Wow, this past week has been such a bombshell that I feel like I've been holding my breath to wait for the dust to settle a bit before even attempting to write about it! What a mess our nation's financial system is in. No ifs, ands, or buts about it-- it's all thanks to the greed that swallowed every ounce of common sense financial institutions used to be known for. I'm just warning you ahead of time-- I'm not sure this post has much to do with real estate. At least not directly. It's more just my own venting off steam. It might even strike you as comical! By now, you've probably read enough of the headlines, enough of the gloom and doom to be able to recite lines like this, "Lawmakers are scrambling to put their mark on the Bush administration's $700 billion plan to save financial market- a fast moving test of wills that could reshape one of the biggest bailouts in U.S. history." (WSJ 9/22/08). Being beyond bewildered with these sort of statements, I feel compelled to trace this financial crisis poster child to its very core! You'll see, it's already in Wikipedia as the "Financial Crisis of 2007 & 2008!" You may have already decided to stop reading right now. Totally understandable. I wouldn't blame you in the least. It would be right in line with the current American mentality about banks, "Get out while you still can!"
Kidding aside, I'm really not that old (age is a relative concept, right!?). I was a child of the 1970's. I remember 1976 in particular. Okay, I was 7 then. It was the bi-centennial year, and it was also the name of a certain well known gas station, '76. I was naive enough to think that they would have to change their name to '77 when 1977 arrived-- and how many signs would they have to change every year!? As I remember from a limited perspective of youth, it was also the era of gas lines due to the gasoline shortage. People making runs on gas stations thinking that they were going to run out of gas. Growing up in Phoenix, Arizona- it wasn't exactly what you'd call fun to be stuck in one of these 'gas lines' in the middle of summer! But what choice did people have if they wanted to fill their tanks? My mom had just about the ugliest Ford Pinto Station wagon you have ever seen. It was one of the ones with the fake wood paneling on the sides. My goodness, you couldn't have picked an uglier car with your eyes closed! Thank goodness I was only 7, or I probably wouldn't have been caught dead in that beast. The story goes that on one mild 115 degree summer afternoon, we actually did run out of gas. It was near Fountain Hills (in the middle of no where). I now intuitively understand the reason Apache Tears are called Apache Tears! Mind you, this was before GPS systems, before blackberries, before cell phones! We hoofed it for miles with limited water and a gas can, finally setting our bulging eyes on a swimming pool that wasn't a mirage- it was real. (My mom was always accidentally finding adventures). Luckily the nice owner of that home not only gave us water, but he took us to the nearest gas station to fill the gas can & then back to the car. This may be partly to do with why I am in real estate today. It's possible that nice homeowner saved my life when I could have become a statistic.
Flash forward a few years. To the mid-eighties. I was a teen. It was a totally (to use the "Valley Girl" lingo) cool time to be a teenager in the 80's! Granted my youth was completely void of comprehending dire economic times. My family was middle class, and I never saw us struggle to make ends meet. My dad would tell me stories (that I doubted were even true) about being a child of the post WWII era, and what the meaning of rationing was. It was like learning about life on another planet! You might think it exists, but you have no yardstick to relate to it. Yes, growing up in the 1980's was all about excess. Excess hair, excessive houses and cars, excess government spending! Remember Ronald Regan and his famous Reaganomics? If you ask me, our favorite Hollywood President was truly the start of this financial crisis. Supply side economics. What a concept! And to think that we all had this little nagging fear in the back of our minds that the communists were going to blow us all sky high with their nuclear weapons. We had to have a massive nuclear arsenal to defend our country. This was how Reagan got us out of the economic crisis of the 1980's. I remember doing a research project on Chernobyl that really opened my eyes to the dangers of nuclear power being mismanaged. I still wonder where all those war heads are today.
