. With hyperinflation it could take wheel barrows of money to buy a loaf of bread. That is not a good thing. So what is the fix? Well the first fix in any responsible government will be to raise interest rates. Cheap money (Low interest rates) only fuels inflation. Raising interest rates cools the demand because the cost to borrow increases. So what a lot of people that are waiting for lower real estate prices do not realize is that their carrying costs to buy a cheaper home may cost more money for less money borrowed. A $70000 dollar mortgage in 1980 cost about $1500 / month in PITI. There is an axiom in real estate that says "Low rates - higher prices, Higher rates - lower prices"
As it relates to real estate this is not good, and could not have come at a worse time. Since real estate is already in a deflationary cycle, the fix for inflation is going to be similar to curing a patient by killing him. Eventually it will cause a further softening of value, because the ability to obtain financing will move beyound the reach of many would be home buyers, and it will influence what they purchase, and what they are willing to pay for it on a monthly basis. Rising interest rates will also have a major impact on the higher end of the market. It is just not the cost of aquiring the higher end of home, and the cost to heat, cool and maintain it. Buyers will definitley start to re-think what they are purchasing, what will it cost to maintain it, and will it work with their budgets if other prices continue to rise.
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Jim, imagine if rates rise to 7, 8 or 9 percent. At various times in my career those were pretty tantalizing rates. Today they sound horrific.
Joe Virnig, "No Ordinary Joe" (RE/MAX Gold Coast REALTORS, Ventura County, California) They are still cheap mortgages. The problem is that whe we had 8 or 9% mortgages, there weren't many homes for sale over 600K. If you have to place up your own money, and pay your own bills, you are not going to take on a $5000 a month mortgage + maintinence costs.
Jim, it is a balancing act, when you look at a town with higher property tax you can find some reasonably priced homes and businesses that can no longer afford to have their operation in that town, the opposite is true in a low tax town where the cost of homes is higher but citizens don't mind so much because their tax burden equalizes their housing expense. The over all cost of ownership shifts the wealth in the same way, I have a friend who jokes he is going to have to take out a second mortgage to pay for heat this winter, good luck selling that house when heating cost is disclosed. Steve
Jim,
Good analysis...rising gas prices have led me to see how overpriced milk is...an easily renewable resource...shame we couldn't drink gas when it was around $2.00 a gallon! Thanks, Fran
Alpine Lakes Real Estate It is a very delicate balancing act. Paul Volker was very heavy handed.
Fran 'The Title Man' Gaspari Title Insurance-PA & NJ (Patriot Land Transfer, Inc.) It is now almost $4 a gallon for milk.
Jim, great points you make with the problems we will have in housing if inflation takes off again. A lot of the economists are saying we are in a stagflation cycle now, with diminished growth and increasing inflation.
Business headlines pointed also to a concern for inflation in Asian markets. This is going to be a mixed signal economy though, on the one hand - gas influencing prices upward, and on the other hand -employment and credit concerns not to mention gas prices limiting money for other spending pushing prices downward.
What did Truman ask for - a one handed economist.
My father runs a store and he says sales are way down. People are not driving and they are not spending.
At the mall today, sales everywhere and no buyers. They were not Father's Day sales, just price roll backs.
If people are not buying, inflation may be held back.
Mortgage rates are reflecive of the market concern for inflation, and right now it is those concerns that I think have pushed rates up. The rate increase is, I think, permanent.
Still rates are low. Have they increased enough yet to change a buyer's motivation to purchase?
Richard
Sometimes I think you are the only agent in town who is honest. All of the Buckhead agents are going around saying that things are great, sales are up, lots of buyers out there. I think they are trying to fool the buyer into thinking that the real estate situation is still good so that the buyer does not question the list price that is 20% or more higher than the prices from the past few years.
Gary Woltal - REALTOR® Dallas Ft. Worth (Keller Williams Realty) It will take a few months for hte most current price increases in fuel to seep into the economy! A lot of thing will go much higher in price.
Richard Smith (American Acceptance Mortgage, Inc) I agree with you on everything, but in hte meantime... life is on hold.
