Rising Interest rates and

Mixed messages

Anybody in the process of buying a home or in the real estate business knows that interest rates just jumped quite significantly. There are some mixed messages on why this took place. Some people who have not been right about too much in the past several years think it’s the beginning of signs of recovery.

Fiscal Responsibility is a Concern After All

Investors in the bond markets, where the Treasury Department goes to raise money to keep the government running, are getting skeptical about the scale of Washington’s spending. The yields on Treasury notes have risen to their highest points in five months as investors who once thronged to the safety of government debt begin to invest elsewhere.

“These increases appear to reflect concerns about large federal deficits but also other causes, including greater optimism about the economic outlook, a reversal of flight-to-quality flows and technical factors related to the hedging of mortgage holdings,” Mr. Bernanke said.

This is an interesting situation taking place and Mr. Bernanke thinks it’s because of greater economic optimism. Unfortunately, it could be a sign that foreign investors are not too keen about the Federal Reserve printing up money to buy this same debt… which the only rational reason why this would take place is if the demand was not there to begin with.

China Warns U.S. About Printing Money 05/24/09

Unless you’ve been completely ignoring who has been the big buyer of all of the U.S. Treasury Bonds for the past year to pay for all of the money being shelled out to bail everybody out… it’s been the Chinese. Uncle Charlie has been pretty generous in the rates for all of that excess money they have. Until now..

(I hope you seriously did not think that the U.S. really had all of that money sitting around.)

With an attempt to keep mortgage rates low, $8,000 first time home buyer tax credits and foreclosure moratoriums for an attempt to help the housing market, the Federal Reserve has actually been printing up money to buy U.S. Treasury Bonds to keep interest rates low. This strategy can only last for so long… When you print money and increase the supply of the currency, it obviously devalues the actual value of that currency. Countries such as Zimbabwe have tried this exact same strategy which eventually made their currency worthless.

http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

These increases appear to reflect concerns about large federal deficits, Mr. Bernanke said.

Much better… and much more honest. (Oh… don’t forget to throw in that we’ve been printing up money to buy our own debt.)

Where We Are in the Economic Cycle

It’s important to understand what happened in the first place under the Bush Administration which eventually led us to the bottom of the Austrian Business Cycle:

The theory views business cycles (which they also call credit cycles) as the inevitable consequence of inherently damaging and ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings.^[2]

Combine that with lax lending standards and double the speculative economic bubble that burst… big time.

You get out of it by sacrificing… saving money and getting out of debt.

When I was in college… I think I had every credit card in existence. They just kept sending me those applications and even though I put on there I was a full time college student.. they just kept saying OK and sending me a shiny new plastic card… and then they would raise the credit limits just for making one payment on time.

Eventually… it had finally caught up to me and like many students coming out of college… I had some serious debt to pay off. I spent the next 4 years working and not spending anything on non-necessities to pay all of that debt off. It was not that much fun… but eventually ended up being very rewarding.

Today’s Economic Policy under Obama

The attempt to get out of the Austrian Business Cycle bottom is the Keynesian Economic Theory:

Keynes argued that the solution to depression was to stimulate the economy (“inducement to invest”) through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.^[2]

The key word here is “investment” which by my definition is a return on your money. All of the massive spending programs in place, stimulus bills, bailouts, etc… require a return on the money invested to work. This is where foreign investors such as China are looking at where their money is going towards such as GM bailouts, Performing Arts Centers and bailing out bloated governments such as California. The deficit has gotten so large that foreign investors are starting to question the policies.

Would you Lend Money on these Programs if you had better Alternatives?

This is Want I want to Drive

Should I lend $50 Billion to GM or $50 Billion to American Made Teslamotors? My money would be on Tesla Motors. Should I lend Billions to bail out companies that took on huge risks for the quick profits. What about lending money for turtle crossings, wetland restoration or to bail out California?

You really have to look at a lot of the programs that billions of borrowed dollars are going to and really wonder if there will ever be a return on the money.

Would you rather purchase Gold/Silver or Oil?

Wondering why Gas Prices have been shooting up lately? If you are following Oil, Gold and Silver… you’ve noticed prices have shot up significantly since February.

Interest rates have gone up because the money is going somewhere else and U.S. Treasury Bonds are not that attractive to purchase and the Federal Reserve has been printing money to make up for all of the money that needs to be raised to pay for everything including low interest rates for housing.

Interest rates have to rise to attract investment money… the problem is that what is guaranteeing the debt is in a major deficit and there are serious questions as to whether it can even be paid back. Think about where the Federal Governement has been spending that borrowed money and seriously question if it will get paid back without printing more money. Once again… would you put $50 Billion into GM or $50 Billion into little known Tesla Motors?