While I was reflecting on the cause of our current economic crisis, it sort of dawned on me that every generation has its economic crisis. This one just seems to be the mother of them all! Thinking back to after I graduated from college. It was 1992. I started a fledgling coffee business that was located in the courtyard of a failed savings and loan. I knew that the savings and loan disaster caused our government to form the RTC (Resolution Trust Corporation). But I didn't really know what caused the S&L's to fail. There was Charles Keating, whose name we most remember with the S&L failure. Remember him? My father & I were on a flight to LA (to connect to a flight to Maui) when we saw him. This was in November of 1991. I remember everyone was booing him, taunting him with lines like, "What happened to the private jet, Charles?" Poor guy. In fact checking for this posting, I see that our very own Arizona Senator John McCain was one of the "Keating five." Back to the early 1990's, when I owned a coffee business that occupied this vast space that used to be a fallen S&L. We had that location for 6 years, using the basement of the prior S&L as our commissary where we washed the dishes every day. I had enterprising fantasies of converting the bank to a night club, that could be called "The Vault." I pictured bartenders behind the teller windows and the actual vault being the center of the party. Okay, so I've always had a vivid imagination!
Today, the vacant bank building that housed the dreams of my first business venture looms in my mind as a symbol of our nation's current crisis. I never understood what caused the S&L's demise up until now, but I spent the first 6 years of my adult working life occupying the vast dark spaces of a ruined financial institution. Six years working hard to create a viable business out of the vapors of another larger businesses' failure. Bottom line is that's the very essence of the American dream-- making something out of nothing! Creating a new vision out of some one's failure. Out of the dust of ruins. It's been done before in this nation. It's why our fellow countrymen have been known to be called "Mavericks." I'm hopeful that this current crisis is no exception to past crises. And while it may seem virtually impossible to be optimistic at this juncture, take a look at some of the points in the Time article from 1990 (link to Charles Keating above). The overall verdict is that things are about as dire as we decide they are, and of course they seem a whole lot worse when you're up to your eyeballs in alligators! What choice do we have now, but to move forward from here. Hopefully we all learned something valuable in the process that will cost all of us time, money, and lost opportunities.
I used to think of banks as venerable institutions. Visions of massive marble Corinthian columned buildings where old men with horned rimmed glasses curl their moustaches with the tips of their pencils while they crunch numbers and weigh the pros and cons of each and every loan. That's how I thought of banks before this financial disaster. Their decisions stopped making sense to me about 4 years ago, and I would hope now in hindsight their decisions didn't even make sense to them. I guess (as a point of reference) I'll be telling my kids the story of the gas lines in 1976 now. I'm sure they will be as deer in the headlights as I was listening to my own father's economic crisis stories of post WWII America.
Perhaps some of those number crunching old men will be greeting you at the front door of your neighborhood bank soon? After all, I've been told countless times that "history repeats itself." My kids will have some great stories to tell their kids in about 20 years. I'm just guessing, but perhaps their kids will think they are from another planet!
Written by Sarah Ley
BSBA, ABR, CRS, CNHSA,
Tucson Realtor with Long Realty
Direct: (520) 404-0544
http://www.sarahley.longrealty.com/
sley@longrealty.com
Monday, September 22, 2008
Saturday, September 13, 2008
Tucson Real Estate- Open House in the Catalina Foothills
With the heat breaking a bit, many folks may want to peruse open houses this weekend. It's sure to be a great weather weekend for looking at Tucson properties! If you are out & about looking for Catalina Foothills real estate or a real estate agent who lives in & specializes in the Catalina Foothills, look no further! I'll be hosting an open house on Sunday September 14th from 1-4 PM in my neighborhood, Skyline Bel Air Estates in the Catalina Foothills, north of Tucson. The property is located at 6010 N. Camino Esplendora . This is a beautiful burnt adobe estate on an acre lot with city and mountain views. Stop in and see it tomorrow!
