By now we’ve all had a chance to read, listen and watch the economists, gurus, and professors for some of the most prestigious academic institutions in the world analyze the economy. I know I have grown tired of listening to speculative predictions that swing from utopia to apocolypse. In this post, I will do my best to narrow down the items that should interest the masses the most: jobs; home prices; and interest rates.
My biggest disclaimer is that although I have read outlooks from people all over the county, I am a firm believer that what happens in your state, county, and community stays there. For example, if solar energy becomes all the rage in San Diego in 2010 through rebates and incentives, we cannot assume that in Seattle, Washington, which only has a fraction of the sunny days that San Diego has, will benefit by a similar job creation in that field.
- Jobs. Yes, I do believe that solar energy will be a major catalyst for job creation in Southern California. 2009 was a year in which the prices for gas, and energy in general went up, so if you ask any solar panel installer, they had a pretty busy year. What prevented this industry from exploding and creating thousand of desperately needed jobs? The lack of connection between someone like me =) who can readily finance these projects, and the solar energy installers. Bridging this gap will take some time since consumers are not yet educated on how to obtain financing for such a project. San Diego is a county rich in biotechnology research. With the reduction of innovative life saving medications from the Pharmaceutical sector, Biotech represents the bulk of hope for the future of healthcare as well as local job creation. If we widen our scope outside of San Diego, a very different picture materializes, depending on where you look. Each county in each state represents its own micro-capsule of the job market, and therefore its own unique challenges and opportunities.
- Home prices. Unfortunately this is a “hangover” that will take time and a lot of bitter pills to get over. Wall Street had a TREMENDOUS hunger, and paid originators top dollars for putting borrowers into risky loans. It was not the Mortgage Broker that created the bubble. I worked for a direct lender during the 2004-2007 years and the phone rang off the hook asking for the “1% percent payment”. Lenders compensated handsomely for being top producing branches in closing these adjustable and sub-prime loans. As a member of the management team I made it my mission to explain every detail of negative amortization consequences. At that time, the consumer did not care. The party ended eventually but most of these toxic assets, in my opinion, have been flushed out, and the affordability ratios are starting to make sense again. Back in 2006 only 11% of the median
household in Southern California could afford to make payments on median-priced homes. Today this percentage has gone above 40%. Keeping in mind that the national home ownership percentage is about 64%, this represents a significant improvement and the trend will continue through the first half of the year as long as interest rates stay low. We will see a surge in purchases through June due to the now-expanded tax credit. - Interest Rates. One of the minds that I respect tremendously, Barry Habib, claims that this is the easiest prediction: ”rates will reach at least 6-7% by the end of 2010″. Barry makes several good points as to why this will happen. Although the fed had announced that it will stop buying Mortgage-Backed Securities, what many believe is the single biggest factor for keeping rates at bay, in my opinion Bernanke has left the door ajar to the possibility of continuing to purchase these securities. The amounts of mortgages that have been bought are massive, $1.13 trillion. This accounts for, depending who you ask, anywhere between 70-90% of all mortgages since the program started in 2009. But let’s face it, these are massively problematic times, and the Fed Chairman and Secretary Geithner have committed to not make the same mistakes made during the Great Depression (acting prematurely in easing their economy-saving strategies). In my opinion, this is not such an easy one to predict. If rates go up, the real estate market could come to a halt and we know this is the single worst blow the economy would suffer. I don’t think rates will go higher than 6%.
All in all, we all have important responsibilities. We must embrace our communities as micro-economies that if nurtured and supported, will flourish. As each city, county, state begins to heal economically, then naturally the national economy will heal as a whole. In addition, we can all make a difference in our communities by aggressively networking to support local businesses and entrepreneurs, and enjoying the simpler things in life, especially the ones you love.
Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094
If solar energy affordability is a goal for you please contact me. There is an excellent chance that you can start saving hundreds of dollars a month almost immediately.
