On Friday, November 7, 2008, flanked by some of the most prominent names in the economic and business world, President elect Barack Obama held his first press conference. The central topics, the nation’s economy and of course, the “first mutt.” We will blog about the mutt later…for now, more serious stuff looms.
The Obama news conference was followed this morning, Saturday, November 8, 2008 by a radio address with similar content. These two initial events give us hints about the Obama economic model that will shape America and of course, the real estate industry for perhaps decades.
Attacking the Economy Means Controlling the Outcome
The Obama team is going to attack the economy in laser-like fashion. New rules are going to be written that will impact the private sector and retool the way in which those transactions dependent upon credit and lending work.
REALonomics has believed for some time (years, actually) that the real estate industry needed to redefine itself through sweeping consumer-centric changes driven mostly by standards based brokerage and maximum transparency.
What we never knew and could never predict are the bleak economic factors that now give rise to the transformation of our business models and have fueled a meltdown of home values in such universal proportions. Principle: Economic problems left unsolved by the private sector typically invite government mandated intrusions in order to harness the favor of the electorate.
Can the RE Industry Still Write its Own Rules
It is beginning to look a lot like the real estate industry will be shaped not by factors we control but by the policies and rules created by others. We, under the mantle of the National Association of Realtors (NAR), have, for the most part, missed most of our opportunity to define and shape the debate and participate in the rules that will create a “New Real Estate Industry.” NAR’s mistaken endorsement of the $700 billion bailout program has hurt us and created a dependency relationship with the federal government. In essence, we have been placed in the unenviable position of a reactive industry rather than a proactive force.
Do we still have the clout and the courage to write our own rules? Do we have the will power, discipline, leadership and the creative inspiration to recognize that we are on the cusp of a “New Real Estate Economy” wherein we can control the rules that dictate how the industry operates within a consumer-centric era? Have we become an industry, like so many before us, that will eventually become reliant upon the solutions created by a bloated federal bureaucracy that is more interested in centralizing power than in actually empowering people?
The Key Principle behind Rule-Writing
It’s not so much the rules per se, that govern business matter as it is the economic and social viewpoints of those who pen the rules. It’s always belief that precedes policy. What we believe about our industry is different that what Washington believes. There are principles behind rule-writing, always!
The key principle behind rule-writing is simply “BE THE RULE WRITER.”
Here are but some of what REALonomics believes will be the “new rules” evolving from the financial policies that will be put in place during what will be increasingly defined by the new Administration as a “crisis.” A history lesson…bureaucracies flourish best when set in motion during “crisis.”
NEW RULE 1: There will be a heavy emphasis on creating a bevy of legislation designed to control each aspect of the mortgage lending process. This sounds good until we understand the difference between our and Washington’s definition of transparency and disclosure. The new set of rules will further slow the markets while everyone waits to see and then create a whole new layer of regulations and regulators operating in the basement of every mortgage lender.
NEW RULE 2: Crack down will be the new operative language for not only Wall Street and so-called “overpaid CEO’s” but also those within the real estate industry who are not fully compliant with Rule #1. REALonomics thinks that real estate brokers will become targets for industry crack down and the eventual police force for compliance with new lending and transaction rules. In his website Barack Obama has already pledge to crack down on brokers and lenders.
NEW RULE 3: NAR will become more and more dependent upon government approval for the implementation of our industry policies and procedures that have sustained us for decades. NAR, already reeling from the DOJ debacle, will have a mandated hotline to Washington and will need to use it to check-in, seek approval and help implement the new rules that will be written. In essence, NAR could become an extension and purveyor of brokerage and home ownership policies written by the Obama administration, Pelosi’s House and Reid’s Senate.
Although the housing industry is suffering and the real estate industry is under siege, REALonomics would like to encourage the industry to step up to the plate and position itself under a new set of operating principles that can be sent to Washington as a demonstration of our commitment to operating and policing our own industry. We are still strong enough to influence the outcomes if we are proactive rather than reactive.
Let’s continue to remind ourselves that the key principle behind rule-writing is simply “BE THE RULE WRITER.”
Get the full transcript of the Barack Obama news conference and read between the lines.
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We now own what we cannot control. We are witnessing the Federalizaiton of the Financial Systems of America. Backed by a fickle Congress and flanked by Federal Reserve Chairman Ben Bernanke, President Bush and Treasury Secretary Henry Paulson, contrary to their former political beliefs that government should stay out of the private sectors of the economy, took measures today to endorse the Federalization of our money systems.
Q1 - What does this mean to the real estate industry?
Clearly we are entering spooky waters wherein we dared never enter before. REALonomics believes the move by the government will paralyze the industry making home buying and selling incredibly difficult, if not impossible, in some already paralyzed markets. Home and commercial property values will assuredly decline even more, reducing the networth of the industry and its investor and home owner base.
Q2 - What does this mean to the mortgage industry?
Expect huge consolidations greater than the Bank of America’s absorbtion of Countrywide and Merrill Lynch. With this consolidation of the financial titans, mega titans will be created and essentially be required to submit to a new set of tightly regulated lending rules. It will be harder and harder to borrow and lend. This will create a over-regulation of the market and further drag on mortgage recovery.
Q3 - What does this mean to Americans?
