SWB: Alan B. Rowley II - Success Coach - ECoaching - Email Coaching

Two homeless countries for the price of one

The senate would like to help people keep their homes in some way or help people buy up the huge oversupply of houses on the market.  Have they thought about trying Overstock.com? 

King George has told them not to even bother trying to pass the bill on to him because it would be too expensive.  He just can't go along with that kind of spending.

In completely unrelated news, direct costs of the war have exceeded $500 billion and total economic impact is over $1.3 trillion.  Unmeasured is the moral cost the war has had on our country.

The United States spends about $100 billion a year destroying houses, schools, hospitals, museums, libraries, and anything else that can be bombed.  The only safe place to be in Iraq when the bombs are bursting is next to an oil well.

Every year that we continue to annihilate Iraq, the longer it will take for both countries to recover.  Maybe when our economy tanks, the tanks will stop running and Iraq can begin rebuilding and Americans can look around and wonder what the hell happened.

The Subprime Fiasco Explained Very Nicely

They also explain the war in Iraq beautifully.  Check it out if you have the time.

Speaking of time, for those of you waiting for a Chronicles post or email from me, I'll get to them today and explain the delay in today's Chronicle post.

5 Sword Points for PTE Rick for sending me the clip above.  Excellent stuff.

Foreclosure: Here's Some Help

Foreclosures continue to rise and with oil prices going up and the dollar going down, the number of foreclosures will probably be higher than many "experts" believe.

Where there is a need, there is a dollar to be made.  People need to get out of their houses and don't want mortgage companies making life rough for them as they try to deal with the declining economy.

Enter YouWalkAway.com.

For about a thousand bucks, they will set you up with the legal information that you need to get out of your house and your contract.

They will even tell you how long you can live in your house without making payments and will keep track of the mortgage company's progress on the foreclosure so that you can stay there the longest amount of time possible.  You might be able to live in "your" house for 8 months without paying a dime to the mortgage company.

They will then help you get the foreclosure taken off your credit report.

Seems like quite a good deal for a grand.

Freezing ARMs

2.3 millions ARMs are scheduled to reset in 2008 making people just a little bit nervous.  The plan now is to freeze interest rates for 5 years so that they don't bump up as scheduled and of course, keep lowering the interest rate and pumping more fiat money into the economy.

The two things don't go hand in hand.  Freezing the interest rates for people is a nice thought and they are probably going to be thankful.

If King George and the Federal Reserve continue to devalue the dollar, it's going to undo the plan.  If you keep interest rates from jumping a couple percentage points but you devalue the money by the much, you're going to end up with the same result in the end.

Sure, the house payment will stay the same but they may raise the price of food and gas to such an extent that it's the equivalent of raising the house payment to unaffordable levels.  When the choice gets down between food and house payment, there are still going to be record numbers of defaults and foreclosures.

You know, I'm not even an expert on this stuff and I can see that what they're doing is not going to work.  It's all part of the bail out.  Bush came right out and said that they were doing this to protect lenders and investors.

My wife asked me to run for office so I can get some of the kickbacks for helping make rich people richer.  I told her that I would consider it.

Here's a cool theory that I have

We've been told that the housing fiasco is supposed to correct itself next year and that there won't be a recession but slow growth.

Let's say that you own a house that has depreciated by 10% from the artificial high that it once was at because of the house flipping game.

Now, let's say that the Federal Reserve pumps enough fake money into the system that money depreciates in value by 10%.  Voila, your house is now "worth" more because it takes more dollars to buy it.

How cool is that?

Don't forget to take my presidential poll.

Rent is becoming unaffordable

The housing market busted after house prices were run up to a point where they became unaffordable.  ARMs are resetting and foreclosures are going through the roof.  People leaving houses are looking for places to rent and the rent is going up and up.  In some cities it's to the point where it takes more than half a person's salary to pay it. 

People with lower paying jobs are looking to relocate to where they can afford to live but many are going to be staying in the same jobs.  This is going to bring up quite a dilemma when the gas prices go back up (whether it's in 4 weeks or in May).  People are commuting to their jobs from outer suburbia so that they can continue to be school teachers, cops, garbage collectors, and all those all other essential jobs that pay far less than the service they provide.

