In January of 2003, I co-founded Metro International Investments with Mark J. Moldoff, a 4-decade veteran of the real estate development & brokerage industries. For the past 5 years, I have benefited from his experience and his mentorship and I finally got him to start writing his own column on our company website, http://mii.miami. He was nice enough to publish this while I was just beginning my recovery from spinal surgery, and unfortunately, I was unable to do much of anything, so I had to publish it a bit late.
It is my hope that others can benefit from his perspective, and I am sure as time goes on that he will publish many more articles covering best practices, education, and the real estate industry at large. Mark’s specialization is Off Market Commercial Real Estate.
The first half of the year has begun to demonstrate a substantial shift towards a spike, and potentially continued growth, in the Distressed Market. Note that I am saying “spike”, as at least one to two more data points would really be needed to see a marked change in the inclination of the overall foreclosure trend (and by then, it will be too late though to do anything about it). In this dataset I go back to as far as my Tax Record Application, provided by the Miami Association of Realtors, allows: 2008. Prior to 2007/2008, either the computer’s database records do not go back that far, or Lis Pendens filings were not specifically tracked until then. Regardless, with nearly 10 years of data, covering the very beginnings of the prior distressed market until present, there is a disturbing increase in filings throughout the Miami Beaches.
For the most part I am displaying data and encourage my readership to draw their own conclusions, but I have provided commentary in places so as to properly set the context (as best as I can for the purposes of this article) of the time period as a backdrop for the actual number of foreclosures occurring in, what are, 5 of the wealthiest and most desired zip codes in the United States. Please note I have pulled data on many other areas in the Southeast Florida area; with few exceptions thus far in my experience, the results for those areas parallel those below.
To provide a better frame of reference, and perspective, to the data-by-zip code below, I am providing this Historical Key, chart of the US Dollar, and Commentary to historical & present events in the Macro Economy:
Year | Event(s) & Commentary
2008 | The single biggest set of financial beatings in history begin! Unprecedented institutional actions are implemented in an effort to restore confidence in the financial system and prevent a global financial system collapse. By comparison, the Savings & Loan Crisis of 1985-1995, + the Dot Com Bubble + the Enron / Worldcom disasters of the 2000-2002 era, combined, pale in comparison! The largest bailouts and bankruptcies in US history begin with the failure of two of the most storied US based investment banking firms, Bear Stearns & Lehman Brothers.
2009 | Asset purchases by the Federal Reserve begin with extreme prejudice. By the end of the year, 1.75 Trillion USD are on the Federal Reserve’s books, and more debt in the history of mankind is monetized than all previous civilizations combined….and they are just getting warmed up!
2010 | Scandal (“robo-mortgages” / “robo signings”), unprecedented backlog of foreclosure filings, nationwide, in the courts, loan modifications, and tons of cheap money slow & dull the pain! This drives the Dollar into the depths of Hell over the next couple of years, setting a new historic low exceeding the lows of the late 1970s, the mid-1990s and, of course, 2008; 2008 being a period of what nearly amounted to a complete loss of faith in the financial system and fiat currencies virtually everywhere.
2011 | By the end of 2nd quarter 2011, nearly another 600 Billion Dollars worth of defaulted assets were purchased by the Federal Reserve The Buying spree continued through the year while loan modifications (and related businesses) popped up everywhere. Whole real estate brokerages became founded upon Short Sales & REOs. Special access to Fannie Mae, HUD and Freddie Mac portfolios were granted to large institutional buyers leaving a multitude of smaller investors out in the cold and only able to select from what was getting listed by licensed brokerages.
2012 | The economic stimulus (economicheroin), and massive backlog in the courts as a result of both volume and scandal, continued to slow the number of foreclosures. Globally however, money pours into the United States in the form of foreign direct investment. With the resulting “cheap Dollar” coming off of a historic low, real estate in the USA, especially Florida, looks “cheap” and the wealthy of other nations, many of whom were seeking to escape Socialism, Communism, and Austerity Measures of all kinds in their own home countries, flee to US Assets and begin driving the Dollar up, along with asset prices across all industries.
