“Those who cannot remember the past are condemned to repeat it.” ~ George Santayana
Beating A Dead Horse?
Some may claim that we’re beating a dead horse by revisiting this subject from time to time. The truth is, this is an ongoing project of the current administration – updates and announcements are being made which may have a direct impact on the market that we happen to specialize in.
It’s important that the information is compiled in a way that is easily digestible and still makes sense. The author feels it would be negligent to ignore these updates and announcements. They were initially added in the comments section of the original article.
December 21, 2012
Study Says Community Reinvestment Act Induced Banks To Take Bad Risks
About a month after our Obama Re-Election May Bring New Housing Bubble article was published, the insightful Libertarian magazine Reason published an article basically reiterating what was indicated in our original article on this subject. Here is an excerpt:
…the federal government just may have played something of a role in inducing, even strong-arming, banks to take risks they otherwise would have avoided. Specifically, the Community Reinvestment Act and related policy pressures are pointed to as culprits, part of a government effort to extend home-ownership in lower-income neighborhoods. Now comes a new study from the National Bureau of Economic Research that says, quite bluntly. that the CRA played a major role. (Emphasis added)
Read the full article here.
January 14, 2013
Obama OK’s Subprime Borrowers For Prime Loans
How can a person read that headline without laughing, at least a little bit? This was originally published by Investor’s Business Daily, which is a paid news publication, but has been re-posted on the American Renaissance website. According to the article, these new rules will take effect in January or 2014.
Take note: deadlines and compliance dates are a key indicator as to when the next bubble will be in full-swing. It may take 12 to 18 months after these effective dates come into play before any of their intended or unintended consequences are seen. It may take even longer if said dates get pushed back further.
Investor’s Business Daily:
New mortgage rules issued last week by the administration will have the effect of forcing lenders to approve prime loans to borrowers who would normally only qualify for subprime loans carrying higher interest rates and fees to cover the added risk of default.
Banks are already under renewed pressure from federal prosecutors and regulators to make home loans to low-income borrowers with blemished credit as part of the administration’s stepped-up enforcement of anti-redlining laws. (Emphasis added)
Read the full article here.
February 11th, 2013
Recreating the Asset Bubble: The Fed’s Plan for Economic Recovery
This short article, written by Joseph Salerno – an Austrian School Economist and senior fellow of the Mises Institute seems to think another unsustainable asset bubble is being intentionally recreated.
It should be noted: In the last article as well as an older article written on a similar topic, it was clearly illustrated with links and video that the talking heads from the major news outlets had gotten the last “boom and bust” cycle completely wrong. Furthermore, the two people illustrated in those articles who accurately predicted the consequences of the times were Peter Schiff and Congressman Ron Paul – both of the Austrian School of economic thought – and both were totally ignored, to be casually dismissed as lunatics. Keeping this in mind, it would be absolutely irresponsible to ignore the Austrians once again and make financial decisions based on bad information from some of these major pundits.
Below is an excerpt from Salerno’s article:
It would not be overstating the case to say that the Fed is deliberately aiming at recreating an asset bubble as a means of rekindling the historically unprecedented consumption booms of the latter half of the 1990s and the first part of last decade. These consumption manias were driven by the “wealth” or “net worth” effect, pithily described in the metaphor “using one’s home as an ATM machine.”
Once housing markets in general begin to follow the lead of New York City’s and Washington, D.C.’s overheated residential real estate markets, we will be well on our way to another unsustainable asset bubble. (Emphasis added)
Read the full article here.
April 2, 2013
Obama administration pushes banks to make loans to people with weaker credit
Again, a headline like this brings more than just a chuckle to anyone with a basic understanding of what madness these policies can potentially produce. Here is an excerpt:
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.
“If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,” said Ed Pinto, a resident fellow at the American Enterprise Institute and former top executive at mortgage giant Fannie Mae. (Emphasis added)
Read the full article here.
Bringing it Local – What Does It All mean?
What does it all mean, and how does it affect our local market here in Tampa? For starters, encouraging banks to write risky loans with no legal recriminations should bring many new retail home buyers into the Real Estate market nationwide. New retail buyers coupled with a steadily declining inventory changes the game from a “buyer’s market” to a “seller’s market” – something we haven’t seen since 2006. In a seller’s market, you see multiple qualified buyers competing for the same property – bidding the prices higher and higher. Investors like ourselves have been buying properties non-stop for the duration of this economic downturn. Prices have already begun rising about a year ago, as shown in this Tampa Bay Times article from November 11, 2012.
GTAR just announced that Tampa Bay is down to only 3 months of inventory – down from a 7 month inventory in 2006. That is a significant reduction in inventory, which will only shrink even further as we enter the peak season this Spring and Summer.
As if all this wasn’t enough… Hillsborough County is announcing up to $25,000 in down payment assistance to any home buyers with a household income within a set percentage of the “area medium income”. Properties qualified for the Program must be:
- Located within Tampa-Hillsborough County
- The primary, owner-occupied home of the buyer(s)
- A detached home, townhouse, condominium, 1-4 unit property, or Planned Unit Development
This is just another incentive to bring new retail home buyers to the closing table, reducing the inventory even further and ultimately driving Real Estate prices higher.
The window of opportunity is still wide open. But for how long? We’ve been enjoying the lowest possible prices for a few years now, but it looks like that’s all about to change as we enter the next phase of this cycle.
The time is NOW to pick up as many cheap houses as fast as possible in order to capitalize on the madness that is yet to transpire. Once the prices increase by 50% of their current market value, this opportunity is gone until the market crashes again. And anyone who misses out on this window of opportunity, or get’s caught standing when the music stops, has nobody to blame but themselves.
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