Buyer’s Choice Realty blog

Some smarty-pants Professor from Yale got the NY Times to publish his thoughts about solving the foreclosure crisis. As I was unable to get an op-ed piece in a major newspaper, you can read a few of my thoughts on this same issue from a previous post.

That stated, Mr. Geanakoplos, along with coauthor and fellow smarty-pants Susan Koniak, provide a sound argument for enacting new legislation based on their ideas. If you are a home owner, potential home buyer, potential home seller, or engaged in business with any of these parties, take a few minutes to read

Mortgage Justice Is Blind

A needed step appears to be taking place in the Massachusetts housing market. The Massachusetts Association of Realtors® reported September 2008 market data recently, and the housing correction continues.

Feel free to read all about it over at Bay State Realtor News. Here is an excerpt:

“The inventory of residential properties on the market as of September 30, 2008 decreased 13.6 percent compared to the same time last year (from 53,957 listings in 2007 to 46,598 listings in 2008).  At the current sales pace, this represents approximately 10.2 months of supply, a decrease from 12.0 months of supply in September 2007.  On a month-to-month basis, the average months of supply is up from 8.1 months in August 2008.  It is considered a balanced market when there are between 7.5 and 8.5 months of supply.”

What have we learned? Inventory must come down in order to have a normal housing market. Unfortunately, prices do not continually drop in a ‘normal’ market, so we are not quite there yet. Prices are down for single family homes and condominiums across the state over the past year (multiple years for many towns across the Commonwealth). Once prices start to stabilize, we should be nearing the other side of the current economic downturn.

If you plan to buy real estate in MA, you should consider doing it before the end of 2009. Your property’s value may decrease in the short-term (6 to 18 months) after you purchase, but if you stay in your home for at least five years, odds are high that you’ll make a buck or three upon the transference of your deed.

Finally! Some tough questions for the CEOs of the big three: Moody’s, Standard & Poor’s, and Fitch, the credit rating agencies that many feel are ultimately responsible for the sub-prime crisis and ensuing meltdown on Wall Street. For a little background, see my previous post questioning who is to blame for the sub-prime crisis.

As Jeff Macke says of these agencies on CNBC, “they should be taken out and annihilated…they are bringing economy around the globe down”.

Simply stated, the ratings agencies did not do their job. They are the symbols of trust and credibility to a giant industry that spans the globe, and they have failed. When will someone be punished for this amazing lack of common sense? Not everyone that works for one of these companies is to blame, but the fact remains that the companies made money by bestowing AAA ratings on suspect mortgage-backed-securities (MBS). For an example of how ridiculous this behavior became, check out this article.
Looking for a scapegoat to blame for your declining retirement savings? Here are three:

Raymond McDaniel, Moody’s CEO

Stephen Joynt, Fitch CEO

Deven Sharma, Standard & Poor’s President

There will be three ballot questions facing voters this election cycle in my home state of MA. They are each important, but the one that will affect your money the most is question one.

What is question 1? Should MA eliminate personal income tax? Read more about this question on this page sponsored by the MA League of Women Voters.

Why should you vote no? Michael Widmer, president of the Massachusetts Taxpayer Foundation, wrote an interesting opinion piece for the Boston Globe recently. In his article, Widmer brings to light the most serious potential consequence voting yes likely will bring about: higher property tax.

Massachusetts, already facing a budget shortfall, will have to make up lost income tax revenue from another source if this question passes. Sales tax will likely rise as well. The low-to-middle income home owner will suffer, and, according to Widmer,

“would likely end up paying more in taxes, just out of a different pocket. Meanwhile, the wealthier who pay a higher share of income taxes would get a big tax break.”

If you are undecided about how to vote, I encourage you to visit both pages linked to above.

It appears our economy is in a bit of a spot right now. No kidding, right? We learned over the past few days that our U.S. banking system has effectively been nationalized. How did this happen? Hammerin’ Hank, of course.

Paulson conspired worked with his Wall Street buddies, the Federal Reserve, and the FDIC before deciding how to use the first $250 billion that we recently invested into the HPHF.

What do you mean, ‘nationalized’? The always insightful folks at the Wall Street Journal wrote an informative blog post describing what actually happened early this week. Basically, Hank bought a bunch of super senior preferred shares from many of the country’s largest ‘banks’. Goldman Sachs, a bank? Apparently it is becoming one. A few of these firms got $25 billion each, and a few got $10 billion. JP Morgan Chase, Wells Fargo, Citi group, Bank of America, you get the drift. These preferred shares mean that the HPHF owns up to 28% (in the case of Morgan Stanley) of the shareholder equity in each of these companies.

HPHF stands to make out pretty well. They will be paid 5% per year for the next five years on their investment in the form of quarterly dividends. The government gets its share before any other preferred or common shareholders do. After the initial five-year period, they will make 9%.

Hank himself terms this capital injection a ‘temporary investment’ in order to restore confidence in our banking system and encourage private equity to reinvest in these companies.

What effect does this bank bailout have on real estate/the housing market? It is HPHF’s hope that banks will now send that new money through the system by writing new loans and providing liquidity to the credit markets. Will more folks be able to qualify for a loan? Probably not, but here’s hoping. Keep an eye on the LIBOR, which has dropped almost 30 basis points over the past few days, and is a solid indicator of where mortgage rates are going.

Having a great day? Here’s a bit of news to bring you back down to earth. In 1989, real estate developer Seymour Durst created a big clock that tallied our government’s debt. Durst was so amazed, dismayed, and outraged that the national debt was approaching $3 trillion (a paltry $2.7 trillion at the time), that he invented this gigantic clock and put it on display in Times Square.

Just last month, the clock ran out of space. They had to change the dollar sign to a one (1), because the debt had spiralled to more than $9.999 trillion. There was no more room!

(AP photo/Kathy Willens)

What is to be done? The Durst family (Seymour passed away in 1995) plans to replace the clock next year with one that has an additional two digits in order to keep recording the debt. Can you guess how high the new clock will be capable of going? A quadrillion dollars!