2013 | Continued talk of “improving economy”, and of a forthcoming “tapering” of the Quantitative Easing from the Federal Reserve, build confidence in the Dollar driving it higher well into 2014, simultaneously beginning a driving up of actual carrying costs, via currency risk,of US Assets by foreign investors who borrowed.
2014 | The 3rd round of Quantitative Easing ends in October…the money printing subsides…(for now).
2015 | After nearly 24 months of talk by the Federal Reserve, in order to maintain confidence in the US Dollar, the Federal Reserve raises interest rates in December 2015 by 25 basis points (0.25%) despite worsening, lackluster economic data.
2016 | Talks of additional rate hikes continue, however, by mid-2016 this appears to be a non-starter rate-hiking cycle. Economic data continues to worsen, with record lows in the Workforce Participation Rate & the manufacturing indexes, an obvious spike in foreclosures, and what appears to be a looming sovereign debt crisis which, if a recent Federal Reserve Paper in favor of a 4th Round of Quantitative Easing comes to fruition, is a likely scenario. As of right now, we as a nation are painted into a corner it seems. There is a high probability, if the Federal Reserve chooses to do another round of Quantitative Easing (printing more money), a currency crisis will ensue (the value of the Dollar i.e. the Dollar’s purchasing power), will diminish in potentially spectacular fashion. At the same time, if the Federal Reserve chooses to raise interest rates, this will crash the stock market and absolutely obliterate the bond market; it may also push the United States into a Sovereign Debt Crisis.
In the first scenario, more Quantitative Easing, Dollar Prices of real estate will increase substantially, but the purchasing power of those Dollars will simultaneously be diminished (i.e: while prices may rise, the cost of living will increase at a dramatically faster rate); this is bad for both prospective Buyers as well as Sellers. In the second scenario, and this has happened throughout history, if interest rates are raised, real estate values will decline commensurate with the interest rate, and with respect to both Sellers and prospective Buyer-Investors, higher capitalization rates will be required in order for any particular asset to clear the market (this is very bad for Sellers who may end up under water as a result of declining prices).
33139 – South Beach & The Venetian Islands
Year | Number of Foreclosure Filings
2008 | 10
2009 | 21 – 200% increase over the prior year.
2010 | 63 – 300% increase over the prior year.
2011 | 21
2012 | 12
2013 | 33
2014 | 27
2015 | 28
2016 | 55 – UP 196% YTDversus the same time period in 2015! Uh oh…the drugs are wearing off…More “stimulus”?
33140 – Mid-Beach
Year | Number of Foreclosure Filings
2008 | 4
2009 | 18 – 450% increase year over year.
2010 | 26
2011 | 6
2012 | 8
2013 | 8
2014 | 16
2015 | 23
2016 | 21 Slightly down – but this could be considered within a certain standard deviation models as normal or, at best, “a slight downtick”.
33141 – North Beach & North Bay Village
Year | Number of Foreclosure Filings
2008 | 5
2009 | 31
2010 | 44
2011 | 12
2012 | 26
2013 | 27
2014 | 21
2015 | 20
2016 | 31 – Up 150% from 2015!
33154 – Bal Harbour, Bay Harbor Islands & Surfside
Year | Number of Foreclosure Filings
2008 | 4
2009 | 5
2010 | 21
2011 | 3
2012 | 5
2013 | 13
2014 | 7
2015 | 9
2016 | 11 – Up, but this could be considered within a certain standard deviation models as normal or, at worst, “a slight uptick”.
331460 – Sunny Isles Beach, Golden Beach & Eastern Shores
Year | Number of Foreclosure Filings
2008 | 14
2009 | 37
2010 | 79
2011 | 12
2012 | 28
2013 | 27
2014 | 18
2015 | 21
2016 | 46 – Up over 200%!
New foreclosure filings are up substantially on the Miami Beaches, and while I do not publish reports for other zip codes, I have performed these same analysis across three counties for my customers & clients. There is A LOT of this going on. I have nearly 100 short sale listings on MLS; only last year I had none. It is a growing business again. 33140 and 33154 have not seen much action, yet, but I will be keeping tabs on them as I expect the tide to start sinking all ships at some point.
