Major media makes me want to curl up in the fetal position and sleep for about two years. It seems like everywhere you tune in today, somebody is talking about how bad things are and how terrible our economy is. I have a little different perspective than virtually everything you see on television, radio and print today, and I'd like to share an example of what I mean that happened just this week, but first how about some background.
I understand that for some, the change in the economy has been extremely difficult and in some severe cases maybe even financially devastating. The unemployment rate in Georgia has risen to 8.6% this week while the national average sits at 7.6%. Not included in those numbers undoubtedly are people who are underemployed or just making less at a job than they did previously because commissions and bonuses are fewer and farther between or maybe overtime they took for granted isn't available anymore. However the vast majority of Georgians and Americans are still fully employed and probably will remain so as our economy struggles to regain strength. I believe that the recovery of our economy has far more to do with how we individuals think and behave than any legislation that the US Congress and our new President can sign into law.
It is up to us- the other 91.4% of Georgians who are earning money to turn things around for all of us. For a couple of years now I have been saying to myself that we are in the middle of a self-fulfilling prophecy. What do I mean by that? I mean simply that we've been told on tv incessantly how things are going to get bad, and they are getting worse by the day, and we better brace for impact, and lots of our neighbors are going to lose their homes, and our property values are going to plummet, and we are all going to be in big, major, terrible financial trouble. That is what I mean by self-fulfilling prophecy. It is up to the rest of us to use some tempered common sense and stop the self-fulfilling part.
It is kind of like the child being raised by "good" parents or "bad" parents. One family raises a child to believe that he can do anything he works hard to achieve. The other family tells the kid he'll never amount to anything because he's too stupid and lazy to ever make anything of himself. They both end up being right in large part due to a self-fulfilling prophecy. We are told things are bad so we change our behavior in response which actually makes them become bad! Our economy has the mass media standing in for "bad" parents. A year ago when former President Bush kept telling us that we weren't in a recession, mostly all the media could do was say, "Is this guy crazy? Can't he see that the sky is falling down around the American workers?" While I agree that President Bush could have adjusted his presentation a bit to acknowledge that everything wasn't hunky-dory all across Leave It to Beaver Land, he was basically stating the truth by the definition of a recession. We had one side telling us that everything is perfectly normal and humming right along based on the economic "fundamentals", and the other side screaming that the economic Titanic was going down and taking us all down with it! In reality the truth was probably somewhere right in the middle, but nobody who got any coverage we could hear on TV or read in the newspapers was saying that. And so began the self-fulfilling prophecy. We all started thinking twice about buying that new car or going out to dinner on Friday night. Belt-tightening became the word of the day for a large number of fully-employed Americans. Add on top of that the seemingly non-stop coverage of various corruption charges within big corporations and tales of golden parachutes in the hundreds of millions to CEOs who led their companies into bankruptcy and government bailouts, and it makes lots of Americans just want to curl up in the fetal position and wait for somebody else to make it better. Not because we were individually in any financial difficulty or because we even really believe that OUR jobs were threatened, but because we were constantly being told that we were probably going to lose our jobs eventually because this is the worst economic time since the Great Depression and there is virtually nothing any individual can do to change it.
Now let's all think a moment about that statement we have all heard several thousand times lately. Maybe it is the worst SINCE the Great Depression, and that is debatable when you read some of the real statistics, but it is nowhere near the level of the Great Depression, and I believe that we have the ability to control our destiny from becoming another Great Depression. During the 1930's unemployment rose to a high of 24.9% in 1933 and never dropped below 14.3% until we became involved in World War II. Today's 8.6% in Georgia is high and painful, but it is nowhere near catastrophic or "Great Depression" standards being thrown around. Do we really forget so quickly our recent history? I am 37 years old, and just during my lifetime I have seen periods of far worse unemployment than we face today! When I was a kid in the mid 1970's unemployment hovered around the 7% - 8.5% range for several years. It dropped to around 6% for the latter part of the 1970's, but then for most of the 1980's we were back into the 7%-8% range with a spike to 10.8% at the end of 1982. During all those times mortgage interest rates were much higher than they are today, but still we managed to dig ourselves out of those downturns without recreating the Great Depression!
