60 Minutes ran a segment on November 20th regarding a signed pledge by hundreds of congressional politicians to always oppose any and all efforts to raise taxes. There are 41 Senators and 238 Representatives that have committed to this Americans For Tax Reform "non-binding" political pledge. This was the first I had heard of such a powerful "doctrine" controlling our political landscape. Those that have gone against their pledge have mostly been eliminated from office at a future election.
With the stalemate on deficit reduction having reached epic levels (nothing is being done), I thought I would look at this pledge a little deeper. On the surface, I think most Americans would say this doesn't make sense and how could a politician with the best interests of America in mind vehemently oppose some tax increases to help solve our financial crisis. After all, we want to be reasonable and if they can cut spending and increase taxes at some level then we are that much closer to reducing our deficit. Seems like a good compromise all things considered.
However, this "pledged" group opposes any increase in taxes so finding a compromised solution is not in the cards. Basically, they are stating that any and all deficit reduction must come from spending cuts alone. In theory, I oppose what they are doing but in practice, it makes total sense. Have you ever seen executive management of a corporation sign a pledge or state in their mission statement to never increase prices to its customers, ever?! Heck no. At times, it makes for good business to charge more for ones products and services when other things have been attended to first. Specifically, the entity has developed a superior product or service, is operating efficiently, knows in which markets it can compete, has streamlined operations, cut corporate waste and overhead, etc. Then, once all of this has been done, a corporation may be able to look for increased revenues by enacting price increases for its products and services only if the market will bear it. Customers of course can opt to not buy so management had better be right or it will negatively impact their financial model. I can't imagine an executive management team believing they can get out of the red by passing along their inefficiencies on to their customers!
Unfortunately, the problem with government is many politicians look to tax increases as a way to solve shortfalls well before anything substantial is done to provide for an efficient and effective government. We are running in the red every year for the forseeable future including 2012 despite nearly $3 trillion in projected federal receipts. We all know there is incredible waste and unnecessary programs that drain our financial resources. Let's purge all we can now and start operating within the constraints of our current revenues. Some day, it may make sense to increase taxes as taxpayers are getting what they want from their government and/or we need to fund a war or other strategically important initiative. But until then, it requires drastic measures like "the Pledge" to get things right-sized in government.
Wednesday, December 7, 2011
Monday, November 21, 2011
EDH Voters Hold Elected Officials Responsible
As a concerned EDH resident, I do not have the slightest idea of who to believe or what to believe in this standoff with the CSD Board and John Skeel, the recently hired CSD general manager, now on paid administrative leave going on close to five-months. I do believe that John came here with good intentions of performing a job that he has lots of experience in doing and that the CSD Board initially believed he could do.
Therefore, to make sense of all of this, I need to evaluate this from the thirty thousand foot level because it’s not likely that I or the citizens of EDH will ever know the full story. Accordingly, I have to look to where “the buck stops” and to me that is with the CSD Board of Directors. Either the CSD Board FAILED miserably in developing the “right” criteria and traits that are needed for the GM job and hired the wrong person for the position OR they FAILED to hire the right candidate for the right criteria and traits they sought OR they FAILED to support the right candidate with the right criteria and traits OR they FAILED to follow appropriate employment practices for performance problems; either way, the CSD Board FAILED the public in their handling of the general manager hiring. They should be held accountable for this embarrassing and costly debacle for El Dorado Hills and I believe EDH voters will take heed at upcoming elections.
If they don’t get this situation cleared up quickly and, most likely even if they do, they will likely suffer a similar fate like our local EID elected official. The citizens of El Dorado Hills spoke loudly with an overwhelming majority voting in a new candidate to replace a two-term board member at this last election. The citizens of EDH may be too busy to understand who’s right and who’s wrong but in the end they speak volumes about who’s ultimately responsible.
Saturday, November 12, 2011
Good Time to Get Real Estate Tax Laws Right
All this election talk about changing Federal tax laws to make them simplier and fairer got me thinking about the major ones that involve real estate. Seems this is a great time to rethink the laws and right-size them to simplify them and to make them fair for all given the current economic climate. I would delete some, modify others and add some new ones as follows:
Primary Residence Purchase Tax Credit (new) - Provide a 5% tax credit based solely on the purchase price of the property that gets amortized straightline over seven years while occupying the home. Forget the one time tax credit used to motivate buyers a few years ago, let's make it based on the price of the home and require them to stay there to earn it.