If gas prices (if? when) gas prices go up, it's still going to cost these people extra money in order to live where they want and keep their jobs.

As I was drifting off to sleep this afternoon for too short of a nap, I wondered what was going to happen when the people who do those jobs can no longer afford to do them.  Will there be shortages in these jobs in places like San Francisco where it's just dang expensive for a school teacher to live? 

I read a story where one teacher is sleeping on a relative's couch for now and will probably try to hook up with some room mates in order to continue to live close enough to the school where she works.  She doesn't really want to move on because she has found her place in life for now. 

Is that really where we're headed?  Putting our school teachers in dorms?

I said it would and it is

Super short post today and dang it, I can't find the link that I saw yesterday.

Rent is going up.  It makes sense of course.  People can't afford a house so they have to rent.  Supply and demand. 

Renting in and of itself is not a bad thing as long as you set yourself up in a position to pay the rent for the rest of your life. 

With tightening credit rules, it's going to be harder for people to buy a house too.  Paying higher rent will make it harder to save up a down payment.

Most of the people of this nation are being moved out of ownership roles.  The United States and it's laws were created by and for land owners and it looks like we're moving full circle.

Mind Boggling Foreclosures

Can you imagine a place where 1 out of every 27 houses is in foreclosure?  If you can imagine Stockton California, then you can imagine just such a case. 

Las Vegas has a foreclosure every 31 households.  A couple years ago, Vegas was one of the hottest markets in America.  Anyone could flip a house and make money in Vegas.  Not anymore.

It may come as no surprise that there are more foreclosures in places like Vegas and Stockton where it seemed that there was no ceiling on the price of houses and no restrictions on the amount of money people could borrow.

I checked out where Salt Lake City ranked in foreclosures per household.  #63 and they actually have fewer foreclosures in the first half of this year than they did last year.  Interesting.  The new realtor we talked to the other day said that Utah hasn't been hit as hard as a lot of other areas and it appears that he was telling the truth.  I know that I shouldn't be shocked when a realtor tells me the truth but it's a hard habit to get over.  Let me add this caveat.  Utah hasn't been hit as hard as a lot of other areas - for now.

Meeting a New Realtor

So we met another realtor last week.  My brother recommended him so we thought we sit and visit with him to see what kind of guy he is.  He lives right across the street from my brother so he just walked over.  We sat in the driveway and chatted while we watched the kids play and my brother fire up the grill.

The nice thing about talking to an actual realtor instead of someone selling lots for a contractor was that this guy would be working for us.  We told him what we were looking for and he took notes.  We told him our ideal price range and the features we were looking for. 

We talked about the market.  He said that Utah hasn't been hit as hard as some states but that it's definitely a buyer's market.  I told him that we weren't in much of a hurry because there was probably another 18 months of ARMs resets and foreclosures ahead.  He agreed.

He said that since we weren't in a hurry to move, we would be able to watch the market and watch specific houses.  The longer a house was up for sale, the better the chance of getting a better price on it would be.  I knew that but it was nice to hear that he was on the same page with us and would be watching for that sort of thing.

He's going to send listings to us that fit our criteria and we'll let him know if we want to take a walk through any of them.  It's going to be nice to be able to take our time on this.

How Quickly The Lies Are Undone

If you can remember all the way back to 2 weeks ago, you will remember that most of the articles on the subprime mess stated that this would be isolated to the housing sector and that our economy would not be affected.

What's the word today?

The housing fiasco (I've been calling it that for months and this articles calls it the same thing . . . finally) is going to ruin the economy of every country that depends on the citizens of the United States to buy their crap.

Now, didn't I say that not too long ago?  I believe I did.

If Americans don't spend money on crap from China, businesses in China will start laying people off, and this will depress their own economy.

Shock and Dismay!

You are not going to believe this newest development.  Well, you might believe it since we've been spending our time out here in reality as opposed to all the people who live in a different dimension and just visit long enough to do sound bites for a media that is all too happy to print the crap that they are spouting.