Sarah Sales are not up, even in intown. A buyer has every right to question prices and trends.
Housing sales will take off when the cost of ownership is similar to the cost of renting... it is just that simple. There probably are pockets in Atlanta where real estate is doing well, but most aren't. We are in an economy of inflation and deflation but in the macro ecomonic sense all it means is America's living standard is going down and the worlds is going up. If our work force isn't well educated and highly motivated expect an increase in the decrease of our standard of living. Many of the other contries are experiencing inflation as well.
phil The problem with Atlanta is that in the late 1990's and early 2000's Atlanta had a "Brain drain" going on! The Telcom and dot com bubbles attracted high paid talent from all over the US and the world. It was quite a feat on the heals of the Olympics to pull this off...,but when the dotcoms, and tel coms imploded, Atlanta never had a "B Plan!" Housing was not it. The jobs that are now being created here are paying half that of those that were created just a few years ago. Our problem is lack of infrastructure. The worse traffic in the nation, school scores that are at the bottom of the national charts, no real mass transit system, and no one has a plan! Oh yeah, I forgot, no water. Homes and real estate are not it. The excess of inventory kind of proves that point also. We have an incredible inventory and totally declining home sales.
You make some good points Jim. Inflation in not what real the estate industry needs to see right now.
Jim: One thing that I remember from economics is that the 'U' in supply & money should be evaluated in every purchase we make--in our business, one side of the 'U' is the price of the home, the other is the mortgage interest rate. When both are at or near the bottom, THAT is the time to make the purchase. Right now, both are at or near the bottom. Your evaluation of inflation is dead-on and luckily, we haven't hit the skewed 'U' (home prices at the bottom of the 'U' and mortgage rates at or near the other TOP of the 'U'. I'm encouraging those who can to buy (as I'm doing myself) helping lend stimulation to the market (to hopefully get 'er going again)!
Thanks for the great post. I have to admit that things are a bit scary now. Every time I hear some good news about the market, there is some ominous news to go with it. I hope that we can fend off this inflation, for all our sakes.
Jim, a great review of what's happening today. It is unfortunate, but it is reality.
I love the way when one thing goes up another goes down and then they just push it over to another thing. Alwaysa an excuse. The economy is being crushed from both ends....
Yes. Just when you thought it couldn't get any worse, it does.
Jim you hit the nail on the head. I have been thinking about this all week. The fact that inflation has picked up tremendously and interest rates are rising at the same time is down right scary!
For the past two years the inflation hawks kept saying there wasn't any inflation. Yea when you take energy and food out. Guess what I can't eat computers or televisions.
Jim, there is no other way to slice and dice it, this truly is a tough economy for everyone. As Neal said, we are buing crushed from both ends now. Raising interest rates would seem to be a win-lose situation. It will be interesting to watch what the Feds do.
Portland Oregon Real Estate >> Wayne B. Pruner, GRI (Oregon First) The timing could not be worse, but conditions are right for a "Perfect storm." I hope oil comes down.
Debe Maxwell (Helen Adams Realty) I agree. In theory for a buyer, the time to buy is now...when rates are coming off their lows and house prices have come down. This would be it, Even if home prices were to fall further, the cost of paying for them with a mortgage is going to be higher. The only buyer that rules today is the "Cash buyer" can afford to wait.
Jim: as usual you are totally on target
I like what you said, "Low rates - higher prices, Higher rates - lower prices" it is so true....
Those who fail to study history are bound to repeat the mistakes of the past!
It's Carter-Ville all over! welcome to 1973 all over!
Brandon Weber (The Brandon Weber Group - Giannini Realty) Inflation may be a bigger problem for us if rates rise. The rates on the surface level are cheaper, but really rates are tied to home prices. a 15.5% mortgages on a 150K home for a 70K mortgages is about 1500 PITI..no one could ever imaginge the same cost to own on a 500K home... it is a real balancing act.
