No inflation is going on right now, the government is trying to stop de-flation. Almost all the experts agree that we may see eventual inflation because of the economic stimulus — that money pumping into our systems. We may have a window of about 12 to 16 months before interest rates will have to rise to control it.  The Fed can and will monitor inflation tightly 24/7 and may in fact want to see a bit of inflation, say 2 to 4%, anything but hyperflation or deflation.

The banks still aren’t lending, what will it take to move them? Maybe higher interest rates. Cox doesn’t think you can pass laws forcing banks to lend money.

“When the risks and rewards are in balance, they will lend,” he says.

Our day of reckoning for the stimulus package will be when we convince China and Japan that treasuries are worth buying.

Why are the banks doling out TARP funds to the “troubled” banks rather than the solid banks, so the solid banks could lend the funds?

Good question, said Cox.

Unemployment is starting to affect everyone, even in the higher net worth classes. Though Texas thankfully lags the nation in unemployment, layoffs may not be over yet. Two solid businesses now: healthcare and education.

And these men think Americans’ spending habits have changed dramatically, maybe forever for a generation. Just as they did after the Great Depression, people are tightening their belts. Whether they keep them tight and how many years they live lean depends on how affected they are by this economic downturn, how long it lasts. We may not see mega leverage for another twenty years.

Higher taxes may force people out of states like New York and California, and we could see another wave of  sunbirds heading here for our sensibly valued homes. Watch: commercial real estate failings. Be glad we live in a city that continues to attract business and generate jobs as well as technology (intelligent medical systems being developed at Texas Instruments) and varied corporate headquarters. Buffalo, New York was home to the largest number of wealthy individuals in the U.S…  once upon a time.

I ask you: what price range home can you afford with $7500 a month?�

“Regardless of political mudslinging, the crux of the discussion is this section
“Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a
conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes
his or her monthly payments on time for two years, the one percentage point premium is dropped.”

So Candy, how many of the current defaulters used that program? I am sincerely asking the question. Is it 1% of the current defaulters, 10%, 50%, 0%? What is it?

Don’t go pointing fingers without having some answers.”

Anyone have the answers?

A -$8000 tax credit for first-time buyers, l like very much. Assuming this will work like a section 179 deduction and come right off the taxes, not add 5 more pages or 6 hours of CPA billable hours to the tax return, essentially using tax dollars to help fund the home purchase. 

F- Revamping U.S. bankruptcy rules, giving judges the power to reduce mortgage payments and set lower interest rates. Excuse me, but I think part of our problem was that banks got too big, unregulated and complex. So now we are going to let judges play banker? This will slow down lending and banks will have to recoup their losses from somewhere —charge more to the customers who pay their bills, or higher PMI or PMI for everyone or higher interest rates.

Not fair, folks.

C – The government will match reductions lenders make to keep borrowers home payments at 31% of their income. What income — stated income? Does that include alimony?

Incomplete – Flushing Fannie Mae and Freddie Mac with $900 billion.

“A “balanced” market is considered less than a three-month supply.”

Hmm. I thought a six month supply was balanced, or does that apply only to pre-owned homes? Your thoughts?

It now appears the economic stimulus bill will deliver be some significant benefits to those wishing to purchase or refinance a home. These include:

Ø A true first-time homebuyer tax credit in the amount of $7500 available for a qualified purchase of a principal residence between January 1 and September 1, 2009. I say “true” since, this time, the “credit” will not have to be repaid by the homeowner!

Ø FHA, Fannie and Freddie loan limits will be revised. While specifics have not been released, reports indicate the 2008 limits will be reinstated for 2009 with certain limited exceptions.

Ø Foreclosure mitigation and neighborhood stabilization is forthcoming. In essence, this means that there will be some as-yet-undetermined method for funding state and local efforts to abate foreclosure and stabilize and redevelop neighborhoods. of abandoned and foreclosed homes are authorized.

But what about people who bought with zero down? Didn’t they have to pay P.M.I? Or were they, instead, encouraged to get second mortgages so that instead of having an insurance policy on default, they would screw over two banks instead of one?

