Fannnie and Freddy-the government bailout is on!

Good morning! I picked up my local paper this morning and saw that Fannie Mae and Freddy Mac will probably be taken over by the government. It could be as soon as Monday. Although I'm not a big fan of government intervention (I'm a free market guy), I suppose this will help our world recover a little bit quicker. The bad news is you (think taxpayers) will be footing the bill for this bailout estimated at $25 billion dollars.

The other piece of the puzzle is what happens to all the banks who are so heavily invested in Fannie and Freddy's stock? They're in trouble. With the FDIC's current watch list (banks in trouble) at 117, I heard the list of bank failures could grow to 300 if the government had to rescue Fannie and Freddy. This, then, is the last shoe to drop. Before our market can recover, we will have to let the banks go through their challenges. And it's just beginning. So far there have been 11 bank failures this year. Expect over the next year or two for that figure to grow in multiples. Will it be as bad as the S&L crisis of the early '80's? Probably not but when you add everything else up that has happened, it's been called the most challenging period in real estate in the last 25 years.

Does this mean it's all doom and gloom out there? No. There are mixed signals. In parts of California and Nevada, home sales are picking up due to affordable pricing once again. Credit is still awfully tight and, chances are, will not be eased until the lenders feel safe to do so. My prediction? Look for the start of an upturn either in the Spring or Summer of next year. For those of us who can hang on, look forward to numerous opportunities as the buyers return to the market. It will be interesting to see how this all plays out. I plan on hanging in there and enjoying better times soon! Have a great weekend!

 

Paul