Skyline Bel Air Estates is a desert commuity located just north and east of the intersection of Swan & Sunrise. It has a 25 yard community lap pool, two tennis courts, and community facilities available for its residents to host parties. The neighborhood has a swim team in the summer months. Most of its 454 homes are older- built from the mid-1960's through the late 1970's. The majority of homes in this hillside community are on half-acre plus lots which offer beautiful views of the city and the mountains-- in my opinion, some of the best views in the city. The award winning Sunrise Drive Elementary school is within walking distance to many of the homes. The community is close to area shops and restaurants. If you're wanting to explore this community, or Catalina foothills real estate in greater detail, I've been a Skyline Bel Air resident for over five years now, and I love this neighborhood! Please call me if you have any questions about this property or Tucson real estate in general. Have a great weekend! I hope to see you at the open house tomorrow.
Written by Sarah Ley
BSBA, ABR, CRS, CNHSA,
Tucson Realtor with Long Realty
Direct: (520) 404-0544
http://www.sarahley.longrealty.com/
sley@longrealty.com
Skyline Bel Air Estates is a desert commuity located just north and east of the intersection of Swan & Sunrise. It has a 25 yard community lap pool, two tennis courts, and community facilities available for its residents to host parties. The neighborhood has a swim team in the summer months. Most of its 454 homes are older- built from the mid-1960's through the late 1970's. The majority of homes in this hillside community are on half-acre plus lots which offer beautiful views of the city and the mountains-- in my opinion, some of the best views in the city. The award winning Sunrise Drive Elementary school is within walking distance to many of the homes. The community is close to area shops and restaurants. If you're wanting to explore this community, or Catalina foothills real estate in greater detail, I've been a Skyline Bel Air resident for over five years now, and I love this neighborhood! Please call me if you have any questions about this property or Tucson real estate in general. Have a great weekend! I hope to see you at the open house tomorrow.
Written by Sarah Ley
BSBA, ABR, CRS, CNHSA,
Tucson Realtor with Long Realty
Direct: (520) 404-0544
http://www.sarahley.longrealty.com/
sley@longrealty.com
Tuesday, September 9, 2008
Fannie Mae & Freddie Mac Bailout- What it means to You- Tucson Home Buyer or Seller
With news of the government takeover of Fannie Mae & Freddie Mac spreading faster than a desert wildfire, consumers are now filled with relief, but they are also looking for answers. People want to (& have a right to) know how the government will change Fannie & Freddie, who will foot the bill, and how this impacts them, both financially (as far as taxes go), but also when they want to buy or sell a home in Tucson. It doesn't take much guess work to figure out that taxpayers are going to be the ones taking the hit head on by the bailout. This post will address what the takeover means for the real estate market, interest rates, and the American economy as a whole.
If I had to guess what the Fannie & Freddie takeover means for mortgage rates, I would have to say (at least in the short run), I would expect interest rates to drop. They already have since yesterday! The government understands the dynamics of our blighted real estate market. The Fed has been attempting to lower mortgage rates for the last year to try to right a shaky real estate market. This has been a battle between fears of hyper or stagflation, and what needs to happen to mortgage interest rates if buyer demand is going to improve. The Fed has lowered the prime rate several times in an attempt to lower mortgage interest rates, which would have (if it had worked) helped the housing market. However, over the last several months mortgage interest rates have for the most part gone up, instead of down. This could possibly be due to banks tightening up on controls over funding new loans, and newer more strict underwriting guidelines, as well as banks trying to protect their bottom lines. But now that the government has full control of Fannie & Freddie- whose primary responsibility has been to bundle mortgages (securitization) in order to provide sufficient funding for these mortgages- our treasury will have more extensive control over the mortgage market, and therefore (it is theorized) better control over mortgage rates. As long as the government's objective remains the same as the Fed's (to keep the real estate market active by lowering the prime rate), it is probably safe to say that- at least in the short term, mortgage interest rates will decline.