Mortgage Interest Deduction (eliminate) - With interest rates as low as they are and the national median home price having declined significantly to $169,500 this law really doesn't provide much benefit to most homeowners. It should be eliminated in favor of the one above. Even those with higher mortgages see those deductions get limited currently.
Capital Gain Exlusion on Primary Residence (modify) - Never understood why those that buy a primary residence and sell it in the future for a gain have the luxury of getting a huge tax benefit by excluding up to $250,000 (individual) and $500,000 (married) of the gain at sale but those that suffer a loss get nothing. Come on, who needs the help the most in a situation like this! I'm not talking about rewarding anyone for a "paper loss" from escalating home values that then plummet. No, but anyone that loses their hard earned cash used to buy a primary residence (reduced by any refi-cash out) should receive some assistance up to the same thresholds on the gain side.
Rental Property Rent Reporting Credit (new) - Renters should be allowed a 2% tax credit for reporting rent or lease payments made to the owner. The reporting is without sharing of taxpayer ids but through property address. This renter tax credit will be more than offset by the under reported rental/lease income received by owners.
Primary Residence Property Tax Credit (modify) - This is an itemized deduction like the mortgage interest deduction that needs to exceed a certain threshold before it provides any benefit to the taxpayer. Forget that, this is a tax that has already been paid and should be a straight offset to computing taxable income.
Not being a tax law wizard myself, I'm sure there are many others that could receive a similar overhaul with the following objectives in mind: 1) meet reasonable tax revenue objectives; 2) match taxable event with the economic benefit/loss to the taxpayer; 3) stimulate the real estate market with a long-term approach; 4) eliminate loopholes; 5) create more transparency by better reporting and cross-checking.
Or we could go with the 9/9/9 plan or whatever simple plan our next presidential candidate dreams up!
Primary Residence Purchase Tax Credit (new) - Provide a 5% tax credit based solely on the purchase price of the property that gets amortized straightline over seven years while occupying the home. Forget the one time tax credit used to motivate buyers a few years ago, let's make it based on the price of the home and require them to stay there to earn it.
Mortgage Interest Deduction (eliminate) - With interest rates as low as they are and the national median home price having declined significantly to $169,500 this law really doesn't provide much benefit to most homeowners. It should be eliminated in favor of the one above. Even those with higher mortgages see those deductions get limited currently.
Capital Gain Exlusion on Primary Residence (modify) - Never understood why those that buy a primary residence and sell it in the future for a gain have the luxury of getting a huge tax benefit by excluding up to $250,000 (individual) and $500,000 (married) of the gain at sale but those that suffer a loss get nothing. Come on, who needs the help the most in a situation like this! I'm not talking about rewarding anyone for a "paper loss" from escalating home values that then plummet. No, but anyone that loses their hard earned cash used to buy a primary residence (reduced by any refi-cash out) should receive some assistance up to the same thresholds on the gain side.
Rental Property Rent Reporting Credit (new) - Renters should be allowed a 2% tax credit for reporting rent or lease payments made to the owner. The reporting is without sharing of taxpayer ids but through property address. This renter tax credit will be more than offset by the under reported rental/lease income received by owners.
Primary Residence Property Tax Credit (modify) - This is an itemized deduction like the mortgage interest deduction that needs to exceed a certain threshold before it provides any benefit to the taxpayer. Forget that, this is a tax that has already been paid and should be a straight offset to computing taxable income.
Not being a tax law wizard myself, I'm sure there are many others that could receive a similar overhaul with the following objectives in mind: 1) meet reasonable tax revenue objectives; 2) match taxable event with the economic benefit/loss to the taxpayer; 3) stimulate the real estate market with a long-term approach; 4) eliminate loopholes; 5) create more transparency by better reporting and cross-checking.
Or we could go with the 9/9/9 plan or whatever simple plan our next presidential candidate dreams up!