The Effect on Real Estate Values

Las Vegas real estate values were decimated before all of the Government programs. By the time anybody in Washington D.C. thought there was a problem or cared because it was starting to effect them… values had already gone down over 40% in Las Vegas. This was part of the natural effect of the Austrian Business Cycle when home values had skyrocketed due to cheap credit and lax lending standards. Obviously… market surges in home values such as Las Vegas, Arizona, Florida and Southern California were blamed on “speculators” and not the crappy cheap loan programs that were global. When Government money got poured into the market to lower interest rates, loan modification bailouts, etc… values in Las Vegas had already gone down too much to save the market. In actuality, the “bubble markets” were allowed to naturally correct in price from the artificial highs of cheap credit and lax lending standards.

Programs such as the $8,000 tax credit and the low interest rates due to the Federal reserve buying U.S. treasury bonds has created a buying frenzy for real estate in Las Vegas that is so cheap. Other real estate markets in the U.S. continue to decline… even with all of these programs in place.

Will Interest Rates to Continue to Rise?

The trend forecasters that I follow predict that interest rates will eventually rise due to the need for the U.S. Government needing even more money to pay for all of the “stimulus” programs in place. Look for commodity prices to continue to rise as cash rich countries such as China move their money to investing in necessities such as Grain and Oil which will mean higher prices for you.

Real estate markets struggling and showing signs of decline will continue to decline. Throw in the States that are raising their taxes to meet their deficits and expect prices to fall even more as people that can afford to move.. move to states with no state income tax and cheap real estate such as Nevada and Florida.

Las Vegas real estate values will remain stable from here on out in my opinion but that is only because they’ve gone down in value so much from the highs. It’s not hard to find prices even lower then when I first got involved in Las Vegas real estate in 1998.

 

That’s just my opinion

There is huge demand for Las Vegas real estate right now at the current prices. Multiple offers on the nice Las Vegas homes within a day and dwindling inventory all point to stabilization.

The true key though to a “normal” real estate market is when there are not a bunch of programs available such as the $8,000 tax credit, artificially low interest rates, foreclosure moratoriums, etc… to see just how real the recovery is.

Paul Francis, CRS
Prudential Americana Group – Realtors®
Las Vegas Real Estate
702.592.3058

Banks Need to stop hitting

Snooze 

Plenty of news coming out concerning loan modifications by banks and this probably has more to do with real estate values tanking (and the attempts to keep them from falling further) then being nice. If you want to keep real estate values up, the best way is to keep people from being foreclosed on in the first place.

So.. modify the loans to make the payments affordable. The problem is… Las Vegas real estate values have already decreased significantly and it does not address the problem of people who paid too much to begin with due to the availability of these loans driving up the demand for real estate – resulting in inflated home prices. (In other words, if these loans were not made in the first place, home values would probably not have gone where they did in the first place.)

Countywide Settles $8.7 Billion Lawsuit - Mandatory Loan Modification Program to assist 400,000 homeowners.

“Illinois Attorney General Lisa Madigan today announced a ground-breaking $8.7 billion settlement in her predatory lending lawsuit against Countrywide, the nation’s largest mortgage lender and servicer. Madigan led the national settlement with California Attorney General Jerry Brown. Nine other states joined the settlement.”

Illinois Attorney General Lisa Madigan announces Settlement with Countrywide

Bank of America purchased Countrywide earlier this year and 11 states were involved in the lawsuit. Bank of Amierica has agreed to modify loans for nearly 400,000 customers in Arizona, California, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington.

The mortgage aid includes revising customers’ payments so they don’t exceed 34 percent of income. Other options include reducing interest rates and adjusting principal so that borrowers don’t wind up actually losing equity under some payment plans.

Hope for Homeowners Launches

Hope for Homeowners Launches - The HOPE for Homeowners program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD’s Federal Housing Administration (FHA). For more information on consumer facts and who is eligible, Click Here to Read More.

This is a volountary program for lenders to participate in and includes these key provisions:

• The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.
• The existing first mortgage must accept the proceeds of the H4H loan as full settlement of all outstanding indebtedness.
• Existing subordinate lenders must release their outstanding mortgage liens.

You can Call 1 (800) 225-5342 for more information.