Don't get me started on the media since most of them I have noticed lately are complete idiots.

For example, (I told you not to get me started) a mine collapsed in Utah trapping several miners.  At the end of each report and each opening paragraph, there is something like this: "There are no signs of life but rescuers have vowed to keep digging."

Ya think!

"Dude, I don't hear anything, let's call it a day," Bill said.

"We can't give up now.  We need to keep digging.  They could be alive," Gary said.

"Dude, Idol's gonna be on soon and I wanted to get a shower before it started," Bill said.

"Come on guys!  Huddle up.  They could still be alive down there.  Let's make a vow that we'll keep on digging until we find them.  Who's with me?"

Of course they are going to keep digging.  You don't have to tell me.  That's not news.  And please, please, don't ask me how I feel when they go to the families of the trapped miners and ask them how they feel.

"Well, Sue, I feel like punching the next idiot reporter that asks me what it's like to have my husband buried alive and getting closer to death with each stupid question."

Anyway, back to the shocking news.  It appears that the subprime lending fiasco is actually affecting the economy.

"The ECB's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it shows that problems in subprime lending are, in fact, spreading into the general economy." [emphasis added]

Like this is, in fact, some kind of surprise. 

Duh.

Duh.

Duh.

I'm gonna borrow PTE Rick's sign off today.

- sw, tired of idiots and liars and the media which tries to stretch things into news and create drama where no creation is needed and is all too happy to blow smoke up my ass if someone pays them enough money

Full Article

Comfortable? And a New Term - "Credit Crunch"

I learned a new term today that I thought  I would pass on for those of you that have never heard of Credit Crunch before.  If you've been reading this blog for a while, we've talked about the condition but now it appears there is a name for it.

A Credit Crunch is what happens when house prices don't go up so people can't borrow against their equity in order to use borrowed money to buy things.  Spending slows down because of the Credit Crunch.

If people would quit borrowing money in order to buy things, we wouldn't have to worry about a Credit Crunch effecting the economy.  There would be no such thing as a credit crunch.

The same article talks about oil prices, which are going to be going up.  Surprise!  Oil is around $75 to $77 a barrel now and the article ends with this quote:

"People are getting comfortable with the idea of oil pushing above 100 dollars in the coming years."

Which people are comfortable with this? 

Housing and the Economy in the Real World

I have redone the categories to make things a little bit easier to find.  I hope this makes it easier for people to find info in this blog.

I woke up this morning and found out that I still have a mortgage, car loans, 15 pounds of fat on my gut, and brown spots in my lawn.  Dammit!  I'm back in the real world where you can't just conveniently discount the facts that you don't like.

So, what's the real story?  Is housing affecting the economy?  Of course it is.  It goes both ways (the economy can affect housing) and there are lots of other factors but there is no doubt that housing is affecting the economy.  The change in housing is so large that you have to look at people who are saying otherwise and ask, "What are you selling?"

Some are obvious.  A national realtor association predicted that the housing market would bounce back this year.  They made this prediction a couple of months ago.  Guess what?  Housing hasn't even hit the bottom yet and there is no way that it's going to bounce back this year (my prediction).  Obviously, they want people to keep buying houses and so they promised that values would return.

This week, Standard and Poor and another company that rates stocks (Moody's I believe), rated $17 billion of mortgage stock as Absolute Crap (that *may* not be the actual technical term).  What's going to happen to the rest of US stocks?  Here's a little graphic that tells the tale nicely:

The Housing Market Is Still Not Affecting The Economy

That's what the article from Money Magazine that had this chart said.  It went on to say that as long as you don't count houses and cars, the US economy is going strong.

I think that's great and using this persuasive logic, I would like to point out a few things that I have noticed in my own world.

If you don't count my mortgage and car loans, I'm debt free.  Woo hoo!

If you don't count the 15 pounds of fat on my gut, I'm skinny!  Schwing!

If you don't count the brown spots in my yard, my lawn is perfectly green.  What a relief.