Wednesday, November 9, 2011
We're Sliding Fast and No End in Sight
Deflation, high unemployment, steep global austerity, unsustainable debt, rising borrowing costs and you have a recipe for significant financial disaster and major social unrest. Not surprisingly, it is happening in many parts of the world and eventually it will engulf America. What is happening in Greece is a microcosm of what many other developed countries will be facing in the very near future. Nearly all developed countries inflated their economic growth over the past 30 years by borrowing excessively on the good faith and promise of their people.
In the U.S., by 2015 our federal debt load is projected to approach $20 trillion dollars and be 133% of GDP. By comparison, Greece's debt is already above the 120% threshold of GDP, considered by most economists to be unsustainable, and that is after factoring in a 50% "haircut" that current Greek bondholders will need to take to avoid a bankruptcy type failure. Today, Italian bond yields exceeded the 7% benchmark many consider too high to be sustainable. The same held true for Ireland, Portugal and others.
Fast forward to the U.S. in 2015 and what will high borrowing costs due to this country: because Mr. Bernanke's attempt to print money substantially pales in comparison to the deflationary impact upon all asset classes worldwide, we will see a period of high interest rates in the U.S. with NO inflationary pressure to offset some of the financial pain yet to be endured. Yes, interest rates can rise without inflation and it's called credit risk. Credit risk is an investors required incremental rate of return to compensate for the fear of default or being repaid in an amount less than the original principal. Credit risk is what is driving those bond yields up in Greece, Italy, Ireland and the like to unsustainable levels.
This is not the 1970's again when interest rates shot to 18% and housing prices followed suit because of the oil embargo and the inflationary aftermath. Quite the contrary, this will be the time when housing prices continue to decline worldwide as this massive deleveraging takes place and homebuyers find it even more difficult to qualify for purchases with higher loan rates. The world is not going to keep lending America cheap money forever especially if we continue on our path of debt overload, which we are and there is no end in sight.
In the U.S., by 2015 our federal debt load is projected to approach $20 trillion dollars and be 133% of GDP. By comparison, Greece's debt is already above the 120% threshold of GDP, considered by most economists to be unsustainable, and that is after factoring in a 50% "haircut" that current Greek bondholders will need to take to avoid a bankruptcy type failure. Today, Italian bond yields exceeded the 7% benchmark many consider too high to be sustainable. The same held true for Ireland, Portugal and others.
Fast forward to the U.S. in 2015 and what will high borrowing costs due to this country: because Mr. Bernanke's attempt to print money substantially pales in comparison to the deflationary impact upon all asset classes worldwide, we will see a period of high interest rates in the U.S. with NO inflationary pressure to offset some of the financial pain yet to be endured. Yes, interest rates can rise without inflation and it's called credit risk. Credit risk is an investors required incremental rate of return to compensate for the fear of default or being repaid in an amount less than the original principal. Credit risk is what is driving those bond yields up in Greece, Italy, Ireland and the like to unsustainable levels.
This is not the 1970's again when interest rates shot to 18% and housing prices followed suit because of the oil embargo and the inflationary aftermath. Quite the contrary, this will be the time when housing prices continue to decline worldwide as this massive deleveraging takes place and homebuyers find it even more difficult to qualify for purchases with higher loan rates. The world is not going to keep lending America cheap money forever especially if we continue on our path of debt overload, which we are and there is no end in sight.
Monday, October 10, 2011
How NAR Can Be A True Leader For This Country!
Stacey Moncrieff, Editor in Chief of Realtor(r) Magazine states in the October 2011 publication that some Realtors are taking "issue with NAR's efforts to advocate on behalf of the real estate industry." And she adds: "But if your own association can't fight for your industry, who can?" She further elaborates that it is up to "Members of Congress ... to evaluate the competing interests and make wise decisions." And this my friends is the exact reason our political and governmental landscape is broken and needs to be overhauled!
Not because we try to empower "smart people" to make those wise decisions and vote them out if they fail to do so. But, because every industry, every organization, every association, every union and every anything that has the ability to muster any kind of political influence does so for what's good for THEM without much/any regard to what is FOR THE COMMON GOOD, what is sustainable, what is best practice, what is in the best interests for the country at large, etc. Yep, it's about advocating for what works for your membership and constituents now without ever demonstrating that your demands/requirements truly do what any long-term forward thinker of this country would support. Come on, our politicians are not about long-term forward thinking either and so many of their decisions come at a price, a huge price for the American people down the road. Unfortunately, we are starting to pay for this broken system and short-term thinking with the potential for some castrophic consequences later.