When all else fails and you need to do a Short Sale

If the above solution does not work for you and you have tried working with your lender for a loan modification due to a hardship and need to sell your Las Vegas real estate, you may have to do a short sale. Much like banks and the investment firms of Wall Street wanting somebody to come along (aka Taxpayers) to buy their non-performing assets so they can move on, you need somebody to come along and help you get out of your home. You owe more then it’s worth and you need the banks to agree to what we call a short sale to allow somebody else to buy the home at today’s market value.

So – with all of this money being supplied for all of this Hope, have the banks been helping themselves and Las Vegas Short Sellers who have found themselves in a current hardship and need out? As of right now, no.

For October, only 273 Las Vegas Short Sales closed escrow. There are currently 2,320 Las Vegas short sales in contract and 6,483 Las Vegas Homes (includes condominiums and townhomes) currently available for sale that are classified as a Las Vegas Short Sale.

There seems to be a lot of money being pumped into Hope and hopefully it helps people out for those that it applies to. However, banks need to do a little helping out of their own by streamlining the short sale process and being a little more receptive to people who have had a hardship in their lives and can’t afford any loan modification program.

In other words… let homeowners that have to sell their homes due to a harship or job transfer sell their homes before they go into foreclosure in the first place. There are plenty of people trying to do the right thing in the first place… Banks need to help them out too because it eventually ends up helping themselves.

Paul Francis, CRS
Las Vegas Real Estate
702.592.3058

I knew Channel 8 News was going to do a story concerning some particular Las Vegas high rise condominiums being blacklisted by a particular lender. Why? Because a reporter from Channel 8 News called me for information that they found from reading this blog from a post I did back in February –> Las Vegas Condominiums Get Blacklisted.

Here is their story released on April 11th that you can read here.

The list was never supposed to be made public. It’s essentially a blacklist of 191 luxury condominiums, many here in town.

That’s a funny quote and to me, is implying that Channel 8 News is breaking the story. Unfortunately, it’s old news and the list has been public since February. My source of information was supplied with a link to the news story where I found it. In other words, I did not make it sound like I was supplying the list of condominiums that were never meant to be “public”.

Just a thought, but when you find information for a story, you should reference the source of your information. I’m not a journalist and even I know that.

Paul Francis, ABR,CRS
Coldwell Banker Premier
Las Vegas Real Estate
702.592.3058

(P.S. – Thanks to the guys over at Channel 8 News in Las Vegas for reading my blog.. …)

You really have to Love Las Vegas. Where else in the United States would anybody even be considering a new Billion dollar project in the current state of the U.S. economy, much less a $10 Billion Dollar Project? Las Vegas already has the biggest project in North America currently under construction with the $9 Billion dollar City Center Las Vegas project.

Recently gone private Station Casinos just announced that they’ve been planning and are proposing a new project on 110 acres they own just West of the Strip in what is better known as a truck stop at the Wild Wild West Casino.

A mixed-use development, tentatively titled Viva, is envisioned for 110 acres on Tropicana Avenue just west of Interstate 15 that’s now the site for the Wild Wild West hotel-casino and some restaurants, retail shops and warehouses, the locals gaming company said.

Building of the project, which could eventually cost as much as $10 billion, is planned in phases. The first phase is expected to have three hotels with 5,200 hotel rooms and a large casino.

It’ll certainly be interesting to see if partnerships and financing can come together to bring this project to fruition with the current state of the capital markets and the skyrocketing costs of building materials for this type of project. But.. as stated, the initial phase would be three hotels and the casino with the high rise condominiums to follow.

It’s too early to get all excited and make predictions about the effects since the Viva project is only on the drawing board for right now. But.. it is good to see the continued enthusiasm and optimism for the future of Las Vegas. And hey, this company started out with a small little bingo hall in Las Vegas back in 1973 and you’ve gotta love that.

Viva Las Vegas….

Paul Francis, ABR,CRS
Coldwell Banker Premier
Las Vegas Real Estate
702.592.3058

Just a reminder that tonight is Earth Hour in major cities across the World. Major cities such as Sydney and Chicago and businesses are participating in shutting off the lights from 8 to 9 P.M.

The website with a list of businesses and cities participating is www.EarthHour.org. Google changed it’s screen for the day and is all black and looks pretty cool. I think their explanation and exposure to the Earth Hour website has crashed the earth hour website since it’s pretty hard to pull up and really, really slow right now compared to when I was on it last week.

On the website is a list of cities and businesses that are participating in Earth Hour. Las Vegas or Henderson is not on it and very few businessess (In fact, I can’t remember seeing one) in Las Vegas have signed up to participate which for whatever reason is pretty sad. If you get a chance, take a look at the Earth Hour website and participate in turning off the lights from 8 to 9 P.M. 