If you are a property owner and had plans to sell within the next 3 years, I strongly urge you to SELL NOW and immediately trade out of Dollars for either real estate (real estate of the same class, but perhaps a different location), that can fetch a higher capitalization rate if you were to rent/lease it, or plan to do so (view all purchases, even if it is your own home, from an investor’s perspective) or physical currency in the form of Gold and/or Silver, or a combination of the two. Every situation is different, and I am happy to advise you.
If you are a Buyer/Investor, the distressed market is expanding once again. Buy/Rehab/Flip and Buy/Rehab/Rent/Flip continues to be a working model. What you need to be careful of is the potential loss of purchasing power of the Dollar. I believe that locking in low interest rates at 50-75% Loan-To-Value, and thereby strategically increasing your Cash-on-Cash Return, is the best path to follow to protect yourself from the potentially damaging effects of inflation. Thus, If inflation begins to kick in substantially, the only real estate you want to be left holding is that which is in a fantastic location; as you will continue to be able to raise your rental rate commensurate with what is appropriate for the location of Demand. Following the same strategy; if Deflation occurs, your financial leverage will work against you on paper, however, as long as you are able to continuing to leasing your real estate at or near current rents, your return on investment should continue to provide substantial returns despite the value of the property declining; and income should really be your primary goal as a long-term investor in real estate; not property appreciation.
I also like certain REIT (Real Estate Investment Trust) investments, Gold/Silver and other niche areas & industries where money can best be shielded from the consequences of the long-standing poor monetary & fiscal policies of our government. Call me to discuss!
Forthcoming – I will be publishing July’s & August’s data on the Miami Beaches over the next few days as I am winding up for a close of 3rd Quarter Edition of the Miami Beaches Market Pulse coming in October.
Christopher J. Lazaro, MBA
Licensed Real Estate Broker at Metro International Investments
January 1st 2015 – September 4th 2015 (October 2015 Update)
As the summer in Miami Beach came to a close I ran these reports on the five zip codes constituting the Miami Beaches ahead of the Labor Day Weekend. My last report was published shortly before the end the Spring and just ahead of the Memorial Day Weekend; and it was quite was alarming. Using data from Realtor’s Property Resource, an authoritative database for all transactions listed via the Multiple Listing Service, when compared to the same time period in 2014, transaction volume on the Miami Beaches had plummeted by 30-50% and listing volume was up sharply.
Since then, the stock markets, worldwide, have roiled over the uncertainty surrounding the future of interest rates, let alone the world’s reserve currency, the US Dollar; which, albeit stronger in the last couple of years, remains fixed in a 30+ year long downtrend.
The recent upswing in the Dollar resulted in properties being more expensive to foreign nationals, and for this reason, amongst others (i.e new construction), I believe is the root cause of what is currently happening along the Miami Beaches. Please note that the data below DOES NOT include pre-construction or new construction purchases; but also keep in mind that there is virtually nothing, of consequence to the numbers, in the new construction category within the Miami Beaches that is priced under one million US Dollars.
As you can see, Home Values continue to rise despite market weakness, however, I expect a shift in this as Median Listing Prices are down substantially and homes are on the market longer. In addition, the chart goes back as far as 2012, where there were circa 1500 homes listed in the South Beach Market. Listing Volume has more than doubled in the last 3 years having passed more than 3200 listed homes currently on the market! Naturally, Median Listing Prices have been declining over the same time period as Sellers wake up and realize their home is not worth nearly as much as they imagined.
The 33140 area lies immediately to the north of South Beach, 33139 and is, with respect to home ownership and other demographics a stark contrast to South Beach. North Beach is more of a full-time resident neighborhood and has far less tourist traffic than 33139. However, it is also not immune to the market correction we have been seeing. Again, Home Values continue to increase, while Listing Volume also continues increase, having nearly doubled in the last 3 years. More owners than renters exist in this market, and in my opinion, it is a more family friendly zip code to live in. Median List Prices are relatively flat year over year, and I expect this sideways trend to dip lower as listing volume increases. When looking at the the Price Range of Homes Sold, it should be noted that nearly 1/3 of all sales were over $1,100,000 USD.