Christine Donovan Costa Mesa Real Estate (Broker/Attorney) (Donovan Blatt Team - Donovan Group Realty) It is sad that we cannot sell like we used to sell, but place our thinking caps on...and try to figure how to work around this. I am using all this information to determine a new direction in real estate a new focus and direction. I made my mind up yesterday for a new plan to survive and prosper the next ten years in real estate. Money will be made in real estate in good and bad markets.
Well said my friend. I personally believe the party is over and we are going to see mortgage rates rise. 30 year mortgates have gone up nearly 1/2% over the past 3 weeks and and any good or slightly good economic news will send mortgage rates higher.
Neal Bloom-Realtor ® Assoc.-CRS-Weston FL (RE/MAX Premier Associates) Neal, you have to admit this is more than what we experienced in the 70's. There are many more dynamics at play at the same time.
Lenn Harley, Homefinders.com, MD & VA Real Estate Lenn, sometimes I get the feeling the other dozen shoes are about to drop!
Bill Gassett Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) The scary thing is that inflation will start showing up in about 3 months from the prince movements in the past few weeks. Unless oil makes a major retreat in the next couple of days....rates will have to constrict to offset the 'cheap money!"
John Walters (Specialized Real Estate) They cannot exclude anything from the numbers. It irritates me so much when they do that...then they refer to core inflation. When will this nation realize they are being had?
Lake Norman Real Estate ~ Diane Aurit (RE/MAX at the Lake) We havce to go back to our sellers and let them know also! Prices will have to offset the changes. The sooner the better for the sellers. The old saying "A bird in hand is worth two in the bush!" We do not know what tomorrow will bring, get it done!
Steve Harless (REALTY WORLD LUXURY HOMES -702.217.1680) If the upward rate is a trend, this is a bottom of sorts.
Great Post. This is what I am more concerned of hitting real estate in future. I am not expecting housing boom(madness) but at least stable market.
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Boise Idaho Real Estate - George Tallabas (RE/MAX Advantage) Well said George! I think this is a good time to tell buyers this is a bottom as far as rates go. Lower home prices may not offset higher cost to carry more expensive mortgages.
Gary Marjani You are correct, we are heading back to a very normal market. We will never see that type of real estate market again in our lives.
Jim...UGH....you paint a bleak picture! However, I remember when I was taking my GRI class, and agents who had been in the business for many years talked about how they still sold houses at 18% Interest rates! Yeah, Right....but what was the value of a house back then? Higher interest rates will indeed hurt the market....whos' going to buy all the big expensive homes or condos when so much of the payment will be targeted at paying your interest. Hmmm.....
The Thom And Ray Team Not a bleak picture at all, it is part of the business cycle. If you love real estate, you have to take the good with the bad. We sold several homes in the last few weeks. These are not high interest rates. Anything under 10% is cheap. The problem is the buyers have no cash. No savings, no nest egg. Follow the real numbers, and you'll see we've been living in a dreamland for the last few years. 2-3 years ago you had to have some cash reserves for that rainy day. Your debt to income had to be inline with the ability to repay. What happened? It has to come back to reality wiht an intervention, and facing true reality is going to smart. But, it is no the end of the world in real estate. It is just a new beginning.
Great post! Our stance in the local market (The Dalles Oregon) to scared buyers and sellers is our market is "NORMALIZING". Honestly our market has been ridiculous for buyers in previous years. Today as long as sellers are realistic in there prices and not trying to double their price!
The Thom And Ray Team - You say "But what was the value of a house back then?" I would say that houses back then were priced accordingly to interest rates and consumer's ability to afford (not just buy) the home. Once sellers let go of their 2006 home price dreams, we'll see homes start moving again. But gone are the days when people rush in blindly to buy massively overpriced homes without even considering whether or not they can actually afford the monthly mortgage payment.
Agree with some others that our current US economy situation involving inflation is part of the business cycle. However, there are sectors of our economy that can be adjusted and controlled with critical thinking and working together by our Congress (the government).