What does the Fannie/Freddie takeover reveal about the real estate market? You don't have to look too far, or even across town to see the signs of a depressed market & realize that both the Tucson real estate market and the national real estate market face serious issues. Foreclosures are at record high levels. Consumer confidence is at a record low level. Both local & national real estate markets are stagnating under the pressure. The Fannie/Freddie takeover is big time! It has been stated as being the biggest financial bailout of our nation's history. The bailout happened because the government realized that markets were no longer capable of righting themselves. The foreclosure crisis is one of epic proportions. In addition to consumers losing confidence in the real estate market, foreign investors were losing confidence in the two mortgage giants, causing more and more retreating by both parties. In essence, the theory was that if nothing were done (by the government) that our nation was headed for an economic disaster of catastrophic proportions. Possibly a second Great Depression. I do agree that something had to be done, and this does seem to me (a Tucson real estate professional for nine years) to be the right choice, maybe the only choice?
How is the Fannie/Freddie bailout going to effect the real estate market, both locally and nationally? The bailout presents an obviously ominous sign about weakness in both local and national real estate markets. However, it is believed by many experts that the bailout will (in due time) have a positive effect on the the local Tucson and the national real estate markets. If mortgage interest rates decline, as many experts believe will happen as an outcome of the bailout, this should act as a great 'leg up' for an ailing real estate market. Buyers can get more house for their money, and more buyers can qualify when mortgage interest rates are lower (part of the reason we got in this crisis to begin with, and theoretically what caused home prices to rise at unprecedented levels). Just yesterday, rates on 30 year fixed rate mortgages fell to 5.875% from 6.125% at the outset of the day. Any reduction in interest rates should have the effect of increasing buyer demand. Additionally, lower mortgage interest rates could help to shore up declining real estate values, as buyers' buying power increases, helping to spur additional demand. Hopefully the effect will also be to restore consumer confidence in the real estate market, and give buyers who have been on the fence (anticipating further falls in home prices) to buy. If this happens (and buying activity increases), it will be an injection into both the local and national economies, and our government is well aware of that fact. The economy as a whole will benefit if local and national real estate pictures brighten.
It is additionally hopeful that the bailout of Fannie & Freddie will ease up some of the recent mortgage restrictions the two giants created. These restrictions were created in an attempt to gain tighter control over lending practices and prevent further foreclosures, which translate to big time losses for lenders (and the entities that insure them). While none of us wants the mortgage market to return to the kind of cavalier cowboy lending that led to this crisis to begin with, many of the recently enacted underwriting rules and lender's guidelines seem to be overly restrictive. For example, I had a closing about a month ago, in which a lender (not to be named) would not allow a credit to the buyer's closing costs for repairs. Instead, all of the repairs had to be completed prior to closing, with receipts provided for their completion. This is obviously to prevent buyers from pocketing the repair credit & allowing the house to fall into disrepair. But it makes it challenging when contractors cannot get repairs done prior to closing dates. (There is usually only a window of about two to three weeks prior to the closing date once repairs are negotiated between buyer & seller). At any rate, some of these rules have been enacted in an obvious attempt to protect lenders from further erosion of profit margins. However, current lending restrictions have become more restrictive than any we have seen since the savings & loan debacle. Hopefully this will mean that a federally controlled Fannie & Freddie will enable us to return to more normalized and less restrictive lending criteria because lenders will have the government to back them up.
Obviously, the biggest concern of the bailout is that it has the potential to make taxpayers foot the bill for billions of dollars in mortgage loan losses. In the short term, it will be necessary for the government to infuse money into Fannie & Freddie to keep them solvent. Due to big risks taken during the housing boom, both companies (especially Freddie) have been losing money and foreign investment shareholders for a few years. It is estimated that the government will will have to provide a cash infusion into Fannie & Freddie to enable them to restore to financial solvency. Said Andy Laperriere, managing director of ISI group, "...It's a pretty high likelihood since it (the government) devised a plan to take the companies over." (WSJ 9/9/08). At any rate, the government bailout is sure to be at a very high cost for both the government and for taxpayers. All of this coming at a time of both economic and political uncertainty. I suppose the alternative was allowing Fannie & Freddie to fail completely, which could have led the entire mortgage & real estate industries- potentially even the entire US economy- into a complete tailspin. Overall, the government found itself in a tough situation and decided that they were in the best position to come to Fannie & Freddie's rescue, with the auspicious goal of aiding the entire US economy (at a cost not yet mentioned to taxpayers).