I wish my industry would rise above the status quo and lead this nation of political activists by setting an example of how they should be measured, how their policies meet the demands of this nation and solve problems beyond the real estate industry. I guarantee that in the end, if they did so, they would pay huge dividends to their membership base and any homeowner in this country - the very bodies of which they are fighting for. Maybe they have to "take one on the chin" to demonstrate how serious they are about making good policy.
Not because we try to empower "smart people" to make those wise decisions and vote them out if they fail to do so. But, because every industry, every organization, every association, every union and every anything that has the ability to muster any kind of political influence does so for what's good for THEM without much/any regard to what is FOR THE COMMON GOOD, what is sustainable, what is best practice, what is in the best interests for the country at large, etc. Yep, it's about advocating for what works for your membership and constituents now without ever demonstrating that your demands/requirements truly do what any long-term forward thinker of this country would support. Come on, our politicians are not about long-term forward thinking either and so many of their decisions come at a price, a huge price for the American people down the road. Unfortunately, we are starting to pay for this broken system and short-term thinking with the potential for some castrophic consequences later.
I wish my industry would rise above the status quo and lead this nation of political activists by setting an example of how they should be measured, how their policies meet the demands of this nation and solve problems beyond the real estate industry. I guarantee that in the end, if they did so, they would pay huge dividends to their membership base and any homeowner in this country - the very bodies of which they are fighting for. Maybe they have to "take one on the chin" to demonstrate how serious they are about making good policy.
Monday, September 5, 2011
Votes Come From Vision and Values
I can only imagine how difficult it is to obtain enough votes to be President of the U.S. given the myriad of issues that the country faces and the diversity of views from so many Americans. There are over 312 million Americans today and the opinions, backgrounds, circumstances, needs and concerns are likely of similar numerical significance. Sure one can start funneling these folks into larger pools by way of similarities (military experience, senior citizens, middle class, unemployed, etc.) until these sub-groups consolidate into maybe a half dozen or so political parties (Republicans, Democrats, Tea Party, Green Party, Independents, etc). But, this country is so much more than pools of people or politicians put into power by votes and non-votes.
Wow, just the challenges I would face trying to garner votes within my extended family and small circle of friends to run for any influential political office is mind-boggling enough. The differences, diversity and desires from my personal sub-group located all across this country is huge. I couldn't possibly make campaign promises that would appeal to even half of them. I would say things that they would't like for sure. I wouldn't be able to please them all with the decisions that have to be made to right this country. You see, tough decisions are needed to take this country to its true potential which will displease many including those from my own bloodline. Placing oneself in such leadership capacity means: possible dissappointment for those your close to, decision making based on the common good, abstension of self-interest, dissolution of beliefs of super-human power and incredible self-constraint.
Nevertheless, there is a means to get those votes from a majority including my family and friends. It takes great vision and strong values to provide those that would otherwise cast a vote against to be willing to take the risk that their personal sacrifices might eventually pale in comparison to the overall good that comes from a strong, united and vibrant country. Votes should be determined based on long-term vision and well defined values for our country that unfortunately can't encompass and please everyone but will appeal to the masses and provide the foundation for opportunity that our forefathers so desperately desired. The majority that benefit from such discovery cause the "tides to rise" for all willing to be partake.
Wow, just the challenges I would face trying to garner votes within my extended family and small circle of friends to run for any influential political office is mind-boggling enough. The differences, diversity and desires from my personal sub-group located all across this country is huge. I couldn't possibly make campaign promises that would appeal to even half of them. I would say things that they would't like for sure. I wouldn't be able to please them all with the decisions that have to be made to right this country. You see, tough decisions are needed to take this country to its true potential which will displease many including those from my own bloodline. Placing oneself in such leadership capacity means: possible dissappointment for those your close to, decision making based on the common good, abstension of self-interest, dissolution of beliefs of super-human power and incredible self-constraint.