Following the greater trend, Home Values continue to rise but the Median Listing Price has fallen off a cliff, now down 32%. I sold a couple of homes in this area in the past quarter and noticed that the recent Market Correction has brought in Ready, Willing and Able American Buyers (both were soon-to-be Retiree Couples). The Average Days on the Market also fell substantially as Buyers looking for a deal are snatching up properties in this area. I think that for a second home, investment property, or wanting to simply live in the area of Miami Beach, the best values can be found in this particular neighborhood right now. It is absolutely a Buyer’s Market with Sales Volume down more than 50% and Listing Volume having more than doubled in the past 3 years. This is a weaker market than the North Beach (to the south) and the Bal Harbour (to the north) Markets, and in my view, it has led the market correction on the beaches as a result. I expect the other markets, to a degree, to follow suit prior to the Spring of 2016 (although from May 2015 to September, Bal Harbour has taken quite a beating. It was “leading” the markets (in terms of resilience at least) in May.)
Bal Harbour is one of the wealthiest communities in the United States, home to one of the most exclusive malls in the world (The Bal Harbour Mall), and is an absolutely beautiful place to behold. However, it has not been able to hold up against the market correction as well as it was doing back in May when I published my last report. While, once again, Home Values continue to rise (and substantially here, +16%), Median Listing Prices are down by nearly 25% and Sales Volume is off by a whopping 62.7% (I am glad I am not an agent only specializing in Bal Harbour!).
Listing Volume is at a 3 year high and is currently double what it was in January 2012. Median Listing Prices have broken through a support range of 375K and are continuing to fall. One third of all listings sold were under 400K and another third of all homes sold were over 900K. Therefore this recent market correction has obviously spared no one. I expect market turnover to continue until Listing Volume begins to decline.
I have lived in Sunny Isles Beach for the last 7 years and I know this town well. In fact, I am pretty sure the data has improved in this zip code substantially in the past month due to the sheer volume of Buyers who have called me interested in taking advantage of the recent market correction here. While Home Values Improved, the Median Listing Price dropped substantially, at one point was off by nearly 30%. Listing Volume has climbed steadily however, and is currently sitting at a nearly 4 year high. In September, the trailing 12 months of Sales Volume was off nearly 40%, but a recent spate of closings I believe has reduced this to less than 5%. Keep in mind that a very substantial demographic change is currently underway in Sunny Isles Beach. With the construction of numerous beach front condominiums, a breed of extraordinarily high net worth people have been scooping up pre-constructions prices STARTING at $1400 per square foot! In turn, I have seen a number of beach condominium owners, also wealthy, but, not as wealthy as the newer beachfront apartment buyer, put their condominiums up for sale and inquire about making a purchase on the intracoastal side of the barrier island, an area of older, smaller, less expensive homes and apartments. This bodes well for home values and tax receipts to the City of Sunny Isles in the future as the demographic of this city becomes, on average, even wealthier. With few exceptions, I do not see prices declining much further here, however, I do see rents continuing to skyrocket as a result of this shift.
Despite the market correction on the beaches, Miami continues to be a top international destination, and barring an apocalyptic event, I do not see that trend softening, let alone reversing, any time soon. For the last 5 years inbound traffic and hotel stays have set records year after year, room rates continue to rise, and tax revenue from tourism continues to increase substantially. In tandem, massive non-residential commercial investment continues to pour into Miami-Dade County, and Southeast Florida as a whole. While the vast majority of the United States, I expect in the coming 1-2 years, will take an economic beating as a result of our Country’s ludicrous fiscal and monetary policies, The Miami Beaches and the City of Miami, I believe, will weather whatever the coming economic storm may bring for numerous reasons. First of all, the Baby Boomer Generation is retiring at a rate of 10,000 people per day (or 1 person every 8 seconds); and many of them have their eyes set on the warm Sun, sandy beaches and green palm trees of the South Florida subtropical climate. In addition, even if the Dollar takes a hammering, in an array of ways, that will boost foreign direct investment as wealthy foreign nationals seek to escape from harsh taxation & regulations in their home countries (and our policies are no picnic!). With that in mind, it should be noted that we are looking at a Buyer’s market here on the beaches and this is an opportunity that prospective buyers should, at the very least, look at closely with a knowledgable & reputable real estate broker.