My intention is not to make this a political argument for or against public policy, but simply to state what to me seems pretty obvious. We all need to get back to doing the things that move our economy along. I'm not advocating going out and spending more than one can afford or buying junk just for the sake of "stimulating" the economy. I am advocating getting back to some common sense personal budgeting and spending. Stop freaking out, save for a rainy day, and don't buy a house or car that you have to strain to afford and that 2 months of unemployment will send you into the foreclosure line! If we had stuck to those basics over the last decade we wouldn't be in this mess. Too many people took on too much debt buying houses, cars and starbucks coffee they couldn't really afford. And by afford I mean for the long term. Not the kind of afford where I can make the payment today but if I lose my job for 3 months I'm destitute. Now we are all having to pay the price in the form of increasing taxes, lower income, reduced property values and peronal stress.
Home ownership is not for everyone, and the government leadership is crazy to attempt to make it so. The idea that owning a home is somehow a virtual right protected by the constitution is just plain nuts. That is part of what has gotten us into this financial mess to begin with. Lenders going hand in hand with HUD, FHA, Fannie Mae and Freddie Mac making all these crazy loans we have seen for the past few years made it quite simply TOO EASY to buy a home. No money down- no problem. 600 credit score- no problem. No income documentation- no problem. Pure craziness!! And this is coming from my perspective as a REALTOR! The days of having to save up some cash and work a little bit to achieve home ownership were gone for much of the past decade. I agree that home ownership is a wonderful goal that should be available to all Americans regardless of race or religion or whatever other category a person may fall into. I don't advocate discrimination on any basis other than financial when it comes to home ownership. To put it simply, a person who doesn't have some money should not buy a home, and the government should not help them to do so. Period. Why do we have so many foreclosures today? With a few exceptions we have this situation because of a boat load of bad decision making. Bad decisions were made by home buyers who didn't take the time and effort to fully understand the ramifications of the loans they were taking out. If you aren't particular enough about your finances to understand the $200,000 commitment you are making, then you probably have no business owning a home in the first place. Bad decisions were made by lenders motivated by "closing a deal" looking to make a buck by offering those high risk loans to people with no documented income and no money down on the house they were buying. Bad decisions were made by builders who thought they were Kevin Costner in the Field of Dreams, saying as they put up dozens of spec homes "Built it and they will come!" This list of bad decisions goes on, but I think you get my point.
We all see the government scrambling for the miracle pill that will heal our economy. They are choosing to push money into different projects to "stimulate" our economy back to life. Those of us who work hard every day to earn a buck see our taxes potentially going up to offset bailing out the minority of people who have made bad decisions. Whether their stimulus has any positive long term effect only time will tell. I am aggravated to put it mildly, but I am only one person. I vote in every election to try to have an influence, but in the big scheme of things my vote doesn't count for much when it comes to politics and what the government leaders choose to do.
One way that you and I can have a positive impact is on an individual level. Here comes the story I promised about my experience this week. As I said before, I am a local REALTOR, so keep in mind my perspective on this. For those who have made good financial decisions and not over-extended their family finances, today's economy offers a rarely seen time of great opportunity in the housing sector! Due mostly to the overbuilding of spec houses at a time when the foreclosure rate on existing homes was on the rise, we find ourselves with a significant short term oversupply of houses compared to the current demand of home buyers. Many of these are beautiful homes in terrific condition- some are even brand new and have never been lived in. The days of all foreclosures being major fixer-uppers are gone replaced by a large percentage of them being beautiful homes that anyone would be proud to own with little or no work required.