Nevertheless, there is a means to get those votes from a majority including my family and friends. It takes great vision and strong values to provide those that would otherwise cast a vote against to be willing to take the risk that their personal sacrifices might eventually pale in comparison to the overall good that comes from a strong, united and vibrant country. Votes should be determined based on long-term vision and well defined values for our country that unfortunately can't encompass and please everyone but will appeal to the masses and provide the foundation for opportunity that our forefathers so desperately desired. The majority that benefit from such discovery cause the "tides to rise" for all willing to be partake.
Saturday, August 6, 2011
"America" Just Doesn't Fit Anymore
Times have really changed and so it seems appropriate to really start making some changes. Just yesterday, S&P downgraded the AAA rating of the U.S. to AA+. Something that has held steady since 1917! It seems our leadership (both parties included) keep playing a game of "kick the can down the road" and providing short-term fixes based on personal biases and self-interest. America is ailing BIG time from short sightedness, individualism and partisanship. There is truly now only "me" and "i" in America. The "we" for which it stands is no longer evident to its citizens and the world at large. Whatever happened to making decisions based on the common good and the very foundations by which this country was founded? It's definitely time to make some changes! Let's make the biggest change of all and put the "we" and "can" back into America. "Wemerican" seems like a good nomenclature to get things rolling!
Saturday, July 23, 2011
Is Self Taxation Better Than Government Taxation?
Government budget deficits and spending overruns are finally receiving some major attention from politicians and governmental bodies over crys from the general public. We ALL know this is long overdue! With the Democratic and Republican parties heavily entrenched in a political battle over increasing the debt ceiling above $14.3 trillion by August 2nd it seems like a good time to discuss a shift in "taxation" that likely will grow exponentially in the coming years: self-imposed fees, charges, contributions, donations, etc. to provide services and support to things that are dear to us. Our politicians are wise to this fact too! They recognize if they cut in areas that the public can directly feel and experience (schools, parks, public safety, etc.), then the public is likely to find other means to keep those areas going with zero or decreased governmental funding.
It's almost trickery to so degree by making campaign promises of "no new taxes" and then cutting the very services that have more of a tramatic impact on our daily lives - we become "tax assessors" upon ourselves to provide these very services historically provided by our traditional tax dollars. For example, here in El Dorado County, parents, the community and the Buckeye School District have rallied around the newly organized Buckeye Education Foundation to provide incremental funding to support classes and services recently dropped or severely cutback at the respective schools. In California and Nevada, Raley's is helping to save California parks from closing come September by committing funds raised through a program to donate at its 133 grocery stores. The state is planning to close as many as 70 historic parks as part of the state's massive budget cuts.
These and many other "vehicles" for keeping things important to us will be created to keep what we cherish operational. This is capitalism at it's finest though! We pay for what we want to use and support and those things that are not important to us do not receive our time, energy and all important dollars. It further places the obligation of cost directly upon those that are to receive or obtain the most benefit. I have to believe that Americans will find solutions whether it is through private enterprise, establishing non-profits, volunteering without compensation, donating or the like to protect our quality of life. It's not necessary to have government involved in everything! We will find ways to make it work.
However, it is unfortunate that there will be higher governmet costs too (through increased taxes - likely to go up and not down) regardless of what we do to solve these current cutbacks. Entitlements, personnel costs, interest payments on debt service and our national defense will be huge drains on our tax revenues for as far as I can see. The real issues that befall our government have narily been addressed.
It's almost trickery to so degree by making campaign promises of "no new taxes" and then cutting the very services that have more of a tramatic impact on our daily lives - we become "tax assessors" upon ourselves to provide these very services historically provided by our traditional tax dollars. For example, here in El Dorado County, parents, the community and the Buckeye School District have rallied around the newly organized Buckeye Education Foundation to provide incremental funding to support classes and services recently dropped or severely cutback at the respective schools. In California and Nevada, Raley's is helping to save California parks from closing come September by committing funds raised through a program to donate at its 133 grocery stores. The state is planning to close as many as 70 historic parks as part of the state's massive budget cuts.
These and many other "vehicles" for keeping things important to us will be created to keep what we cherish operational. This is capitalism at it's finest though! We pay for what we want to use and support and those things that are not important to us do not receive our time, energy and all important dollars. It further places the obligation of cost directly upon those that are to receive or obtain the most benefit. I have to believe that Americans will find solutions whether it is through private enterprise, establishing non-profits, volunteering without compensation, donating or the like to protect our quality of life. It's not necessary to have government involved in everything! We will find ways to make it work.