Lastly, I would like to apologize to my readers for having not published another market update report sooner. I am extremely busy servicing my own customers & clients (who get the benefit of my analysis and insights on request) in both a residential & commercial real estate capacity; and therefore my time has been constrained with respect to Publishing & Marketing. As my firm grows, I expect to be able to publish on a more regular basis.
One of the biggest problems the average working American Citizen has these days is Information Glut. We are constantly bombarded with information be it on the TV, on our phones, on the side of a bus, and sometimes on a nice clear day at the beach, in the Sky! Unfortunately, and in fact, few Americans; even prior to the Information Age, paid much attention to the happenings in Washington DC. Even fewer have the education level needed to truly understand the Who/What/Why/How(s) of what (and whom) they are voting for and how a single person’s (or group’s) policies can ripple-effect through the very fabric of our existence living in this country. We live in a litigious society that is slanted towards entitlement, and has very little understanding of the consequences it will face tomorrow for actions taken today; particularly when it comes to the insanity of our monetary & fiscal policies. As the old saying goes, “Those who do not learn from history are doomed to repeat it”.
To better establish my case and point, I will establish the timeline of the irresponsible fiscal & monetary policy our current regime is moving ahead with at full steam:
In 2006, conveniently ahead of the implosion of our economy and near economic collapse of the nation (and the resulting money printing bonanza), the Federal Reserve ceased publishing M3 which includes the total of M1, M2 and Long Term Time Deposits. Tim McMahon wrote an excellent article on this back in 2006 that strongly questions why the Federal Reserve would do this as well as portrays a logical, cogent theory (in short, they are cooking the books!) as to why they did this:
Hindsight being 20/20, it is my view that they saw the inevitable, bursting of the real estate bubble and shifted further towards a policy of less transparency so they could continue the masquerade and postpone the pain, suffering and related consequences of irresponsible fiscal & monetary policy.
Also in 2006, Peter Schiff predicted the forthcoming 2008/2009 economic collapse in extreme detail, but he had also published a book predicting what the Federal Reserve would do as a result of this collapse. Unfortunately, the Federal Reserve has done EXACTLY what Peter was afraid they would do (read his book! Crash Proof: How to Profit From the Coming Economic Collapse).
How many of you called him, or people like him “crazy” or “conspiracy theorist” at the time? How many of you saw the implosion of 2007-2009 coming? I know I did; and I can prove it (I was trading my 401K at the time, shifting money between funds, and as a result, I was flat the first half of 2008, by the end of 2008 had lost 16% because I was actively buying the decline, shifting money from bonds – which had gone up a bit as “people ran towards the blast” – Peter Schiff, but then I saw 40+% and 30+% gains in 2009 and 2010 as a result of my trading/re-weighting of the portfolio. I continue to retain these records).
However, it was not just the fundamentals & technicals in the market that tipped me off the most (I use a method of market evaluation called Rational Analysis, ie: where Fundamental & Technical Analysis overlap, which I learned from studying the work of John Bollinger); it was the fact that, for years, I had been attending several monthly social affairs, and came to the realization (in 2006) that when I first began going to these functions (2001/2002), one person was a Doctor, another a Lawyer, another a Dentist, still another a Police Officer etc…now, in 2006, I was the only person at the affair who was NOT a mortgage broker or a real estate agent. Historically speaking, scenarios like this favor the Contrarian.