I think the biggest energy saving tips I can give anybody in the Southwest United States right now is to change out those old flood lights and change them out to compact fluorescent light bulbs. From the EPA website:

If every American home replaced just one light bulb with an ENERGY STAR qualified bulb, we would save enough energy to light more than 3 million homes for a year, more than $600 million in annual energy costs, and prevent greenhouse gases equivalent to the emissions of more than 800,000 cars.

For people in the hot Desert Southwest, something else to keep in mind is that the normal flood lights are like little heat lamps. In other words, during the hot summer days when the AC’s are running and you are trying to keep your Las Vegas home cool, those normal flood lights are heating your home – Making your AC work harder and your electric meter spinning like a meat cutter.

Switch those bulbs out before it starts getting hot and you’ll save some money this Summer.

Paul Francis, ABR,CRS | Coldwell Banker Premier | Las Vegas Real Estate | 702.592.3058 

I love Dennis Hopper and especially the commercials he does for American Express aimed at Baby Boomers. It’s fantastic marketing and I can relate 100% to it since my parents are hitting that so called Golden Age. Retire and sit around and do nothing? Hardly.

My parents are some of the first wave of the most influential group of demographics in the United States, The Baby Boomers and they are about to hit retirement. (Yes, that makes me a Generation X’er.) Without getting into too much details, my dad has already retired and my parents are travelling just as much as when we lived in Europe but there is a reason for that and a HUGE part of that is because of where they live. I’ll elaborate more on this later.

Years ago I took a fantastic class at the University of Georgia that concerned marketing to Demographics and the effect that the largest segments of the population have on the economy. Baby Boomers obviously have a HUGE impact on the U.S. economy. Their children created a boom in the toy industry and now you are seeing those same children having a big impact on today’s elections. (You might have noticed that all of the politicians are pandering to the colleges across the U.S. — not because college students are all of a sudden taking notice of politics, but because the population of this particular age group is a force to be recognized with and there is a name for this demographic category as well.)

Anyways, the largest segment of the population is about to start retiring in numbers that the United States has NEVER seen and along with that, the huge crunch that it’s going to cause in Pension funds alone is already causing ripple effects across the old cities of the United States scrambling to figure out how to pay for this in a major financial crisis. I have clients that cater to the business of Pension fund managers and it’s a lot worse then the media is intepreting and the signs are all there in some recent legislation for cities such as Chicago.

Blame it on the Sub Prime mortgage crisis or whatever you want to. The reality is that the largest segment of the United States is hitting retirement and the belts are tightening and along with that comes a transition where people start to question why in the world they are paying outrageous property taxes.

So, do you want to live in a City such as Chicago with Property Taxes that are going to take a huge portion of your retirement income or do you want to live in a city such as Las Vegas where the property taxes are half of Chicago?

Do you want to live in a city where raising taxes is every day news? Are employers vacating states such as Ohio because of NAFTA? Hardly… look at your property and state taxes first before you start blaming anybody. Does your state have a favorable business environment? Is it more beneficial to open a new factory in another state? Think like a business and not an employee.

Make sure you read this article about the leadership of Chicago and then think about this quote —>

“Reyna-Hickey said her department merely seeks to collect what the city rightfully has coming.”

The transfer tax is already double the amount of Las Vegas along with property taxes and now the City of Chicago is seriously considering collecting on a Transfer tax even if the purchase of a property does not go through.

The city’s legal position is that whenever a purchase contract is signed, the buyer immediately receives a “beneficial interest” in the property, and that warrants taxation. Most buyers are spared paying immediately but pay when the deed is recorded, as “an administrative convenience,” according to Revenue Department documents.

My parents do a lot of travelling and that’s because they have the disposable income. Their property taxes are super low and they would NEVER move to a city with high taxes or leadership that thinks they are automatically entitled to receive them. From all of our current clients looking to relocate to Las Vegas they seem to have the same interest of wanting to travel the world.

There is a reason why “Easy Rider” is still a great film and it has to do with adventure. Our newest wave of the retirees are full of adventure and the culture certainly has had a huge impact and influence on my life. I’ve been in over 15 countries and just about every state in the United States (thanks Mom and Dad!) and I certainly plan to continue my education in visiting the greatest real estate in the world. The last thing I want to do is contribute to a city or state government that thinks they are “automatically” entitled to it especially when the history of how that money is being spent is questionable to be polite.

“Reyna-Hickey said her department merely seeks to collect what the city rightfully has coming.”

What’s going to be next and Where do you want to spend your “Golden Years”?