We do not have enough domestic US oil and are overly dependent on foreign sources. Democrats in Congress (with pressure from environmentalists) have for years blocked the idea and proposals of oil exploration in Alaska and offshore drilling in domestic territory. We in the US need to explore and drill for more domestic oil, and we have huge resources. We could then eventually control the inflationary pressure on oil and gas prices and perhaps even sell our oil in the international market.
If folks (our clients) anticipate oil prices being controlled and gas prices to be modified, they would be less fearful about real estate.
Harrison
I agree with you completely. It's as if all these bad things are all happening at the same time, gas prices, inflation, real estate...
I have a bit more about this on my blog at my web-site: <a href="http://www.santamonicarealestatesearch.com"> Santa Monica Real Estate
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Great post. I think we are walking a fine line right now. Our government just doesn't seem to get it. I think it will be a while before things begin to turn around. I realize that they are keeping rates low to hopefully make purchasing appealing.
The problem is that it all comes back to consumer confidence and the confidence just isn't there. Maybe if the news would talk positive about something, or anything for that matter. Our media uses scare tactics and the people listen. It is up to us to improve our economy.
If people just go the opposite of the market (stock market, real estate market) they will fare well. You can't follow the masses or we'll end up on our ***es. People were in a buying frenzy when the market was at the peak because everyone else was doing it. Now that there are deals people are hesitant because not everyone is buying right now. We'll see how this all unfolds.
Funny as I was just talking about this issue with some business partners of mine...it seems the consumers have slowed their purchases lately...probably due to having enough money to feed their families with the exorbitant cost of food!
Excellent commentary. If one owns a hard asset, outright, maybe one can "sit it out". Having already lived through the 70s once, I'm amazed at the parallels today. Watch an All in the Family segment from the mid-70s, on one of those "blast from the past" cable networks, and the dialogue sounds like today. Does this really mean that there is nothing new under the sun????
Li Read, RE/MAX Salt Spring
I relocated to USA in 1994. I have never seen the economy so bad since I got here. What the terrorist did not succeed on doing back in 2001 the BAD government policy's did ! Thanks to a WAR the never ends and GIVING away all the jobs ... the latest the Airforce it awarding contracts to build new planes to AIRBUS ( not a us based an owned company) . those contracts should go to Boeing or any US based company.
I think the great people of this Coutry need to start going on the streets to protest and all the govement needs to be fired and replaced ASAP.
Jim,
You're absolutely correct. And as rates go up there will necessarily have to be accompanying further price declines in order to make home ownership affordable enough to be feasible.
For investors the best deals can be made now and those who are savvy are taking advantage of this.
PLEASE READ THIS. 35 billion of our money going again overseas..... UNREAL ! Even the airforce is giving the jobs away ..... how are we going to recover if no jobs are created .....
Someone is getting paid big money for all this and I think those are the true terrorists in this country.
http://activerain.com/blogsview/553159/Air-force-gives-35
I agree, for investors who are loooking to buy, hold, and rent properties, there are been few times in history better than today. Low prices, low rates, and more renters entering the market everyday!
Nan Wimmers (Columbia Gorge Real Estate) "NORMALIZING" is such an appropriate term! Thank you for sharing this!
Christopher Burgess (AOL Real Estate) Thank you. The one thing about real estate is it is never static. On our part we must remain fluid and go with the ebb and flow. We must constantly adapt to change, and move foreward.
Harrison K. Long - Broker Associate, Lawyer (Coldwell Banker Previews) I totally agree. We need leadership in Washington! Most don't realize that the way our constitution is written, most of the blame lies in Congress. They cannot appease the envirnomentalists, and then say we have no fuel, electric etc... If we had real leadership, we would not be having this conversation now.
Santa Monica Real Estate Some of this is that life does happen! In this instance, it is impacting real estate.
Thanks for the good comments. The Houston market is holding up well......and we're certainly not going to have to worry about the snow, sleet, hail pushing our heating bills higher <bg> + our gas prices are among the lowest in the nation. I'd love to send you referral checks for those buyers who want to come to better climate & ower housing prices
Jim, I disagree with you. Inflation is good for real estate. The homeowner does not want to hear what his house is really worth so let them beleive the pie in the sky figure they have floating around in their head. Soon, with the help of inflation we will be able to sell their house at the price they want and they will be none the wiser. Inflation will make it impossible to build a new home for the price they will soon get and they can move on to the house they want and pay a higher interest rate than they could have gotten had they sold at today's prices. It all works out.
