The Economy and Real Estate, The Perfect Storm

By Steve Simon

The price of diesel is now upwards of $4.00 a gal.at some truck stops in the North East of the USA. The ripples this is sending through the other sectors of our economy is just now starting to become visible. The trouble started much earlier but it seemed invisible to the everyday folk, that really just saw this as a "Gas Price Problem". Now the secondary and terciary industries are obviously showing the strain. The airlines (never fully recovered from 9/11) are in an Emergency Room, the trucking industry is in chaos and the support industries for these giants are being beaten down to levels that they have not seen before!

Consider: .the entire State of Florida's work force is threatened almost everyday with job cuts and loss of benefits and positions. the Tampa bay mortgage base now has double the homes in the ranks of foreclosure as it did in 2007 (which was already a horrible year), and I am talking about the non-sub prime loans! Almost 3% of the more strictly underwritten loans are in default (60 days or more). If you factor in that over 20% of the sub-prime loans are in some serious stage of default you can see the effect is going to do more than ripple!

The banks tighten credit in response.

Less people can qualify.

Even those who could qualify are scared that the real bottom is much lower.

This further depresses the buyer pool, thus flattening the market even more.

The buyers that cannot meet their obligations, can't sell.

The numbers of buyers that can't meet their obligation soars, because their totals are being fed by dropping prices, tighter credit, and now job loss in peripheral industry.

The foreclosures add to the glut of available properties.

The slow business climate prevents the normal acquisition rate of real estate by business as the climate has them operating in a much more conservative fashion.

The Perfect Storm!

If you're looking to blame someone read elsewhere I choose not to blame, merely to inform and repair.

The answer must come with immediate legislation offering future credits for the most efficient of the hybrid vehicles.

This legislation must also spread to solar products for the home for both heating and cooling.

The auto industry will take heed that the selling models will be those with credits, and that will sound the death bell for the Giant Gas Guzzling SUV.

Congress must resist the urge to help out those that recklessly signed up for sub-prime loans that are now in trouble; rather they (the lawmakers) must show courage and let the market forces of supply and demand work themselves out.

The real estate market must be allowed to work as it was created, freely and without the well intentioned but usually ineffective direction of the Government.

If all of the above takes place we can slowly work ourselves out of this debacle we now find ourselves in.

I have the utmost confidence that we will; but I hope the lessons will be learned:

Fossil fuel is running out, we must shift to other sources, and this shift can only be accomplished by incentive programs so that there are concrete bankable reasons for doing so immediately.

Bailout of the banker ( do you remember the Savings and Loan Crisis?) begets bailout of the banker!

Incentives to do the right thing, are the right thing!

The Radical Islamics does not need weapons of mass destruction to hurt us.