However, it is unfortunate that there will be higher governmet costs too (through increased taxes - likely to go up and not down) regardless of what we do to solve these current cutbacks. Entitlements, personnel costs, interest payments on debt service and our national defense will be huge drains on our tax revenues for as far as I can see. The real issues that befall our government have narily been addressed.
Thursday, June 16, 2011
Neighborhood Stabilization Program - What's Going On Here?
I recently received a $500.00 compensation payment for a closed escrow on an REO property in Folsom, CA I was assigned in February 2011. Unfortunately, the $500.00 was approx. one-tenth the commission I would've earned had the property sold to a buyer in a traditional MLS sale. I had the property listed at $232,560 and had multiple offers with some as high as $220,000 which in my opinion were above market value considering the work that needed to be done.
However, the bank elected to sell the asset through a federal government sponsored Neighborhood Stabilization Program (NSP) to a "non-profit" buyer at a substantial discount. The tax records reflect the sale to the buyer at $182,500. The closing HUD reflects the sale price to the seller at $232,560 with a "purchase price adjustment" line amount of $50,226 being deducted. The buyer has since improved the property with new paint, flooring, roof and other items. I estimate they spent roughly $25,000 in repairs. The property is back on the market in 22 days and is listed for $279,900.
My preliminary investigations into this NSP is "grantees" can acquire properties with federal government grant monies at a minimum 15% discount, repair them and resell them to low-, moderate-, and middle-income homebuyers. My questions run deep on this one!!
Why would a bank sell an asset in this program at that kind of discount without being compensated in some way for the difference? Is the government using TARP funds to compensate them? Do they get a full tax benefit for the higher value identified on the HUD than what the market was even willing to pay?
How does repairing a property with $25,000 and upping the price 20.3% benefit a "targeted" buyer? How does something like this really stabilize a neighborhood? Why does there appear to be so much profit being generated for a "non-profit" entity? Does this neighborhood in Folsom really need to be stabilized? The questions could go on...
I'm more concerned by what might be really going on here than I am about losing my commission difference. I see many other properties being taken off the market in light of this program depriving other bonefide homebuyers the opportunity to acquire the property and benefit by the upside after improving it. In the case of this asset, many of the buyers that offered on the property were owner occupants. I have a feeling I will be writing more about this one.
However, the bank elected to sell the asset through a federal government sponsored Neighborhood Stabilization Program (NSP) to a "non-profit" buyer at a substantial discount. The tax records reflect the sale to the buyer at $182,500. The closing HUD reflects the sale price to the seller at $232,560 with a "purchase price adjustment" line amount of $50,226 being deducted. The buyer has since improved the property with new paint, flooring, roof and other items. I estimate they spent roughly $25,000 in repairs. The property is back on the market in 22 days and is listed for $279,900.
My preliminary investigations into this NSP is "grantees" can acquire properties with federal government grant monies at a minimum 15% discount, repair them and resell them to low-, moderate-, and middle-income homebuyers. My questions run deep on this one!!
Why would a bank sell an asset in this program at that kind of discount without being compensated in some way for the difference? Is the government using TARP funds to compensate them? Do they get a full tax benefit for the higher value identified on the HUD than what the market was even willing to pay?
How does repairing a property with $25,000 and upping the price 20.3% benefit a "targeted" buyer? How does something like this really stabilize a neighborhood? Why does there appear to be so much profit being generated for a "non-profit" entity? Does this neighborhood in Folsom really need to be stabilized? The questions could go on...
I'm more concerned by what might be really going on here than I am about losing my commission difference. I see many other properties being taken off the market in light of this program depriving other bonefide homebuyers the opportunity to acquire the property and benefit by the upside after improving it. In the case of this asset, many of the buyers that offered on the property were owner occupants. I have a feeling I will be writing more about this one.
Saturday, May 21, 2011
National Association of Realtors - They Just Don't Get It!