You remember in the early 1970s just before Nixon removed us from the gold standard and what a house was worth and what you got paid? And, in a few short years the people on fixed income were soon forced to eat dog food and live without much heat. Inflation raised the price of just about everything. Man there was some hard times with Ford and Carter. Whip Inflation Now and turn down the heat and don't drive over 55. But, what the heck, after a few more homeless people fell off the radar everything heated up and some people made a fortune on the loss of someone else's dream.
We had the gas stations turning into banks and then banks going broke and savings and loan companies popping up and then popping out. Then Regan came along and saved us all from ourselves and left us with the dot com crises and Enron. It's all good. Life goes on. Well, ok, some of us are going to get hurt.
Here's an inflation comment that not many mention.
If your home has dropped in current value by 36%, which in many parts of Florida it has within the last 2 & 1/2 years, how much is your home really worth or how much value can you attribute to it at today's prices after inflation? Adjusting for inflation brings it down even further in real value as it pertains to spending power.
Hang onto your hats folks, we could see hyper-inflation soon for goods and services other than real estate purchases which are heading the other direction. Everything else costs more to live so what's left? Less money to spend on a home or rent. What a mess!
This is coming from Mr. Positive most of the time.
BH
PS There's some real deals here in SW Florida right now!
Good analysis...however I still think it's a little early to say exactly what is going to occur with the current infaltionary cycles. I say this because there are too many contradictary things going on right now. CPI is rising as the price of "the basket of goods" is through the roof right now and speculation continues to drive the price of oil. However you have to take into account global factors such as the currency markets. The dollar is beginning to move on the "inflated" value of the Euro, as well OPEC looking into the oil markets and the "bubble" that has fully formed. And the biggest thing is that if these inflationary actions were taking place when we were at market price ceilings, maybe 7 or 8 years ago then I think we would be in for some extremely hard times. However, the current inflation problems are occuring when most markets have reached their price ceilings (housing, oil, etc.) so I don't think we will see a huge increase from this point, but I'm no psychic! In regards to housing ,I think you have to also take into account that prices are dropping, to pre-bubble levels(which I don't know about you, but I view it as a good thing because it gives Real Estate markets a consistency period and then another growth cycle) but that has brought buyers out who have been renting or have the income to purchase these properties. I've seen this first-hand as I work in Southern California (Inland Empire ranked #5 for Foreclosures in Metropolitan Areas and some of the highest gas prices) and people are continuing to buy. So is the inflation we are facing right now really affecting Real Estate in a negative way?
I've blogged on this topic, more so with gas prices:http://www.therealestatefrontlines.com/Blog/tabid/54/EntryID/19/Default.aspx
my website: www.therealestatefrontlines.com
It's easy to point the blame in a lot of different directions, but I think it's time for Americans to start pointing the finger at the person in the mirror. It's time to get back to the basics and quit spending more than we make. It's easy to blame the government or banks for making it so easy, but it's time to take responsibility for our own actions when it comes to money, credit, budgets, mortgages, etc. Real estate is a cycle and folks will look back at this time in 5 or 10 years and say, I wish I could have bought something back then. It's what I said about real estate 10 years ago, kicking myself for hesitating to make a purchase out of first time home buyer fears. I'm happy to say I only waited 3 years after that so that I did take advantage of the boom in 2003-2005. And due to working to be out of debt, we are looking to buy now while the price are low to take advantage of the market. There's a lot of inventory out there everywhere. The good news is that God isn't making any more land and people are still having babies so real estate will rebound.
Ian Anderson - Ormond Beach Real Estate Florida (RE/MAX All Pro Realty) I agreet! In times like these there is a saying...that applies to more than politics. People vote with their wallet. If they feel they are in a pinch... they pull back in spending. Right now, everyine is crying "UNCLE!"