In 2008, Peter Schiff was featured on Fast Money and told the Fast Money Team to fade (sell) the Dollar:
For those chartists out there, you will note that Peter correctly predicted the fall of the Dollar index (Symbol: DXY) which fell from 90 to 75 over the next 12 months. Since then, there was another rally into the high 80s, a revisiting of the lows, the setting of a new low, and in the last 2 years a feeble climb back into the 80s, which is showing a lot of technical weakness with a recent “double top” this past year. However, his prediction was not for a short term trade; he still holds the position that the dollar will eventually take a, possibly permanent, dive well below the most recent support of circa 73. From a technical perspective, a move below that support level could see the DXY plummet to circa 68, which for the average American, would be very damaging in terms of their purchasing power. Still worse, a move below the 68 level would be catastrophic to the nation’s, and possibly the global, economy.
For those who are not savvy traders or chartists, consider this: The US Currency is NOT backed by anything. The value of the USD (and any fiat currency) is completely based on trust & faith. Like any other asset (like a stock or commodity), the more of it that is available, the less value it will have. For example, if we had the ability to make every grain of sand on the beach turn into gold, what would gold be worth? If gold were as easy to produce as the asphalt you drive your car on, or as common as the beach sand you walk on, it would be worth nothing. Therein lies much of the danger in the US’s “Printing Press Mentality”; and it is the continuous printing of money that pressures the Dollar Index (DXY) lower. As it moves lower, the American Dollar has less purchasing power.
One of the best analogies to the most recent bubble was also given by Peter Schiff in 2009 where he goes into significant (and hilarious) detail about the Internet Bubble. The very same reasons/causes of the Internet Bubble were re-implemented by the Federal Reserve to create the Real Estate Bubble. Furthermore, the very same reasons/causes for the recent Real Estate Bubble and Economic Collapse are still continuing, unabated, via all the Quantitative Easing the Federal Reserve has been doing. The United States Dollar continues to enjoy Reserve Currency status, however, there are limits. The Liberals (Democrats/Socialists/Idiots…all synonyms in my opinion) argue that it is “Different this time”. These are the most dangerous words that can ever be uttered in the financial world, and if you are a person working as a trader, broker or other person who works in a financial institution and is responsible for handling money, these words could get you fired instantly. Here is our Vice President arguing that we need to print more money (ie borrow more) to get out of debt:
Here Peter demonstrates that It is NOT different this time, and it won’t be any different next time, especially if the current economic crisis becomes a currency crisis (as serious as the subject is, I like Peter because he is able to take what is typically dry material and make it quite humorous…this is a long video, but worth the watch and the laugh):
In 2010, Representative Alan Grayson questioned the Inspector General of the Federal Reserve (Elizabeth Coleman) regarding 9 TRILLION Dollars in Off Balance Sheet Accounting (isn’t this the sort of shananigans that bankrupted/imploded Enron and MCI Worldcom nearly a decade prior??) and several other subjects related to the Federal Reserve’s balance sheet growth etc. More than 2 years after TARP was passed, this lady still had not even began a single investigation (and admittedly only just started a “high level review” of Fed Board activities) and could not answer one question. In fact, she denied certain functions were her/their responsibility, only to be corrected by Rep. Grayson, that such investigation(s) are indeed her responsibility.
To boot, here are Ron Paul‘s comments regarding the printing of more dollars to not only bail out our own banks, but foreign banks as well! Pay very close attention to what Ron says, as you will hear several common themes that will continue to play out throughout this article.
In 2011, Ron Paul summarizes the conception of the Federal Reserve, and the real and present dangers of the abuses of the Federal Reserve and the current fiat currency system:
It amazes me how complacent we as a nation have become. The entitlement mentality in this nation has clouded our reasoning and sensibilities to the point where the average person will argue that “oh, that can’t happen here.”, but not be able to make an educated, rational, sensible, cogent argument as to why not. Currency crises have happened many times over the past century; and have typically been caused by moves towards Liberal/Socialist agendas. It happened with the Pound Sterling, Argentina, and is arguably happening right now with the Euro. To think it cannot happen here is absurd, especially considering that our monthly trade deficit exceeds the GDP of most nations!