It seems the real estate industry association leader NAR is at it again. Time and time again, they push an agenda that seems to promote housing stability, fairness and equality under the auspices of homeownership rights and protection of property values for everyone. Seems to me it's more about stoking the fire that fuels more sales of homes thereby generating greater commissions for its Realtor(r) members than anything else. If they truly were about these principles, they would actually stand behind initiatives that bring long-term success to housing, goverment and the economy thereby providing the same to its members.
Their latest push to their huge membership base is for its members to contact Congress and stop their push to require buyers to put 20% down for a home purchase. Apparently our regulators see that the lax lending standards in the past helped to contribute to a huge housing bubble that crashed and cost so many "good" homeowners, savers and long-term investors their home equity and likely more. Good for the regulators for trying to fix the problems that lead to instability. Shame on the association that I'm a member of that seems to be short-sighted and focused more on self-interest policies than anything else. Come on NAR leaders, rise above any personal agenda and look out for what are truly better ways to bring long-term success for all.
Their latest push to their huge membership base is for its members to contact Congress and stop their push to require buyers to put 20% down for a home purchase. Apparently our regulators see that the lax lending standards in the past helped to contribute to a huge housing bubble that crashed and cost so many "good" homeowners, savers and long-term investors their home equity and likely more. Good for the regulators for trying to fix the problems that lead to instability. Shame on the association that I'm a member of that seems to be short-sighted and focused more on self-interest policies than anything else. Come on NAR leaders, rise above any personal agenda and look out for what are truly better ways to bring long-term success for all.
Saturday, April 16, 2011
This Inflationary Scare Has No Real Engine
Gold, silver, oil, coffee beans, lean hogs, you name the commodity, and it's likely soared in price recently causing many to believe inflationary times are just around the corner. It's hard not to jump on-board the "rising prices" express train as we all feel the pinch at the grocery store and gas pump. Heck, gold is up 25% this past year after rising over 32% the previous 12 months. Crude oil prices are once again approaching their 2008 highs having already exceeded the highs achieved in the early 1980's. Coffee is nearing a 12 year high and even lean hogs are earning much fatter payouts at the slaughter house these days.
So, what's going on? Has demand really increased that much thereby putting undue pressure on "limited resources" to drive up prices? Simple economics tells us supply and demand are the key drivers to any marketable commodity valuation analysis. So, doesn't it seem that with huge jumps in prices in nearly all commodities that there would be a corresponding jump in demand and/or a relative contraction of supply?
Well, I have to dismiss the contraction arguments as simply not possible. Certainly, there may be short-term interruptions in supply (like when an oil fire occurs at a refinery) but those are temporary and short lived. Believe me, there is no more of a shortage of oil reserves identified today than what was identified a few short years ago. And, with gold at these levels, plenty more will be unearthed to offset any perceived shortages; crops are more and more technologically engineered thereby increasing production yields. So, just in the past few years we've not seen any significant longer term limitations of supply that might account for the large swings upward in commodity prices.
That leaves demand as the key driver to commodities having rocketed in price if there is any substance to the increase besides outright speculation. Higher demand is caused by either: increased consumption as a result of different uses (as when corn is used to produce ethanol) or increased consumption from population influences (certainly a combination of both as well). My take is when you look at all the different commodities, we've not seen either of these come into play. It's not like the latest tablet craze consumes so much gold that there is huge demand because of its advent. Further, it's not like the world added a billion people in the past few years or that the world's population now consumes substantially more on a per-capita basis lets say of coffee. Sure there are a few countries that are prospering well and consumption is up (China, Germany, etc.) but there are equally those that are not and consumption is down. I admit that I have over simplified much of the economics behind the rise in commodity prices but that's about as complicated as it needs to be especially after most economies are still below pre-recessionary growth and prosperity levels.
Inflation is only a speculative scare which will be derailed by deflationary pressures as the world learns to cope with less demand for everything. Stay tuned!
So, what's going on? Has demand really increased that much thereby putting undue pressure on "limited resources" to drive up prices? Simple economics tells us supply and demand are the key drivers to any marketable commodity valuation analysis. So, doesn't it seem that with huge jumps in prices in nearly all commodities that there would be a corresponding jump in demand and/or a relative contraction of supply?
