So what do the events of the past week mean for Maui real estate? First, let's recap the major events:
-Fannie Mae and Freddie Mac placed under Federal Receivership
-Lehman declares bankruptcy then sells a major portion of its operations to Barclay's
-AIG trades an 80% interest for an $85 billion loan and Federal Control
-Merrill Lynch sells out to Bank of America
-Wall Street Firms organize a $70 billion credit facility for one another
-Federal Reserve injects over $70 billion in liquidity into the bond market
-Dow Jones Industrials were off 450 points on Wednesday
-Reserve Money Market Fund, viewed as incredibly safe, "breaks the buck" and halts withdrawals
-Morgan Stanley is clearly in serious trouble and is likely to be sold as is WaMu
-Goldman Sachs may not survive as an independent entity either
The key problem causing this meltdown on Wall Street include the following:
-NOBODY is willing to lend money to financial institutions at the moment
-These firms have no ability to sell their troubled positions to raise capital either without effectively bankrupting themselves
-The companies being targeted by short-sellers have no extra capital to buy their own shares and combat what is going on
The liquidity problems in the bond market are likely to remain for a while here. It is also likely that further writedowns related to the mortgage business are coming all across the financial sector.
SO WHAT DOES THIS MEAN FOR MAUI REAL ESTATE?
In the immediate term, very little as this is the slowest part of the season in any case. But if this Wall Street situation persists for a few weeks it is going to mean mortgages will be increasingly hard to come by, that buyers are likely to "pull in their horns" on all discretionary purchases and that corporate America is also likely to become much more conservative on their expansion plans. This all increases the risk of a national recession, and certainly stokes the fear of one. All of this news is going to slow buyers down and make them feel less urgency regarding a purchase creating an even more advantageous environment for those buyers willing to act.
We will of course continue to keep you apprised.
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