Who will ultimately be responsible for leading the United States to economic recovery and out of one of the deepest recessions we've ever experienced? Cast your vote now!
It's been reported that improvement in the real estate market will drive the recovery. Then again, it's been reported that a decrease in unemployment and improving consumer confidence will lead the way. How about the banks and financial institutions, who have received billions of dollars of bail-out money? Where are they in leading us out of the current recession?
This recession is certainly a collapse on several different levels. I'm no economist, but this is what concerns me... Stevenson Jacobs from The Associated Press (09-17-2009) reported that, "...at the height of the housing boom, seven out of ten mortgages were approved. At the end of 2008, only five out of ten got the green light. During the boom years, home buyers could qualify for the cheapest rates with a credit score of 660. Today, they need 740 or better".
How can there be a housing recovery when buyers can't get loans? Today's buyers are facing much stricter lending guidelines and it feels like somebody left the parking brake on! Sellers can't sell their homes if buyers can't buy....screech! Not to mention that several recent "governmental protections" may have gone a little too far and also hampered the recovery of the real estate market. And, the one thing that seems to be driving the recovery of the real estate market - the first-time home buyers tax credit - will expire November 30th at midnight, if an extension does not get approved.
Interest rates will soon be climbing. Credit card companies are canceling lines of credit, reducing credit limits and raising interest rates. When consumers can't buy product or services, employers cut back on employees, jobs are lost, companies are closed and the cycle repeats itself.
So, where will traction come from in the road to recovery? An improved real estate market, a decrease in unemployment or an ability for individuals and businesses to get loans and maintain credit? Or somewhere else?
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Your question is so profound that I had to write a blog on the recovery. So here's a copy of that:
I comment so much and the sorry state of the economy I forget to state what will lead to recovery. There are has to be a lot of factors for this to happen; business, Real Estate, government, education and personal for us to recover. So here's some of my thoughts:
1. Small business will no longer be able to get credit without having to have backing in the first place. I sell businesses, have been for the last 12 years. Normally someone wants to buy a business the funds come from savings, home equity, family loan with small amount of owner financing. In today's market, at least 50% of a sale of a small business (under 500k) has to be from owner financing because a Buyer can not get a home equity loan or a business loan from a back due to the risk. The amount that a seller will have to come up with has to be from personal finances (savings, 401k, IRA loans, severance pay...). But from small businesses is where most jobs are created in the US. Buyers of businesses or those that want to create businesses are going to have to get creative in getting the funds to get into businesses or find someone that will back them with personal funds.
2. Big business has no choice now, big loans are not an option, the perks that were offered before to their employees will have to be cut just to stay in business. I know a lot of owners that do not want to make those cuts but they want to stay in business. Those businesses in right to work states will survive, those that continue to having to deal with Unions will not. Big business will have to learn new ways of doing business. New ideas, new methods, working with less to do more.
3. Real Estate will continue to move slowly, smaller homes will sell faster, agents will have to keep up with all the changing regulations which takes them away from getting in front of more buyers and sellers. I believe that we have almost hit the bottom of home values depreciating. But the bottom prices will stay in place for another 2 years and a half before going up. In those areas like Michigan, I believe that it will take about 5-7 years before the value will start going up. It will take time for the economy to recover, for the job market to shift upwards, for people to once again have the confidence to purchase a home that they can afford without worrying about whether their employer will be in business next week.
4. Government, both state and federal will have to stop trying to regulating everything. That includes businesses, banks, real estate, personal funds, Internet, health care and taxes. Increase in taxes for social programs doesn't work, look at the last 7 years in Michigan and that social experiment. Michigan increased taxes on businesses and residents. Now it's a perfect example of a bad example. It didn't work. The governor there wanted all of her personal pet social projects, so she increased taxes to pay for them, her statement when she was first elected was that she was going to "blow you away" with all of her great ideas, well blown away were the residents and businesses. Now the joke is that the last one to leave Michigan, please turn out the lights...... We have to remember that WE are the government, that WE elect those that are suppose to represent us, and that WE have the power to replace them. Lastly, our country is divided, liberals to the left, conservatives to the right and the rest of us in the middle. It is going to be up to those of us in the middle to determine the fate of our country, not the other two fringe groups.
5. Education has to be in place to increase long term advancement. Our education system has become so backward it is not funny anymore. The quality of teachers and the expectations of sudents has hit an all time low. Students are just numbers to put into the system to get more funds from Federal, state and local residents to support higher wages for teachers and administraters. That and the PC crowd has slowly over the years taken over our education system by becoming through time the people that are now running our school boards. Teachers should teach facts, ideas, expanding the minds of the students without injecting their personal social opinions onto those that have no worldy experience. Too many teachers/professors become educators without any life experience except what they were taught through the education system. How can a professor teach any business class that has never been to work anywhere except in the educational system? What worldy experience in business would that person have? What, they flipped burgers while going to college? That's experience?
Students should be taught from day one upon entering into our educational system that they are expected to go to college and get a degree. That the time before college will be devoted to their efforts to do well to get into whatever field after they get a degree, that anything less than that should be looked down upon. That every effort will be put forward to promote the idea that they are to further their education all the way through college. Studies in math and science should be encourage.
6. Personal responsibility is a key factor in the recovery. It will be up to each of us to hold oneself accountable for our own actions. You can not get credit if you are behind in making payments. You have to pay off your credit cards, loans, etc. Pay for everything in cash. Don't have the cash right now to pay for something, then wait until you do. Want to buy a large purchase item (house), save until you have at least 15% down payment. Don't have a job, or you lost your job, then do whatever job it takes to pay your bills, and take advantage of gov't programs to re-educate yourself into a different line of work. Get your butt off the couch and use what's between your ears, you'll find that answers are not that hard to come up with. Do not expect anyone to help you, you've got to get out there and do it yourself. If your of the age that you can go into Military service, then do that, the military will educate you, give you the training that you need when you get out. Even the lowest soldier in Iraq has access to programs that can be used as college credits for when he/she gets out. Btw, being in the service of our country has it's own rewards...
Furthermore, stay healthy. Yes, I too love to stop off at the local fast food places, there's nothing better than a tasty Whopper or a piece of fried chicken. But that food will show up on my waistline. So avoid eating what you know isn't good for you. Exercise, even if it's just walking a mile in the morning before work. You'll look better and feel better too. Exercise your mind, read blogs from here at AR, read a book, expand on your knowledge of your career, learn about the world about you. Anyone reading this has access to the internet, there is so much knowledge out there that you'll never be bored.
Ok, that's my thoughts on recovery, random as they may be...... I am doing my part to help in the recovery by working hard at helping my clients with investments. There's nothing like having a client come in with funds and being able to double them in a few months. And yes it is self serving, they invest so that they can purchase that business or home that they want.......