Saturday, June 11, 2011

A Good Skier Knows When to Fall.

This week the economic news seems to be all bad. None dare call it a depression, and nobody knows how to break the cycle. So they call it “The Great Recession”.  Really.

But finally—on one of the talking head television shows—the guest had an idea that I have supported for some time; he explained that if you are skiing and start to fall, just fall, then pick yourself up. If you try not to fall you will likely sprain something, pull something else, or ski off the trail and ultimately have a horrible fall. He said when the economy started to fail we should have let the banks and auto manufacturers fall. It's too late now to help the banks in a meaningful way, but they ought to suck up their residential losses and get on with their lives. I say bravo, let the banks begin to do what's right.

You may recall a few weeks back when I called for the low priced (under water) foreclosure homes to be removed from the market—forever, just like the cash for clunkers removed the used cars forever. My suggestion was to burn them down, and resell the lots to builders. Then to offer a special financing for the homes that the builders would create as replacements.

From all corners you now hear a common forecast saying we are facing a double dip in our economy. I want to reiterate that my only favorite double dip comes in a sugar cone. But the economic issues we are facing and the probable “double dip” in our economy will doubtless cause us all additional pain, which if we had dealt with up front, would be over by now. So because our lawmakers tried to cushion the crash—we skied off the trail into the rocks and the woods.

The forecasts of our economic growth have been trimmed (even more) in recent weeks, as have contracting employment numbers, with a similar performance (or lack thereof) from the consumer in regard to spending. Generally Americans are suffering, albeit quietly. We are suffering at work, at the grocery and at the gas pump. And not surprisingly these topics with only a couple of others will be the key political topics that will form the platform of both parties in the upcoming election campaigns.

We all need answers. Will we increase the debt ceiling? Will the U.S. temporarily default on its trillions of debt? Will we get the kind of future spending restraint Conservatives are demanding, in exchange for their votes to support the Democrats desire to increase the debt ceiling? Will we ever trim those well known entitlements? Will both parties deal with long-term deficit reduction? Who dares to throw the elderly under the bus? Are we really doing anything for our kids, or is all this a thinly veiled effort to get re-elected by appealing to special interest groups?

I can only hope that when Washington finds it has an empty bank account—but still has a pack of unused checks--they will NOW realistically evaluate the situation, and put away the checks until there are sufficient funds.

Here's where I have real concerns: I am tired of lowering prices on our house listings. I want these homes to start selling again, and yet from all corners I get questions. Will home prices continue to decline? Will the stock market suffer a major setback? Will the massive and top-heavy health care bill place event greater burdens and mandates on American businesses and households? Will the never-ending growth of new government rules & regulations ever slow? Pardon me while I throw up.

May’s dismal jobs report was the weakest of the past eight months, adding to a multitude of softer-than-expected economic data points in recent weeks. The gain of only 54,000 net new jobs was one-third of expectations and one-fourth that of the prior three-month average. And oddly about a half of the newest jobs are at McDonald's. Adding insult to injury, job gains of the two prior months were revised down by 39,000 jobs. Bet you didn't see that on the 6 o'clock news.

The Consumer Price Index rose 3.2% during the most recent 12-month period. Sharply higher prices for gasoline and basic food stuffs have strained household budgets, in both the U.S. and around the world.
It seems clear that the federal fund rate, now in place for 30 months and the lowest level ever, will likely remain unchanged until the end of the year, if not longer.

And yet the pain continues. Average home values have declined for eight straight months and are now back to where they were nine years ago…2002. Nationally average home prices are down one-third from their 2006 peak. Lower-priced homes have fallen further than high-end homes. Most forecasters see modest additional pain over the balance of the year, with price stability likely in late 2011 or early 2012.

With 30-year fixed-rate conventional mortgage loans at their lowest level of the year, and very close to their lowest level in 50 years, one might think mortgage activity would be brisk. But no. The combination of wary lenders with stringent qualifying levels (high credit scores, large down payments), declining home prices, meager job creation, weak confidence levels, and available rentals in many cases, has led mortgage demand to its lowest level in 13 years.

My opinion: this is as close to the bottom of the market most of us will ever see. Expect the cost of homes and funds to creep up only a tiny bit over the next six months, and then strengthen as we approach the 2012 election.

Dane Hahn is a real estate professional at Tarpon Coast Realty with offices in Englewood, Sarasota and Boca Grande. You can contact him at or by telephone at 941-681-0312. See him on the web at

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