Yes, things in my world are absolutely perfect as long as you discount the stuff that isn't perfect.  How convenient.

Average People Can't Buy Average Homes

After looking around at houses the other day, I came to the conclusion that people must make quite a bit more money than I do.  My wife and I came home and ran some numbers through a mortgage calculator and figure that if we can make enough on the sale of our current house, we can buy an average home.

Out of curiosity, I went looking for to see what the people make and I came across an article that shows median family income compared to median housing prices for the first quarter.  It also shows the percentage of homes in the area that are affordable to people with the median income.

Salt Lake City, UT was the closest market to what we are looking at.  Median family income is $60,100.  Median house price this year is $269,000.  The percentage of homes in the area that the median income can afford is 31.6%.

I don't feel so bad now.

We Went Looking At Houses Yesterday

All the reading that I have done over the last 15 months couldn't prepare my mind for the reality.  I've been living out in isolation for 2.5 years and to go back into the city and look at house prices was a shock to my system. 

We went looking at new houses yesterday because a lot of times they are offering incentives and prices that are lower than existing homes.  From what we saw, it wasn't true. 

We had a hard time finding anyone from one company and when we finally did, he was nice but somewhat patronizing.  We told him the price range we were looking for and he said, "Oh, are you first time home owners?"

He's lucky that I just think things in my head and the sentry that stands guard over my mouth is really alert.

I'm not willing to put every single penny that I make into a house. 

Will the Housing Rebound Be Too Late?

When the house flipping game came to an end, the economy slowed down.  Optimists reported that the housing market would right itself soon and the economy would get back to normal.

Let me be the first to say that I have a habit of simplifyng things down to over-simplistic.  I like things simple.  I understand the world isn't simple but I like to see things as simply as possible.  It may not be right but I have no intention of changing.  Having said that, let me say that when it comes to making predictions, it usually isn't that simple.

Saying that the housing market will rebound and everything will be "all better," as my son says, doesn't take into account other major events.

Say, for instance, summer gas prices, which look like they will reach an all new record high this year.

Gambling revisited

Living in a casino town while I travel my debt free journey probably changes how I see things a little bit.  Nothing earth shattering.  Nothing out of the ordinary really.  I just equate things with gambling more now, that's all.

I talked about the gamble that we took in buying a house.

The short version is that we had to weigh the amount that we would pay in interest versus how much we thought we could get back from the sale of the house.

After blogging for over a year on this subject, I would add that everyone that gets into a mortgage with the intent to pay it off is gambling that they will make enough money for 30 years to do so.  Many people have no intent to pay off their mortgage so this isn't a factor.

Back to our gamble.  Things took a turn for the better in the last couple of weeks.  Two different companies have taken steps to begin construction on a couple a new casinos here.

Banks helping out home owners? Is it true?

Banks lent money out to people that couldn't afford to make the payments and now foreclosures are going through the roof.  To help fix the problem, several banks have created Mod Squads (*I* did not make up the term).  These Mod Squads go around to people who are looking at foreclosure and try to modify the mortgage in a way that people will be able to stay in the home.  They are doing this, as the article I read states, to help the home owner. 

Is it true that they are helping the home owner?  Technically, yes, they are.  It is a very misleading statement though because most people don't have a good understanding of the process involved in owning a home.

Most of the people living in these homes consider themselves to be home owners.  In fact, they've been told that they are.  When they fill out credit applications, they check the box that indicates they are home owners.  The truth of course is that they are loan-owners.  Mortgage companies own most of the homes in the US. 

You go around shopping for a house and find the one that is perfect for you (or that you think you can mark up and flip) and you tell your mortgage company.  They buy the house so that it's reserved for you.  You then make payments to them plus interest.  If you are able to come up with two to three times as much money as the mortgage company paid, they sell the house to you.  You are then a home owner. 

Let's look at the situation that the banks created.  Houses are being foreclosed upon.  Who loses money?  The loan owner loses whatever they have paid to the mortgage company, right?  Most of that was interest and lost anyway.  The amount of principle they paid in the first year or two barely amounts to a couple of grand.  They can walk away and rent an apartment for half the cost of the mortgage payment.

