Al Ritter
Everyone remembers the market and housing crash of
2008 where people were defaulting on mortgages they couldn’t afford caused by
an over inflated market spurned by the easily acquired loans forced by the
feds. Later in this crisis Fannie Mae and Freddie Mac took a tremendous hit and
many big banks were bailed out at taxpayer expense.
The market has these cyclical trends every 18 years or
so that the government calmly refers to as “market corrections.” The facts
usually point to something different, I like to refer to them as the government
“shooting themselves in the foot.”
Covid had a devastating effect on every part of the
economy, but this time it had effect on commercial real estate. Because a large
percentage of the work force was forced to work from home, commercial property
rentals were drying up. The largest group of commercial real estate mortgage
lenders are not big banks, but rather small banks.
For commercial property owners they are in dire
straits now with mortgages due but no rental income. Defaulting the loan back
to the bank only exacerbates the problem in the community and the national
economy. Now the small bank not only has to absorb the loss of yearly revenue
but also the loss in value of the property vs. the original loan value.
This part of the real estate market represents a $1.2
trillion dollar debt for future taxpayers starting in 2025.
We haven’t even addressed the residential housing
market which is sure to follow suit. In the first quarter of 2014 the average
home in America sold for $275,000. In the third quarter of 2023, not even 10
years later the average home price had ballooned to $417,000 and along with it
came a massive increase of mortgage rate increases.
Ever see those ads on TV or social media where offer
to “Buy your home, any condition any price?” These are ads for large investment
groups such as Blackrock that buy up homes and do only minor renovations then
get huge incentives from government to rent out that housing for use as section
8 housing. When the market bubble breaks those investment groups bail out like
rats off a ship and flood the market with residential inventory.
Such is the case in Florida right now as these
investment groups are bailing out, or should I say trying to bail out. They are
willing to place these properties on the market at a loss to contain the
bleeding, but here’s the catch. They have to actually find buyers not just list
the property.
This all comes in the face of a new plan proposed by
VP Harris to build 3 million new homes and offer first time home buyers a
$25,000 credit towards that purchase at a cost of $1.7 trillion dollars over a
decade and could balloon to $2 trillion if made permanent? Why would you add homes
to a rapidly increasing residential inventory that has yet to see the bottom
prices?
In the accompanying video you will see that even at
the perceived fire sale prices the investment has set, the property has been on
the market for 6 months. This signals that the bottom price has yet to be
reached and will continue to fall until a final purchaser agreement has been
reached.
Watch video on commercial properties here:
https://www.youtube.com/watch?v=7mOWFBip0Wc
Watch video on residential properties here:
https://www.youtube.com/watch?v=Wa5r73qp_-U&t=481s
Harris’s proposal:
https://www.reuters.com/world/us/harris-economic-plan-mirrors-bidens-aims-lower-taxes-prices-2024-08-16/