Each of the more than 300 million people in America, including those born yesterday, will end up with at least a $100,000 debt hanging over their heads. This is the representative figure that is the accumulation of the current escalation of the national deficit and the new estimated $2 trillion dollar bailout of the financial markets.
The government bailout of the private sector of the market means that each of us was just handed a tax bill or, we might call it a “cash call” because we are collectively the new owners of the private problems of borrows and lenders.
Ron Paul (R, TX) was correct when he told Ben Bernanke, in essence, “you are going to bankrupt the American people with your money policies.”
The average American family is essentially, on paper, wiped out by this move and the impact on the real estate and mortgage industries was just extended to perhap a decade or even more.
Q4 - What does this mean in terms of the election?
This is the easy question and the answer is more finger pointing, more investigations, excessive government snooping (there needs to be some), lots of drama on the political stump and a great deal of harm to John McCain, who is already having difficulty coming out from the shadow of Bush’s foreign and domestic policies.
But it also means trouble for Barack Obama. He can forget about his national health care program for all Americans, he can forget about taxing anyone, much less those earning incomes above $250k and he can kiss his “no-new-energy-if-it-means-drilling-coal fired plants-and-nuclear-power” policy good by.
In essence the damage done to both candidacies is substantial and the next 45 days are going to be like the wild-wild-west as we run up to election time. To vote in the Presidential poll, visit www.iVoteAmerica.com.
The most remarkable thing about today’s move to “take-over” is that it represents a profoundly fundamental shift in our capital market value system and establishes a whole new mechanism for creating a way to further tax the American people. Make no mistake about it, you just got taxed and to pay the tax bill you were forced to financed the payments over time. There was paperwork, no disclosure and no recource for any of us. All of this is taking place right before our eyes without much of a whimper or a voice of protest.
The iVoteAmerica (iVA) voter, polling and blogging network has been on my chalkboard for several years, delayed only by the call and priority of other projects.
Because we wanted our faithful readers, authors and commentators to know first, REALonomics is pleased to announce that it has cooperated in spearheading the launch of the iVoteAmerica Network (iVA). iVA is a national polling and blogging network that includes political polling and blogging (Plogging) for all fifty States. The iVA network creates an online political blogging forum for each State allowing people to post to the left, the middle or the right of any issue.
As we have discovered in the last 12-24 months our industry is confronted with many challenge that have us wound up with politics and politicians. With the recent takeover of FANNIE MAE and FREDDY MAC by the Fed, we need to reconsider our ability to influence outcomes by creating voices. The iVA Network is one way we can do that.
The iVA Network incorporates polling as a means of measuring participant opinions on a variety of political and social issues. At its heart iVA is a political blog or, what we call a “PLOG.”
We simply are not vocal enough…we are informed, we vote, we care, but we are not vocal enough in the competitive political arenas. My vision for the iVoteAmerica Network is to simply deliver a political platform for people who vote. Who votes? People who own real estate vote, people who care about the influence politics has over us, our families, our industry and our lives. – Donald Teel, Founder
Can the 2008 Housing Act Stabilize and Turn the Real Estate Cycle Around?
Who would have only 5 years ago expected that we would be staring down such complex and turbulent times in real estate?
Last week, President George Bush signed The American Housing Rescue and Foreclosure Prevention Act of 2008 (the Housing Act) into law. It is the most sweeping housing legislation since the Great Depression. The new Act authorizes the Department of the Treasury to stem the tide of home foreclosures and provide a lifeline to mortgage lenders. With inventory in many large cities sitting at almost a one year level, and foreclosures expected to surpass 6 million by 2012, they have a huge task ahead.
1. $300 billion in FHA loans for Homeowners to Refinance
The Act could avoid foreclosure through refinancing into lower-cost mortgages insured by the Federal Housing Administration (FHA).
THE GOOD NEWS: It will help an anticipated 400,000 people whose loan servicers are willing to accept a write-down on principal.
REALITY: To qualify, borrowers must have a relatively high level of debt to income, use their homes as primary residences and agree to share any profits from any eventual resale with the government.
2. $4 billion to Buy and Rehab Foreclosed Homes
CLIFF NOTES: The Act offers $4 billion for local communities to buy homes at a discount, rehabilitate them, sell them and use profits for neighborhood development.
THE GOOD NEWS: This could help many low- and moderate-income families in holding on to the American Dream.
REALITY: Should reduce crime, especially in the inner city and low income areas.
3. New Home Buyer Tax Credit of up to $7,500 for Qualified Buyers
CLIFF NOTES: It’s not really a credit but really a loan.
THE GOOD NEWS: It’s refundable credit and it’s a zero-percent loan. An estimated 3 million buyers could be eligible for the tax credit.
REALITY: You got to pay it back.
4. New Deductions for Real Property Taxes
CLIFF NOTES: New deductions, in addition to the existing standard deductions.
THE GOOD NEWS: It’s effective immediately.
REALITY: These are Ã¢â‚¬Å“above the lineÃ¢â‚¬Â deductions.
5. Change in Vacation-home Status
CLIFF NOTES: The personal resident exclusion is still good on your personal home but not on your vacation home or rental property converted to a home.
THE GOOD NEWS: It’s effective until Jan. 1, 2009 so you still have time.
REALITY: The decade-long free ride is over.
So is this a real rescue of the real estate and mortgage markets or only a bandage to help us through till we have a new President next year? What do you think?