Greg Vogel (The Financing Group) I agree, and for most persons it is a prioritized list of needs. Right now...there is a peace of mind component that most folks are going to take a breather for a while, pull back on spending, and revisit purchase plans down the road.
Li Read I agree, stagflation is the economy...going nowhere and sliding sideways! DEJA VU!
Elena Martinovici Broker - Phoenix Relocation Specialist (Professional Marketing Realty) I feel the same way you do, but Americans are too soft right now. Fat and lazy, and I am just asguilty as anyone else. In the 1970's Americans protested the cost of fuel by blockading Washington DC with tractor trailers in rolling roadblocks around DC, when they got finished, the farmers would tie up DC with Farm equipement. Now all they do is complain,and pay it on their charge cards. Maybe Credit is the problem, if it was their own money like in the 1970's the response was immediate!
Gabe Sanders (Premier Realty Group I wish it weren't true.
DeAndrea "Dee Dee" Jones The Hampton Roads Real Estate Lady! (Wainwright Real Estate) It is the time to buy for the investor and buyer that has guts, and cash or financing in place! There will never be another opportunity like this!
Elena Martinovici Broker - Phoenix Relocation Specialist (Professional Marketing Realty) I agree fully, they enemies are the politicians! They have sold this country out for the dollar! Better yet, the foreign dollar! America has fallen into a deep sleep and no one cares! Defense aircraft built under foreign contracts??????
Treeside Financial, LLC It is the perfect time to buy and rent! I am hearing this all over the place!
Judi Barr-Realty Associates-Houston ((((JUDI))))) Long time no see! I heard that Houston is doing well! If I have anyone, I will send them your way.
Gregory Bain I disagree, inflation is good for nothing.
Bill in FL I agree with your assessment. I just finished reading another article from the FED that came out of the Baltimore June 6th. It was on home equity. It is a very scary read, and we have to place it into the context of inflation, and deflation in home prices...it is like stepping on to the dock with one foot in a boat. The result is your legs moving in opposite directions.
Michael West (Carmichael West Realty) One thing is for sure, we're in deep doo! The dollar has not stopped falling, it has paused to take a breather, and will continue its plunge because for leadership in this country we are a rudderless ship. There is no leadership to be found in any branch of governement. None. I will not hear any finger pointing, because there is absolutely no one standing up to do the right thing. When they do stand up, again it will be to point fingers and do nothing again. They are looting the til as we bemoan the sad state of national affairs. America is going to free fall unless we have responsible leaders that are not self serving. It is not about change, it is about getting the back on the right path.
Michele Reneau (Carolina One Real Estate) I agree it is a cycle, but this one is not your normal cycle. About a month ago on Bloomberg they were interviewing and economist that advises the Federal Reserve. He is a PHD from Harvard, and when pressed to describe where the economy was headed in this cycle... he hesitated. He relpied you can't. There is no point of reference for this cycle. He described the current condition as "Epic!" The numbers are so big, and so is the debt...this is not a one or tow year fix. When real estate peaked in Washington DC area in the summer of 2004 has it stopped falling yet? Have the sales units come anywhere near the former peaks? Have prices stopped coming down? In Japan the correction process from a real estate bubble was over 10 years, but most americans think it will not apply to us. It will.
Great post and comments Jim. The scary thought is that we can only analyze and compare based on the past. No one can see unexpected turns, the world and our economy might take in the future and how unpleasant things might become. It is always about the "cash flow" in real estate investments. So, those jumping into great opportunities should not forget about the need for liquidity.