May I make a modest suggestion: whoever initiated the dumping of P.M.I. helped make a significant contribution to the mortgage crisis and current financial meltdown. Agree?

To understand how we got into this trillion dollar financial mess, Shiller said we had a number of merging factors: rare events, complacency, over reliance on conventional wisdom, herd behavior, and more respect for sophisticated methods rather than substantial evidence. (”Quantitative technology?”) Finance and real estate have become much more sophisticated disciplines, but data we used didnt include historical episodes such as The Great Depression. Since the 1929 crash, we had 3 major stock dips — 1929, 1987 and 2008. Shiller thinks this latest episode is more like 1929 than 1987, and he doesn’t think recovery will be rapid. But for the first time in our economic history, we had a real estate bubble. Americans went gaga about real estate as an investment. In Miami, for example, housing prices were stable from 1987 to 2000. 2001 to 2007 prices tripled — the Miami condo market overbuilt by hundreds of thousands of units. We got carried away: irrational exhuberance, herd mentality. Long term solution? Market transparency, better information, but as Shiller pointed out, you can present buyers with all kinds of warnings — sometimes people just don’t pay attention or figure it out. Very interesting comment: what if, he asked, medical professionals did not exist and all we had were drug company sales reps telling us which drug to take? (Would the Wellbutrin folks would tout the benefits of Prozac or push their product?) Shiller believes every family needs a financial physician that the government should subsidize. (Reality check: the government does provide health benefits for some through Medicaid and Medicare, but both programs reimburse physicians at minimal rates and are teetering financially.) These advisors would vow to not take commissions or other distractions to affect the advice they give their clients.

In this country, we have failed to manage real estate risk, which is devastating to familes. Shiller proposes a futures market for single family homes. We need more hedging of real estate risk, something he is focusing on in his company, Macroshares. We need to think creatively about our mortgage institutions. Why are we so married to 30 year conventional mortgages? (And why was the wheeled suitcase only invented in 1972?) Why can’t a work-out be built into a mortgage — in case of default, safety measures would kick in to prevent foreclosure. Why not have home equity insurance? Livelihood insurance? Payroll deductions for mortgages that would adjust up or down with the market? Harvard’s Elizabeth Warren has proposed a Financial Product Safety Commission to protect consumers from financial products, much like the Consumer Product Safety Commission protects consumers from concrete products.

 We are living in very uncertain times, says Shiller. To people close to retirement or living off equities, be careful — the market could fall in half again this year. Job creation did not drive the housing boom — credit did. And it’s going to take much more than just a finger-snap to get us out of it.

But, while I was ensconced in academia, history was made in the interest-rate realm. Here a couple of takes on that, jump for one from Philip Walker, one of my favorite agents at Keller Williams Turtle Creek, who brought lunch to recruit the A-plus students. Mortgage rate comments are on and the meter is running:

“These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages,” David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.”

Yet we are still offering home ownership to people who may not be ready for it right here at home.

DD: What are you going to do with the shell?
Jud Pankey: The shell is going to stay as is. It will be ready to go again once we close a loan. The garage will be ready next week, so we have made some progress. We will then turn our attention to the courtyard.
DD: The parking garage is completed for the hotel, so will you let the shell sit?
Jud Pankey: Not sure what else we would do. Do you have any creative ideas, as I am all ears?
DD: Was the crane really costing $30K a month?
Jud Pankey: Yes—close enough.
DD: Will you build a smaller, scaled back condo perhaps?
Jud Pankey: No—does not make sense.
DD: Do you have any financing promises at this point?
Jud Pankey: We are working with a couple of lenders. They do exist!!
DD: Is this why Paulson (last week) said he is aiming the bail out funds at the banks?
Jud Pankey: Not sure what he said but the banks are trying to figure out risk between banks and customers. I think it is confusing for everyone, hence there is no confidence. The banks are trying to price risk and they have plenty of capital, but they are not being paid to lend money just to lend money just yet. Plus, the regulators need to encourage them to lend versus contract. It is an interesting time.