Well, I have to dismiss the contraction arguments as simply not possible. Certainly, there may be short-term interruptions in supply (like when an oil fire occurs at a refinery) but those are temporary and short lived. Believe me, there is no more of a shortage of oil reserves identified today than what was identified a few short years ago. And, with gold at these levels, plenty more will be unearthed to offset any perceived shortages; crops are more and more technologically engineered thereby increasing production yields. So, just in the past few years we've not seen any significant longer term limitations of supply that might account for the large swings upward in commodity prices.
That leaves demand as the key driver to commodities having rocketed in price if there is any substance to the increase besides outright speculation. Higher demand is caused by either: increased consumption as a result of different uses (as when corn is used to produce ethanol) or increased consumption from population influences (certainly a combination of both as well). My take is when you look at all the different commodities, we've not seen either of these come into play. It's not like the latest tablet craze consumes so much gold that there is huge demand because of its advent. Further, it's not like the world added a billion people in the past few years or that the world's population now consumes substantially more on a per-capita basis lets say of coffee. Sure there are a few countries that are prospering well and consumption is up (China, Germany, etc.) but there are equally those that are not and consumption is down. I admit that I have over simplified much of the economics behind the rise in commodity prices but that's about as complicated as it needs to be especially after most economies are still below pre-recessionary growth and prosperity levels.
Inflation is only a speculative scare which will be derailed by deflationary pressures as the world learns to cope with less demand for everything. Stay tuned!
Saturday, March 5, 2011
Time to rethink what makes homeownership a smart choice
Everyone knows housing has historically been cyclical with good money to be made during the boom cycles and often financial calamity during the bust years. Whether housing appreciation is driven by steady demand, hyper-inflation or ultra-easy liquidity (e.g., stated income loans, teaser adjustable rate debt qualifying, etc.), it can make home ownership seem like a great investment ... or a huge mistake when the tide turns. Having previously survived a boom-to-bust period myself, I know first hand that a home should be more than an investment in of itself. It must serve a purpose in my life beyond helping my net worth stair-step to the financial stratosphere.
When I purchased my first single family home in June 1989 in the Bay Area only to have the housing market peak a few months thereafter I was seeing stars - and, not the ones I thought I would see having joined the ranks of homeownership. It took nine years for my property to recover it's original purchase price and that's not including the years of sweat equity and the mountain of Home Depot receipts I accumulated along the way. It was certainly nice that I didn't lose too much on my first home purchase once I sold but unfortunately there are many that do.
So, if everyone can take a step back and simply view a home beyond investment terms ... as something that provides shelter, safety, freedom, comfort, personal choice, privacy, security, a sense of belonging and identity, then it's time to realize it's true worth. Think of it in terms of utility value ... what you get out of it on a truly personal level that can either enhance your lifestyle or set you back. Think long term as well and buy something that doesn't keep you married to the mortgage owed to the bank. After all, you want to be the owner not simply the mortgagor. The more the bank has invested in your home (via debt you owe) technically the less you "own" of it.
Now's the time to be thinking of homeownership for what it's really meant to be. Think of all the emotional benefits rather than any potential financial outcome. Given that perspective, homeownership is a smart choice.
When I purchased my first single family home in June 1989 in the Bay Area only to have the housing market peak a few months thereafter I was seeing stars - and, not the ones I thought I would see having joined the ranks of homeownership. It took nine years for my property to recover it's original purchase price and that's not including the years of sweat equity and the mountain of Home Depot receipts I accumulated along the way. It was certainly nice that I didn't lose too much on my first home purchase once I sold but unfortunately there are many that do.
So, if everyone can take a step back and simply view a home beyond investment terms ... as something that provides shelter, safety, freedom, comfort, personal choice, privacy, security, a sense of belonging and identity, then it's time to realize it's true worth. Think of it in terms of utility value ... what you get out of it on a truly personal level that can either enhance your lifestyle or set you back. Think long term as well and buy something that doesn't keep you married to the mortgage owed to the bank. After all, you want to be the owner not simply the mortgagor. The more the bank has invested in your home (via debt you owe) technically the less you "own" of it.
Now's the time to be thinking of homeownership for what it's really meant to be. Think of all the emotional benefits rather than any potential financial outcome. Given that perspective, homeownership is a smart choice.
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