The bailout has already helped the stock market have a rally yesterday (both here in the US & also world stock markets). In general, a lot of what happens in markets (both real estate & stocks) is psychological. If consumers believe that it will have a positive affect, then sometimes that can provide enough of a boost to kick start the markets. Remember the movie, "Field of Dreams?" Kevin Costner's famous line (one that I use all the time) was, "If you build it, they will come." Hopefully this will be the case & we can get the real estate market and the US economy back on track. In addition to unknown costs to taxpayers, The Fannie & Freddie bailout will surely be a big thorn in the side of whoever becomes the next president of our nation. Said Eugene Ludwig, former US Comptroller of the Currency, "It's appropriate for the government to help in these extraordinary circumstances because market psychology has overruled economic reality, placing our nation's well being at risk." (WSJ 9/9/08).
Written by Sarah Ley,
BSBA, ABR, CRS, CHNSA
Tucson Realtor with Long Realty
Direct: (520) 404-0544
http://www.sarahley.longrealty.com/
sley@longrealty.com
If I had to guess what the Fannie & Freddie takeover means for mortgage rates, I would have to say (at least in the short run), I would expect interest rates to drop. They already have since yesterday! The government understands the dynamics of our blighted real estate market. The Fed has been attempting to lower mortgage rates for the last year to try to right a shaky real estate market. This has been a battle between fears of hyper or stagflation, and what needs to happen to mortgage interest rates if buyer demand is going to improve. The Fed has lowered the prime rate several times in an attempt to lower mortgage interest rates, which would have (if it had worked) helped the housing market. However, over the last several months mortgage interest rates have for the most part gone up, instead of down. This could possibly be due to banks tightening up on controls over funding new loans, and newer more strict underwriting guidelines, as well as banks trying to protect their bottom lines. But now that the government has full control of Fannie & Freddie- whose primary responsibility has been to bundle mortgages (securitization) in order to provide sufficient funding for these mortgages- our treasury will have more extensive control over the mortgage market, and therefore (it is theorized) better control over mortgage rates. As long as the government's objective remains the same as the Fed's (to keep the real estate market active by lowering the prime rate), it is probably safe to say that- at least in the short term, mortgage interest rates will decline.
What does the Fannie/Freddie takeover reveal about the real estate market? You don't have to look too far, or even across town to see the signs of a depressed market & realize that both the Tucson real estate market and the national real estate market face serious issues. Foreclosures are at record high levels. Consumer confidence is at a record low level. Both local & national real estate markets are stagnating under the pressure. The Fannie/Freddie takeover is big time! It has been stated as being the biggest financial bailout of our nation's history. The bailout happened because the government realized that markets were no longer capable of righting themselves. The foreclosure crisis is one of epic proportions. In addition to consumers losing confidence in the real estate market, foreign investors were losing confidence in the two mortgage giants, causing more and more retreating by both parties. In essence, the theory was that if nothing were done (by the government) that our nation was headed for an economic disaster of catastrophic proportions. Possibly a second Great Depression. I do agree that something had to be done, and this does seem to me (a Tucson real estate professional for nine years) to be the right choice, maybe the only choice?
How is the Fannie/Freddie bailout going to effect the real estate market, both locally and nationally? The bailout presents an obviously ominous sign about weakness in both local and national real estate markets. However, it is believed by many experts that the bailout will (in due time) have a positive effect on the the local Tucson and the national real estate markets. If mortgage interest rates decline, as many experts believe will happen as an outcome of the bailout, this should act as a great 'leg up' for an ailing real estate market. Buyers can get more house for their money, and more buyers can qualify when mortgage interest rates are lower (part of the reason we got in this crisis to begin with, and theoretically what caused home prices to rise at unprecedented levels). Just yesterday, rates on 30 year fixed rate mortgages fell to 5.875% from 6.125% at the outset of the day. Any reduction in interest rates should have the effect of increasing buyer demand. Additionally, lower mortgage interest rates could help to shore up declining real estate values, as buyers' buying power increases, helping to spur additional demand. Hopefully the effect will also be to restore consumer confidence in the real estate market, and give buyers who have been on the fence (anticipating further falls in home prices) to buy. If this happens (and buying activity increases), it will be an injection into both the local and national economies, and our government is well aware of that fact. The economy as a whole will benefit if local and national real estate pictures brighten.