Jim - you are my favorite blogger here on Active Rain. You are a straight shooter and a realist. I suspect you are also disarmingly honest - my kind of people. I think those who are wearing rose colored glasses are 1) in severe denial and/or 2) trying to maintain that everything is fine and dandy to try to spur buyers into buying and sellers into selling. The fact is we are experiencing pricing we have never had before. The private sector cannot maintain salaries to meet the climb in inflation and people measure their buying power by things they buy everyday like milk, bread, gas and utility bills. I think people are hunkering down and waiting to see how high the water will rise. As a realtor, someone who makes my living selling homes, I am having to evaluate how long I can hold on. Because we make extraordinary money when we do make a sale, we usually have money in reserve for these lean times. It's summer Jim, and I just don't see things improving and this traditionally is the time for the highest production. I'm a single mother, sole supporter for my son and I. It is time for my license renewal. I will be renewing but I tell you, I thought about it a while. Things just have got to pick up. I don't always like your message, but I know it's dead on. Thanks for your honesty.
Cimpler Real Estate, Inc You are right. I have for many years been blessed in many ways. If I wanted to buy a high end home, I could easily do it. I chose not to. I chose not to buy high end luxury cars even though I can afford one. Instead, I've budgeted for equipement, and paid for it instead of buying on credit. Why? Because I've burned myself in the past! I am not pontificating, I am sharing my mistakes, but the secret is that I've learned and accepted in life...the things sometimes do not better... better, better, better, better, better, better, better, better, better, better, better, better, better, better, better, better, better, better, and still better yet! It isn't reality! We have to allow for movement in both directions.
Alyce Martin (Keller Williams Realty) Alyce, hang in there! Real estate is very rewarding, but it does have big bumps at times. There is money to be made in certain niches... We have to readjust the way we are doing business. My favorite scene from the Sapranos is when Carmella asks Tony to do something, and his comment was..."I can't!" Whan she asked Tony why not, He said "It's the busy season!" The only problem in real estate, is this is the busy season that isn't! Our sales are way off, and we sit back and requestion our directions, goals and expenses. I decided just yesterday of a new direction on which I have alraedy started to move to capture alot more business. I cannot just sit back and wait for things to turn around, I have to weigh out risks, determine costs, and possible returns.
Your assessment is right on! Buyers are sitting back seeing how high the water will rise! Inflation, deflation in home values, food costs, COLA etc... Thanks so much for the kind words, I am from New York originally, and I left my rose colored glasses there almost 28 years ago.
Jim,
You knew it and Greenspan hadn't? He added his and feds authorithy to mislead all of us. Sanctioning 100% loans and neg ammortization lead to the current crisis right after we dug out from the dot com crisis. This is why I quipped recently that Greenspan in his newest speach/interview (yes, he is still making money) sounded like Clinton.
"When will this nation realize they are being had"
I think some of those most effected, low and moderate middle class, are just concentrating on staying in the game and getting through the days. There is not the time nor the "ability for reflection" because some people do not believe they can evoke any change.
Actually I would say that would be more than some, look at voter turnout in this country.
Those that have inner strength, means and ability will thrive during this time.
The key is to teach people how to have a voice and how best to use it and about self-empowerment. Self empowerment is one of the best educational tools. It is the stuff that the best success stories are made of.
"When will this nation realize they are being had"
I think some of those most effected, low and moderate middle class, are just concentrating on staying in the game and getting through the days. There is not the time nor the "ability for reflection" because some people do not believe they can evoke any change.
Actually I would say that would be more than some, look at voter turnout in this country.
Those that have inner strength, means and ability will thrive during this time.
The key is to teach people how to have a voice and how best to use it and about self-empowerment. Self empowerment is one of the best educational tools. It is the stuff that the best success stories are made of.
Rebecca Levinson-R.E. Blogger/Connect2Agent (Connect2Agent) It is interesting how many will empower themselves. I am a capitalist...opportunities are alwasy there but not wihtout risk. Most want the reward, but not the risk. We cannot have it both ways. I wonder how many purchased a home in the last few years wiht nothing down figuring what could go wrong, and where do I sign? For myself, I chose to liquidate when others were buying. Friends of mine in real estate called me foolish at the time. Many of those friends have now left the business.
Jim
Some interesting points and comments here. I too always read your blog for it's refreshing honesty.
I sense that you may have read Fred Harrisons book (published 2005) :-
Boom Bust. House Prices, Banking and the Depression of 2010.
