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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: carranza2 who wrote (76481)	7/17/2011 9:37:17 PM
From: TobagoJack	5 Recommendations Read Replies (2) \| Respond to of 218124

3:30am local time. Did not bother to switch time on watch. Not wearing watch. But both iPad n blackberry switched to local time automatically. Just in in-tray, about something not adding in on math-challenged Washington dc. It is the state best explaining attitudes such as those sported by cb ilaine n the ex-vice president (I think cheney was quite good in math in a bad way, lining his pockets with money from others by inflation n war theft). In any case, ... Real Estate and the Debt Ceiling Ramsey Su 2011 The rating agencies have been issuing warning after warning recently. No doubt the bankers have been pressuring them to do their utmost to scare the politicians into a fast vote on raising the debt ceiling. One of the recent threats addressed the impact on financial companies. finance.yahoo.com I figure I would do some thinking on real estate and the debt ceiling. The year is 2007. If it was up to me, I would have streamlined foreclosure so that lenders and borrowers alike all had to face reality and clean the slate. It would not be painless but by now, we would be near the end of the cleansing. The first group of foreclosed borrowers are ready to re-enter the market as stronger and much for sensible buyers. The surviving lenders should be ready to lend using sound underwriting guidelines. I did not get my wish. Instead, we had HAMP, tax credits, foreclosure moratoriums, free tax refunds to the builders, robo sign and who knows what may come next. The world would never know what could have happened if we had the will to deal with the subprime fiasco and paid for our mistake like any responsible country should. More importantly, would the real estate market be more prepared for the debt ceiling tsunami that is about to hit shore? At the moment, there are three major under currents to the real estate market. The first being that the private sector finally figured out how to deal with the bad loans via short sales. I suspect that in the immediate future, short sales are going to exceed REOs. This will cause less damage to the overall market than full foreclosures. For example, just the fact that a short sale is typically in better physical condition than a REO would provide better support for real estate prices. Short sales should flush out the 2007 and older vintage loans and may be a backdoor solution to the robo sign fiasco. The second under current is the free housing subsidy to the 5+ million households that are not paying their mortgage. Finally, ever since the launch of the QEs, mortgage rates have been driven down to the 5% or lower range. Week after week, the Mortgage Bankers Association has been reporting about 2/3 of mortgage applications being refinances. Even though the era of mortgage equity withdrawal (MEW) is over, these refinances contributed greatly to households that have equity as well as qualifications to take advantage of the lower rates and most likely lower mortgage payments. I have not read any study analyzing the effects on consumption or the economy resulting from these refinances. Now regarding the debt ceiling, as much as it is in the news, a basic google search shows no results for what exactly are going to be cut in the budget. The OMB Director Jacob Lew was on CNN this morning. Listening to him, I seriously doubt if this fellow can balance my check book, not to mention the nation's budget. cnnpressroom.blogs.cnn.com So I decided to do my old reliable back-of-cocktail-napkin calculations. Here are some of the numbers: $1.5 trillion 2011 Budget Deficit $4 trillion The amount Obama wants to cut over the next TEN YEARS $14.3 trillion Current Debt Ceiling May 2011 Approximate time Debt Ceiling was reached, some payments stopped August 2 Arbitrary date that Geithner decided to default on Treasuries $2-3 trillion The amount being discussed to raise the debt ceiling by The magic of the cocktail napkin analysis is that it only has room for the important numbers. They are simple enough that even the average economist can comprehend. It does not add up. How long is this $2-3 trillion increase (assuming that it will be raised) going to last? 2 years? less? By the way, this $4 trillion cut is being labeled as "something big". Really. I decided to order another drink so I can do another cocktail napkin calculation. Mar 2006 Debt ceiling raised from $8.2 trillion to $9 trillion Sept 2007 Debt ceiling raised by $850 billion July 2008 Debt ceiling raised by $800 billion hidden in GSE Bailout Act Oct 2008 Debt ceiling raised by $700 billion hidden the TARP Feb 2009 Debt ceiling raised by $789 billion hidden in Obama stimulus plan Jan 2010 Debt ceiling raised by $1.9 trillion In less than 4 years, the debt ceiling had been raised from $9 trillion to $14.3 trillion, or 59%, soon to be raised by another $2-3 trillion which may not even be enough for 2 years. It is not even noon yet on this Sunday morning but I decided to order another drink. This time I needed the cocktail napkin to wipe away my tears. El-Erian of PIMCO said the other day that we are not kicking the can down the street, we are KICKING A SNOWBALL DOWN THE HILL. Finally, what kept the real estate market from crashing the last couple of years were the endless waves of government intervention. The debt ceiling debates made it clear the country now has neither the money nor the will for anymore bailouts and stimulus. It does not matter whether we are going to have spending cuts or higher taxes, it is impossible for the real estate market to survive when we are launching our own austerity program. The only trick left is the Ben Bernank and the QEs. As soon as he fails to hold the long term rates down, real estate is going to sink like a rock. For those of you who would like to join me, I think I am going to be down at the local pub for the next few years.