Finally, a full 7 years since the beginning of this article, I conclude with three additional videos. The first, is another Peter Schiff video. It is a 20 minute video recording of his presentation at the 2013 Las Vegas Money Show. The second, is an interview with Jim Rogers, famous investor and billionaire; who is singing the same song/truth Peter Schiff has been professing. The third video is a dramatized, What If? / Worst Case scenario of the US Dollar was to lose it’s Reserve Currency Status. Keep in mind, most people will tell you “That cannot happen here”; what they do not know is that it has happened many times, in other countries, over the past century; and in fact it has happened to previous “Reserve Currencies”.
I found this very funny, and if you understand economics, I think you will too; he begins “It is 2013, but if feels like 2006…”
Interview with Jim Rogers:
Dramatized What If the US Dollar Collapses?
In a nutshell the problem can be summarized as this: In the 90s the Federal Reserve lowered rates and created vast sums of cheap money which fueled the Internet Bubble. Then, we had a big bust; but instead of actually have a real recession and allowing Capitalism take over and cleanse the system; there were multiple bailouts, an expansion of government and interest rates were lowered even further. This fueled another bubble; the Real Estate Bubble. Once again, government grew massively, there were even more bailouts than before (and bigger than ever before) and interest rates were lowered to zero/near-zero; once again, circumventing the process of Capitalism. So here we are in 2013, with a Federal Reserve printing tremendous amounts of cash and a government that has decided to try and grow its way out of debt through deficit spending. We are not only repeating the insanity, we are doing it BIGGER than ever before! How is more of the same supposed to help our economy grow and thrive? That is like getting yourself into credit card debt and thinking that by borrowing and spending more you will get your family out of debt. Millions of Americans tried this already over the past 10 years, and I do not know of anyone who that strategy has worked out for. So how will the US Government able to do it on such a massive and complex scale? Simply put, they cannot. We ran up debts in the early half of the 20th century, but that money was put into building factories, infrastructure etc. Today, we are borrowing massive amounts of currency but we are spending it on consumption. So the government is using its “credit card” to fund consumption, and not investments. One produces nothing (Buy a meal, it feeds you for a day), the other produces a going concern that services & employs people (Buy/build the restaurant, it feeds you, and others, for a lifetime).
So how does this all relate to real estate? What if the currency doesn’t collapse? What if it does? These are all questions I will touch on in my next article where I will discuss what I perceive to be the state of the real estate market. Stay tuned!
For those who are familiar with basic economics, it should be no surprise that mortgage rates have begun what is likely to be a very long ascent to historical highs. Over the next three to five years, I fully expect mortgage rates to rise well above 10%, possibly even revisit the highs of the 1970s and early 1980s (my father’s first mortgage on a home was 18% to give you an idea).
So why is this happening?
Generally speaking, markets such as the stock & bond market (and in some respects, the Real Estate Market), price assets and set rates based on forward projections, usually extending out 6 to 12 months. In this case, given the Federal Reserve has indicated that they will cease buying bonds (the result of this activity has been low interest rates), it means the beginning of an “exit strategy” from their previous direction of keeping interest rates low and asset prices high (some would argue artificially inflated).
So how does this effect me?
If you are in the market for a home and will need financing, jump on the opportunity while you have it to lock in what is still a historically low rate (we are WAY below the 20,30,40 and 50 year averages for interest rates still) and get yourself into a home.
On the other hand, if you are an all cash buyer and financing is not needed or wanted, you might want to consider waiting on your home purchase. Historically, when interest rates rise, asset values fall. Keep in mind, however, that there is a very strong case for a terrible wave of inflation to begin in the United States. Eventually, the printing of trillions of dollars WILL have a considerable effect on your purchasing power. If you follow Peter Schiff, waiting too long could potentially prove as onerous as having a 10-20% mortgage. I highly recommend following Peter by the way; he is a very smart man who was one of several people I either know, or know of, that saw the 2008 bust coming well in advance.