The mortgage company, the home owner, on the other hand is stuck with a house that will appraise somewhere between 10% and 30% below what they paid for it.  Some mortgage companies are trying, with little success, to sell their homes at the same price they paid for them.  While they are holding them, they have to pay taxes and upkeep on the homes.  Other mortgage companies are dumping the houses at a loss because no matter how you look at it, it's going to be a loss.

The fastest fix would cause a slowdown as well

The drop in housing prices is part of the slowdown in the economy.  I've covered this and posted that it will be like this until the housing prices go back up.  Some of you may note that I always say housing "prices".  That's because of the little game that was played over the last few years.  People would buy houses and raise the prices and sell them to people who would raise the price and sell them.  House flipping was all the rage and everyone was going to be rich because it was so easy.  Buy a house, raise the price, sell it, repeat.  And this could be done forever and everyone playing the game would make lots of money.

The value of the houses wasn't changing, just the prices.  Houses worth 150k were being sold for 300k.  It never seemed to occur to anyone that sooner or later, the price of houses would be unaffordable.  Now that we've hit that ceiling, we're seeing part of the price of the delusion.  People are being foreclosed on and at least 20 loan origination companies have gone under.  Hopefully they all made enough money in the game to carry them over.

So now the economy is waiting for the value of houses to catch up to the prices or for people to drop the prices of the houses to the values.  After this happens, we'll have to wait for the value of the houses to go up so that people can refinance them to get out the equity so they can go buy things.  Then the economy will pick back up again.

As long as none of the other myriad of things affecting the economy cause problems in the meantime.  Housing obviously isn't the only factor in the economy but I believe that it is a major factor because so many people no longer spend their own money.  They all borrow money to spend.  That's a band-aid answer and also doesn't create the optimum spending solution to boost the economy.

The economy will always be a shadow of what's possible as long as most people are paying interest.  We've covered the numbers in all kinds of examples to show that people are paying anywhere from 15% to 300% more for the items they buy using credit.  If you flip your thinking around, you can see that if people weren't in debt, they could buy 15 - 300% more stuff by paying cash. 

I could tell the government how to boost the economy but they haven't asked me.  Maybe I'll tell you guys in a couple of days.

It's the first of the month so I'll be running my own numbers and usually have something to remark on them the following day.  Then maybe we can come back to fixing the economy, especially since I went off on a tangent and didn't address the title for today's post.  I'll get there eventually.  I just take the scenic route.  =)

What Alan Greenspan says

He mentioned something recently that I have tried to point out a couple of times here over the year.  It's the reason that I disagree when Henry Paulson says that the rest of the economy won't be affected by the slowdown in housing.

Here's what Greenspan said:

"The current problems seemed to result primarily from buyers who had come into lofty housing markets late in the game, Greenspan said, only after huge price run-ups that made homes less affordable.

Default rates in the subprime segment of the U.S. mortgage market have jumped in recent months as the housing industry slowed and prices fell.

At least 20 lenders in the subprime mortgage sector, which serves borrowers with poor credit histories at high interest rates, have gone out of business as a result.

The crisis has triggered broader concerns that the fallout may spread to mainstream lenders and damage the economy.

Greenspan, whose words still move markets even though he vacated the Fed chairmanship more than a year ago, said much of the strength in consumer spending over the past five years could be traced to capital gains, both realized and unrealized, on surging housing prices.

If home prices keep falling, there could be more of an impact on the broader economy's momentum, he indicated. Consumer spending fuels two-thirds of national economic activity." (emphasis mine)

You see, what Paulson either doesn't understand or is trying to keep other people from realizing, is that people don't spend their own money to keep the economy going.  So many people are so far in debt and paying so much in interest that their purchasing power has been greatly reduced.  Banks take such a huge percentage of people's paychecks that there is little left to "fuel the national economy."

If people are buying things, where is the much of the money coming from?  The answer is the equity in their houses.  Every few years, they refinance and get that money to catch up on the debt that is threatening to overwhelm them and buy a new car and other goodies.  Then they pay bills for a few years and do it again.