I had another example play out this week that still just amazes me. We truly live in the land of opportunity for those who are willing to seize the opportunities when they come along. I have a client who closed a purchase of a gorgeous new home this week. It was a home where the builder was unable to sell the property and unable to keep up the payments on the construction loan after a long while of being virtually finished and vacant. Ultimately his bank foreclosed and became owner of this and many other properties. My clients purchased a home that had at one time been listed by the builder for $734,000. The appraisal done last week showed that the cost analysis method (how much it would cost to build the house again today) put the value of the house at $705,000. Most of the similar homes in the development that were sold prior to the "mortgage meltdown" sold in the $600's & $700's. Because of the vast oversupply of homes today, most everything in this area that is selling today is also a foreclosed property. The way an appraisal works is to compare a house to the ones near it that have recently sold. In today's market that means all the "comps" were also foreclosures in similar circumstances to the one my clients purchased. Even under "today's conditions" of over built supply and few buyers, the property still had a market appraised value of $490,000. My clients were able to negotiate a sale at $460,000 with the selling bank providing their new mortgage under extremely favorable terms.
Now this is no get rich quick scheme. If they had to turn around and sell that house tomorrow, they would probably lose money by the time they included the cost of selling the house. Don't go out and buy a house today with the requirement of selling it any time soon. However 5 years down the road, a purchase in today's market is likely going to look like an investment in Microsoft back before anyone ever heard of Microsoft. Here's my reasoning. Virtually NOBODY is building any new homes in our market today. Many builders have shut down and moved on to something else, and not generally by choice. The market and lack of buyers has forced that on them. While the media may have a lot of people feeling this way the simple fact is that there is NOT an infinite supply of homes in foreclosure or other financial distress. As people begin to buy up the bargains like my clients did this week, prices will stabilize and begin to go back up. Once we mop up the current over supply and our economy begins to regain positive momentum, the demand will increase and the lack of building going on today will translate into higher prices at a pretty strong pace. Remember the cost to rebuild that house today? It was estimated at roughly $245,000 more than they just paid for it. People like my clients who bought at a 30% discount compared to the peak of the market around 2 years ago will be in the cat bird's seat in a few years. Their neighbor's investments are all higher for the same product. When the market recovers and eventually the value of the neighborhood gets back into the $600's and $700's range in a couple of years, they will have an appreciation of $200k+ that the people across the street will not have. Buy low and sell high. It doesn't mean try to time the market to be the absolutely very bottom, because you then run the risk of missing the investment opportunities altogether. It just means get in while the getting is good. Today, the getting is really, really good in our area. So what if the value goes down another $40,000 this year but still goes up $200,000 by 2015? And in the meantime, you have to live somewhere, right? Why not a beautiful new luxury home that is going to appreciate over time!
The new economic legislation did do one thing that may help get us moving again if people take the time to learn about it and realize the opportunity that it presents them. On top of historically low interest rates around 5% on mortgages and a supply of housing that gives a buyer lots of great options, there is a new federal income tax credit available to first time home buyers. If you buy a home between now and December 1, 2009 and you have not owned a home in the prior 3 years, you are eligible for a tax credit of up to $8,000 if you make less than $150,000 a year. That is free money! Is this starting to sound like a "no-brainer" for a lot of you? Discounted houses, discounted mortgage rates AND the government is going to pay me $8,000 to buy a house? Are you kidding me??? You would only have to pay back the tax credit if you sell your home within 3 years. But as I just said, don't buy a home today if you think you will have to sell it in the next year or two. Just don't do it! Yes, I'm a realtor and I'm telling you NOT to buy a house under those circumstances!!
If you are in a position to comfortably afford a home that you would plan to keep for at least three years, what in the world are you waiting for? It simply isn't going to get much better than it is today! Call me or your trusted realtor to find your life-changing opportunity in real estate before they are all picked over by the people who are ready to take advantage of a great opportunity when it falls into their laps!
Central A/C
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