When you were a child and went to a birthday party a popular game was musical chairs. When the music stops it is important to get a seat before the next person otherwise you are out of the game. The game is a lot like our current real estate market. One wrong move and we are out of the game for good. So this is an economy where agents with very little experience are boasting things are picking up, sales are improving, prices are rising...and all is well. That is a good perspective for the moment, but avoids any analysis. It is a lot of fun to play that game unless we are playing 'Musical Chairs on the Titanic!' You must anticipate the music stopping.
Even though there is more activity in the real estate market than there was this time last year, it does not mean full recovery is on the way. We cannot lose sight of the fact that much of this prosperity is the direct result of our tax dollars in the form of Federal stimulus dollars being infused into the economy to prevent a free fall collapse. This is not a normal recession. Federal stimulus monies are being infused into the economy in more ways that even the congress persons that passed the bill understand. I don't know about you, but this is not a pessimistic post, but one in which I like to stop, pause and get my bearings so I can move forward. In a recent post I mentioned one scenario I recently learned of where only bank owned homes were being purchased with Federal stimulus monies. I've also heard of some loan modifications with 0% interests. We have tax credits for home buyers, rising gas prices, and we have States running out of money to pay unemployment insurance. Georgia has recently started taking loans from the Federal Government to pay unemployment insurance. Kind of scary isn't it when you think that Georgia is not one of the harder hit states.
For the agents that believe that 'Short sales' are a solution, they are not. There is a limit to how many short sales before the inevitable happens and a bank fails. Short sales are a loss to the bank. You cannot lend out 200K and accept total repayment of 100K. It does not work that way. Lets think in terms of your money. For agents that think it does not matter, take 100 people out to lunch and treat them on your dollar, after all you can write it off. So now you see that my concerns are primary. My question is "What happens when the music stops?"
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Increases in sales are due to fire sale pricing of distressed properties.
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Many sales are artificially being driven by Federal Funds.
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Increases in sales are due to government intervention into mortgage rates.
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Unemployment is really not abating.
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95% of loans are government sector FHA etc...
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Tax Credits are way to limited to one segment of the real estate market.
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