Coming Next Article:
I will be publishing an article very soon regarding the malpractice of the Federal Reserve and the Federal Government with respect to how they have seriously abused the good faith and credit of the United States with both our recent & current Monetary Policy & Fiscal Policy. I will be sharing select videos of Peter (mentioned above) and some of our own CNN-style Congressional discourse that will demonstrate just how badly we need a change in leadership at all levels of the Federal Government.
All In The FamilyThe US has entered into a contract with a real estate firm to sell 56 buildings that currently house U.S.Post Offices. The government has decided it no longer needs these buildings, many of which are locatedon prime land in towns and cities across the country.
The sale of these properties will fetch billions of dollars and a handsome 6% commission to the company
handling the sales. That company belongs to a man named Richard Blum. Who is Richard Blum you ask?
Why the husband of Senator Dianne Feinstein, that’s who. What a bunch of crooks we have running this country!
Senator Feinstein and her husband, Richard Blum, stand to make a fortune. His firm, C.R. I., is the sole real estate company offering these properties for sale. Of course, C.R.I. will be making a 6% commission on the sale of each
and every one of these postal properties.
All of these properties that are being sold are all fully paid for. They were purchased with U.S. taxpayers’ dollars,
and they are allowed free and clear by the U.S.P.S. The only cost to keep them is the cost to actually keep the
doors open and the heat and lights on. The United States Postal Service doesn’t even have to pay property taxes
on these subject properties. Would you sell your house just because you couldn’t afford to pay the electric bill?
Well, the Post Office is.
How does a powerful U.S. Senator from San Francisco manage to get away with such a sweet deal?
A powerful United States Senator’s husband is standing by, all ready to make millions from a U.S. taxpayer
No one in the mainstream media is even raising an eyebrow over his 6% commission on the sale of hundreds
of millions of dollars’ worth of quasi-public assets.
It is amazing that the media doesn’t bother looking at stuff like this in very much detail. For those not in the know, Freedom of the Press does not apply to Television…a reason you do not see 1/100th of the corruption going on in Local, State & especially, Federal, government.
A broker out of Idaho posted a response to the article I shared on the 8th: Here is my response, followed by his reply to the aforementioned article.
Jim, regarding your comment about Shadow Buyers. I do not claim to know your market sir, but I can tell you that a great number of real estate agents here in South Florida will run the opposite direction of any buyer who needs financing. Cash is still king, so even if these Shadow Buyers have rebuilt their credit, they are still up against the wall as there are an innumerable amount of All Cash Buyers in the market. Combine this with, what is perceived to be a Government induced, artificial rise in asset prices; and the facts that wage growth is at a historic low, jobs are scarce for those looking & tenuous at best for those who have them; there is no hurry for anyone in the middle & lower classes to take on a major purchase like buying a home unless they can do so without the monthly obligation of a mortgage. Of the more than 200 residential buyers I have interviewed in the past year, less than 5% were requiring financing.
Your market is likely to be very different; Miami is a major international destination and has been seeing large sums of capital flowing in from Canada, Colombia, Venezuela, Brazil, Russia, France, the UK, & Germany. Given the more than 50% depreciation in the dollar we have seen over the last 10 years versus the rising strength of the currencies that are flowing in, the average American family’s purchasing power simply does not support a competitive position versus the position Foreign Direct Investors are in.
Shouldn’t Realtor Mag elaborate on the potential errors in this instead of just “forwarding” what I believe to be bad information?
For example, the very first sentence conflicts with the first sentence of the third paragraph. Which is correct “Foreclosures have been falling in recent months” or is “”Not only are current REO inventory levels elevated ..”?
How does 1.7 million borrowers being delinquent compare to this time last year? That would be more telling of trends to me. Is this 1.7 million properties or if a buyer had a first, a second, and a HELOC, is the data reported as “3 borrowers”?
If we are talking about “shadow inventory” – why not balance it with “shadow buyer’s”? Look at how many people lost their homes to short sale or foreclosure that are already past the time frame to “re-qualify” as buyers again!
I know bad news sells better than good news but I say “Bah Humbug”!