The idea of 16-18 year economic cycles is fundamental to the understanding of western economies - the Politicians all know this but they seem incapable of putting cash aside during the BOOM to help us through the BUST.
Jim - You're analysis is right on. People are already changing how they live to offset the rise in gas prices... as other prices are inflated, the real estate market will continue to suffer.
Roger Hollingsworth Thanks Roger! I am a firm believer in the 18 year boom bust cycle. I did put aside cash, and paid off all debt before this occured. The good times were too good to be true in my own estimation. However, I did not believe the current impact would be this strong, and this quick...and pervasive throughout the economy. This time, I see a perfect storm that was not anticipated. The fuel problem maybe the straw that broke the camels back. I wrote a blog on this a long time ago, and even mentioned the inflationary affect it would have.
Debbie Summers, Licensed Real Estate Professional (RE/MAX Central Realty Lake Mary, FL) Until this uncertainty leaves the economy, real estate will languish.
I have to add that much of the increases in commodity prices we are seeing are reflective of a weak dollar... for example, gasoline prices in Europe have not increased anywhere near as much as have those price in the USA -- and note that in the UK gasoline has already been selling at over $7 per gallon for a long time now, due to taxes on fuel, which w have very low such taxes here.
We will see much more inflation than we already have because the dollar is over valued, and so prices will increase. Also, because of how leveraged we all are, this will remain an issue for years to come. Americans have simply been spending more than we make for far too long. And it is now time to pay the piper. That is part of the mortgage meltdown issue, and it is part of the inflation issue.
What we really need is not a lowered interest rate, or a higher interest rate, but a system that rewards savings, that discourages borrowing, that taxes appropriately where needed, such as on gasoline... where we all drive huge gas guzzlers yet comment on how we despise our dependance on foreign oil.
And no one ever remarks on the fact that there are much better uses for oil than for burning... a great variety of plastics used in health care, and in high tech applications, for example, will be impossible once we have used up all the oil for burning purposes.
So it is time for America to realize that we are no longer the world powerhouse in economic terms, and that this delusion of prominence will only become increasingly delusional as China and India, and the rest of the developing world catch up with the western countries.
How about that?
Rhode Island Real Estate -- Focus Professionals, Inc I agree wiht most of what you said, and in my opinion it is a credit issue...the ability to obtain more than we are worth. I feel much of our dilemna is a self serving congress. Congress writes the laws an enacts the budgets. They also allowed no new nuclear plants, no new refineries, export our jobs, allow no new drilling or exploration... and then point the finger at the president for failed policy.
Jim,
As the higher cost of buying a home using a mortgage and maintaining it sinks in with the consumer, we'll likely see the average size of a house shrink here. Home builders are already looking at what resized products to offer.
Esko Kiuru - Las Vegas NV Mortgage Consultant (Sinifox Financial) This is exactly what happened back in the early 1980's. When mortgages moved beyond the reach of consumers...prices came down and so did the sizes of the homes.
Esko Kiuru - Las Vegas NV Mortgage Consultant (Sinifox Financial) This is exactly what happened back in the early 1980's. When mortgages moved beyond the reach of consumers...prices came down and so did the sizes of the homes.
It's a cycle that, hopefully is toward the bottom. I'm seeing investors starting to scoop up bargains already.
Schrader Inc. - Mobile Home Financing Specialists I hope your right! My thoughts is that inflation hasn't even started yet. You will see the real impact 3-6 months.
We don't even need to see the government raise interest rates. Just the increase in cost of oil will raise the cost of goods and services.
Thank goodness that investors are starting to sniff out value buys! Pray for more 20-30 somethings who want to buy their first home (FHA financing limits in Honolulu is at approx. 793k).
Ronda Ching Day (Realty Executives Oahu (Waikiki office)) The problem is that even if we spend less, it is measured buy cost. There is a lag in the economy for 3-6 months to factor in the rising cost of oil. Plastics, fertilizers, insecticides, tires, asphalt, printing inks, transportation, man made textiles, paints, varnishes, coatings, electricity, manufacturing costs, wages, and so much more will feel the effect shortly.