If housing prices drop and lending practices are tightened, what happens?  Refis slow down, right?  People have promised away most of their paychecks and if they can't get the bank to lend them more money, their spending has to slow down.  If that's two-thirds of the nations economic activity, then there is going to be some bleedover, no matter what the experts want everyone to believe.

If housing corrects itself and prices start going back up again, then there might be very little bleedover.  That could happen.  There are a lot of people that say that it will happen at the end of this year and everything will be right in the world again.  I'm not convinced.  I don't have any evidence to back up my feeling but I haven't found any evidence to back up their claims either.

Maybe I'll go into this some more tomorrow.   

Housing Bubble: Does Anyone Know?

I'll get back to Sallie Mae tomorrow but I had to pass this information on.  I've been reading articles on the housing mess every few days to get a feel for how things will turn out.  Up until yesterday, most of the news has been the same.  Foreclosures are going to go through the roof because of all the crap loans that banks gave out thinking that people who couldn't afford to pay the loans back would be able to just mark up their houses and sell them.  They were wrong and now there is some concern that the trouble in the housing market will bleed over to the rest of the economy.

Well, there's good news according to US Treasury Secretary Henry Paulson.  Paulson says that the housing problem has been "contained".  That's good news.  I'm not quite sure what it means but I guess that he means that the only trouble we'll see with the economy is in the housing sector.  It has been contained to just that arena.  He did go on to say that his department will be looking into the regulations around subprime lending and predatory lending.  You wouldn't think you'd have to tell banks not to lend money to people that couldn't afford to repay the loan.  You would think that would be a class covered in banker school or something.  And those of you that have been long time readers know that I disagree with his cheery outlook.  I believe that anytime the housing market dips, the economy is going to dip.

The state government officials from Ohio, Maryland, Rhode Island, Massachusetts, Virginia, Colorado, California, Washington, Wisconsin, and Indiana have apparently not heard the good news.  They are in the middle of or looking into creating refinance programs for subprime home owners using taxable bonds.  They are looking at ways to stop the foreclosure epidemics in their states by issuing fixed rate loans around 6.75% to people who made crazy deals with banks and who will now be losing those homes.  The cynic in me says they aren't doing it to help the people because it's the banks that will be out the money.  They are going to fund programs from taxes to give to the banks that created this whole mess.  How nice would it be to just be able to be as stupid as you wanted because if you were going to lose a lot of money, the government would step in and give you the money?

Reading the two opposing views, I went for a third article for the tie breaker.  I went to Federal Reserve chairman Ben Bernanke to see what his view on this whole thing was.  He didn't break the tie.  He said that the housing mess hasn't spilled over to the rest of the market yet but it could. 

"The correction in the housing market could turn out to be more severe than we currently expect, perhaps exacerbated by the problems in the subprime sector," he said, referring to the growing rate of failures in mortgages held by people with below-average creidt histories, known as subprime loans.

So he took a middle of road position.  Fair enough.  He doesn't know if it will get worse or not.  Maybe housing has started its correction already.

What do you think?

I Didn't Think I Understood But . . .

People that can afford to pick up the houses being auctioned off by the banks will be able to rent them out, either indefinitely or at least until the housing market picks back up so they can make a profit on the sale.  Those people who lose their homes will have a hard time qaulifying for another one as lending practices tighten up in response to the previous foolishness.

My wife and I talked about real estate flipping a few years ago.  You couldn't escape from Carlton Sheets and his No Money Down ads.  He was all over the place as were others like him.  We looked at it from the outside trying to figure it out.  We never did purchase any of the schemes because we didn't see how it would work.  I know that it did work for some people as long as you flipped your last house before the housing prices went down.  Many people didn't get out of the game soon enough.

Here's the part we didn't understand.  How do you buy a $200,000 house and sell it the next month for $215,000?  We heard about housing prices in Vegas doubling in just a couple of years.  We didn't understand how this could be done and we also didn't understand how people could afford to do it.  We couldn't escape the news of it but it just didn't add up for us so we never did more than watch with interest.