It is additionally hopeful that the bailout of Fannie & Freddie will ease up some of the recent mortgage restrictions the two giants created. These restrictions were created in an attempt to gain tighter control over lending practices and prevent further foreclosures, which translate to big time losses for lenders (and the entities that insure them). While none of us wants the mortgage market to return to the kind of cavalier cowboy lending that led to this crisis to begin with, many of the recently enacted underwriting rules and lender's guidelines seem to be overly restrictive. For example, I had a closing about a month ago, in which a lender (not to be named) would not allow a credit to the buyer's closing costs for repairs. Instead, all of the repairs had to be completed prior to closing, with receipts provided for their completion. This is obviously to prevent buyers from pocketing the repair credit & allowing the house to fall into disrepair. But it makes it challenging when contractors cannot get repairs done prior to closing dates. (There is usually only a window of about two to three weeks prior to the closing date once repairs are negotiated between buyer & seller). At any rate, some of these rules have been enacted in an obvious attempt to protect lenders from further erosion of profit margins. However, current lending restrictions have become more restrictive than any we have seen since the savings & loan debacle. Hopefully this will mean that a federally controlled Fannie & Freddie will enable us to return to more normalized and less restrictive lending criteria because lenders will have the government to back them up.
Obviously, the biggest concern of the bailout is that it has the potential to make taxpayers foot the bill for billions of dollars in mortgage loan losses. In the short term, it will be necessary for the government to infuse money into Fannie & Freddie to keep them solvent. Due to big risks taken during the housing boom, both companies (especially Freddie) have been losing money and foreign investment shareholders for a few years. It is estimated that the government will will have to provide a cash infusion into Fannie & Freddie to enable them to restore to financial solvency. Said Andy Laperriere, managing director of ISI group, "...It's a pretty high likelihood since it (the government) devised a plan to take the companies over." (WSJ 9/9/08). At any rate, the government bailout is sure to be at a very high cost for both the government and for taxpayers. All of this coming at a time of both economic and political uncertainty. I suppose the alternative was allowing Fannie & Freddie to fail completely, which could have led the entire mortgage & real estate industries- potentially even the entire US economy- into a complete tailspin. Overall, the government found itself in a tough situation and decided that they were in the best position to come to Fannie & Freddie's rescue, with the auspicious goal of aiding the entire US economy (at a cost not yet mentioned to taxpayers).
The bailout has already helped the stock market have a rally yesterday (both here in the US & also world stock markets). In general, a lot of what happens in markets (both real estate & stocks) is psychological. If consumers believe that it will have a positive affect, then sometimes that can provide enough of a boost to kick start the markets. Remember the movie, "Field of Dreams?" Kevin Costner's famous line (one that I use all the time) was, "If you build it, they will come." Hopefully this will be the case & we can get the real estate market and the US economy back on track. In addition to unknown costs to taxpayers, The Fannie & Freddie bailout will surely be a big thorn in the side of whoever becomes the next president of our nation. Said Eugene Ludwig, former US Comptroller of the Currency, "It's appropriate for the government to help in these extraordinary circumstances because market psychology has overruled economic reality, placing our nation's well being at risk." (WSJ 9/9/08).
Written by Sarah Ley,
BSBA, ABR, CRS, CHNSA
Tucson Realtor with Long Realty
Direct: (520) 404-0544
http://www.sarahley.longrealty.com/
sley@longrealty.com
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