Now it becomes obvious that housing *prices* doubled but housing values did not.  It was a game and everyone could make free money by playing it.  The premise to the game is that everyone keeps playing and selling properties to each other making a profit.  More people have to be brought into the game so that everyone can make more money.  Like a ponzi scheme, those that got in late lost money instead of making money.

Eventually housing prices were so far above value that the game had to end.

Tomorrow: more on housing and renting.

What To Do With Your House

My wife and I will be moving in a year or two.  Our hope is that the housing market is back on track by then.  If not, we'll probably rent our house out until the market does right itself. 

We have talked about doing that anyway because of our research into personal finance.  The middle class is shrinking.  Some people are moving up and most people are moving down.  The more people that move down, the less able they will be to buy a home which means that the people owning the homes will be able to easily rent them out.

We talked about this before we knew about the lending practices that were in place where everyone and their dog could get a home.  But that's over now and there is likely to be a rebound effect.  Banks and lending companies are losing money and some are going bankrupt.  That will likely cause a tightening up of lending procedures.  For a while, it might be harder to qualify for a loan that it was before they started the loose procedures.

The effect will be even greater than I had planned on.  People with foreclosures and bankruptcies (and there will be a lot of them) will not be able to buy a house.  They still have to live somewhere so they'll rent.

So not only will it be easier for people with property to lend it out but they will also be able to charge more for rent.  Supply and demand will drive the market price of rent up across the board.

It's something that we'll definitely take into consideration when we decide to move because it's something that, if it can reversed, will take a long time.  We'll go into some of the reasons tomorrow.

The good news is . . .

Okay, it's a double edged sword but the fact is that housing prices are going to come down in many places.  Defaults and foreclosures are going to rise dramatically and the banks are going to be looking to dump these houses and get *some* money for them.  This will put a lot of houses on the market at prices reduced from there last purchase price.

In addition, there is a rebound effect that's going to happen from the previous loan marketing process.  In the last five years, loans were given to just about anyone who wanted them regardless of income.  To get around the problem of people not being able to afford the loan, many loan agencies quit asking for proof of income.  It was set on an honor system.  People who saw a chance to get into a home or those playing the flipping game bought houses they couldn't afford.  This is why so many houses are being auctioned off now and why the loan process is rebounding to stricter guidelines for loans.

The combination of houses being auctioned off and fewer people able to qualify for a loan is going to bring house prices down.  There are going to be lots of bad repercussions but if you do qualify for a loan, you should be able to pick up a house at a reduced price.

Articles that I have read state that if you are going to be buying a house, you should make your initial offer between 10% to 30% below asking price.  If you don't get a good deal, move on.  There will be more houses for sale.

It's a buyer's market but what do you do if you currently have a house?  We'll go into that tomorrow. 

Are you ready for the next recession

I've been reading articles about the upcoming recession and the one posted by CV Rick yesterday is a good one if you want information on one of the causes of the recession.  It says that it puts in plain English for readers but I think I can put it plainer.

The market is going to be resetting after a little game that has been played for the last few years.  The game was buying and reselling houses.

Houses were bought and sold for the purpose of buying and selling houses.  You've seen the No Money Down commercials and who hasn't heard about flipping real estate at this point?  People bought a house, marked it up a bit and sold it.  The person buying it, marked it up a bit and sold it.

To get more people into the game, rules on lending were thrown out the window.  Pretty much anyone who wanted in on the game was allowed to play.  Loan originators got their fee and then sold the loans off to speculators in bundles.

The game has reached the upper end and houses are no longer selling.  This means that there are a lot of poeple out there stuck with houses that they can't afford and several articles state that there is going to be a foreclosure epidemic. 

People from top to bottom that played in the game will lose money.  People will lose their houses, loan companies are going bankrupt and closing, and investors are losing millions of dollars.  All of this will bleed over into other areas effecting everyone until the market gets back to where it's supposed to be.

There will be a silver lining for some people, at least from what I can see.  I'll go into that tomorrow.