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Word From The Fed

Discussion in 'General Appraisal Discussion' started by Steve Owen, Nov 27, 2003.

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  1. Steve Owen

    Steve Owen Elite Member

    0
    Jan 16, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Missouri
    This may be the wrong forum for this thread, but it didn't really seem to fit in the Watercooler. Interesting language from the Fed on the economy.

    http://www.msnbc.com/news/998401.asp

    I'm sure there are more in depth articles in WSJ and NYT, probably will show up Friday.

    Anyway, it seems to me like the one thing that could really hurt residential appraisers right now is if the economy improves, but not enough to spur a lot of new housing construction, while at the same time, interest rates climb and the re-fi market goes south. This is not a prediction, I don't have a better crystal ball than anyone else, but better get ready, just in case.
     
  2. moh malekpour

    moh malekpour Elite Member

    0
    May 25, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
  3. Austin

    Austin Elite Member

    1
    Jan 16, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Virginia
    This is a complicated subject, but in a brief summary on how this all impacts appraisers, my advice is to get out the books from the 70’s and learn how to do cash equivalency adjustments because for the next few years every sale will be a loan assumption with a 2nd mortgage or a wrap around mortgage. The critical factor will not be the 1st mortgage rate but the 2nd mortgage rate. The 2nd mortgage business and appraising will be the place to be. All of those mortgage brokers will move over into the 2nd mortgage business.
    The Fed’s past actions have had two facets. By creating money with lower interest rates they were essentially stealing from future wealth to stimulate the present economy. The increased values caused by the low rates created equity for homeowners by refinancing which also created money at the expense of future property appreciation. The net result in future years will be stagnant property values and a flurry of creative financing. You can’t get something for nothing. I think that is what the article is saying lies ahead. Before the economy gets up to speed it will run out of gas. There is one way out of this quandry: Shrink the government and massive tax cuts. Have you heard what governor Terminator of CA has proposed? The bottom line is that if you are an appraiser and want to make a living, don't vote for any Democrats because they ain't going to shrink anything.
     
  4. moh malekpour

    moh malekpour Elite Member

    0
    May 25, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    The 2nd mortgage scenario works if the interest rate remains as low as current rate so homeowner's equity remains intact or appreciated but if interest rate goes up ,which is very likely since the economy is heating up, and as a result home values come down, it will wipeout the 20% or so equity of homeowners that are left over after recent cash out refinancing. If homeowners have low equity or no equity due to the decline in home values after higher interest rate, the 2nd mortgage is not going to work for most of them. It all depends if and when the rate goes up and how much!

    As to assuming the existing loan with low interest rate at the time of transaction, I believe it requires the lender’s consent of the existing loan and if the interest rate has gone up, most lenders will call the existing loan with low rate unless the loan is assumable.

    I heard governor terminator is planning to sell bond to bail out California debt. I hope he doesn’t do that because if he does, he is just replacing current debt with future debt that future generation got to pay for it. I hope he terminates all wasted government expenses. That is what he campaigned and elected for.
     
  5. Lee in L.A.

    Lee in L.A. Elite Member

    143
    Jan 24, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    So, Fed sees improving economy, Fox news sees train wreck coming. ;)

    I suppose it will be somewhere in between, but talking about the national economy seems too broad to me.

    Come areas of the country are having foreclosures and slow times now I gather.

    Here in SoCal it seems to me like the Real Estate market maybe on top of the roller coaster, or something.
    Prices cannot keep going up at 20%+ per year forever. :eek:
    Prices roughly doubled in most moderate / halfway affordably priced areas over the last 5 years. :eyecrazy:

    Can somebody help buff the scratches out of my crystal ball so I can see? <_<
     
  6. Steve Owen

    Steve Owen Elite Member

    0
    Jan 16, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Missouri
    You don't need a crystal ball, but you do need common sense. Prices cannot go up at that rate, unless the right economic conditions exist to allow it. What I was originally interested in was to consider the possibilities that might happen for residential appraisers as the economy heats up (as it appears to be doing). If interest rates increase, then the typical consumer cannot buy as much house as before. No one will refi at a higher rate than they already have, unless they absolutely have to, so that business is just about dead. And, with improvig job prospects, fewer people will get in the kind of trouble that leads to foreclosure. If the economy heats up enough that a lot of new housing and relocation comes about, that could be the salvation of the residential appraisal business; otherwise, it looks like relatively hard times ahead. (However, my "don't have a crystal ball" disclaimer remains intact.)
     
  7. Tawfik Ahdab

    Tawfik Ahdab Senior Member

    3
    Feb 19, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Oregon
    I am impressed with the level of analysis offered by every single contributor to this thread, but I have a simple observation to make. Americans are absolutely hooked on easy credit. Everyone wants to borrow money cheaply. If ease of borrowing is diminished, it becomes not only an economic issue, but a political issue, as both consumers and business would demand the pols to act. At that point, it would entail a restructuring of the economy via fed-imposed home mortgage rates rather than bond-and-note-derived rates.

    My point is that voters are so "consumed" with debt that it would be politically suicidal for the federal government to fail to act in case too large a number of borrowers default.
     
  8. Austin

    Austin Elite Member

    1
    Jan 16, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Virginia
    Tawfik:
    You just hit the nail on the head:

    Our system of government has two serious flaws that threaten our system that will prevent the government from doing what should be done:
    First: Our founding fathers gave us a republic as opposed to a democracy. In the beginning governors, federal senators, even the method of electing the president, and a number of other powerful political offices, like judges for example, were appointed by the upper house of the legislature from among their ranks. The significance of the upper house of the legislature is that they were all men of wealth and intellectual substance that shared the same vision of the American ideal as expressed in the Declaration of Independence. In a word, they couldn’t be fooled by a propaganda machine or swayed by public opinion. These people were free to make the right decision and enforce it. This system has been replaced with a direct democracy and their democratic ideal has manifested itself in the modern day Democratic Party.
    Now we have a system in which people have the power to elected the people that decide how much of some one else’s money the government will redistribute in their direction and to their pet program like prescription drugs as the most recent example. Organized mob rule by public opinion. This is why I so loath the Democratic Party because the leaders of that party know precisely that they are taking advantage of the weak among us in exchange for giving them power to impose another vision of America, that being socialism, a system that has never served any one’s interest other than the ruling elite that run the system, in this case the leaders of the Democratic Party.

    Second: Another form of the same thing is our courts of law. The jury system has built in weaknesses to deliberately favor the accused. The legal profession has made a mockery of the system for their selfish purposes. Again, a recent case in point; take the Michael Jackson situation. Watch how the legal profession is buying Jackson’s freedom by abusing the system by contaminating the jury pool with pr. Last week Jackson was accused of certain crimes by a kid and the charges were so serious and so involved the potential jury pool that the prosecuting authorities had to go into the PR mode to counter what they knew was in store for their case. Jackson was arrested, charged, and released. Jackson hires a profession lawyer that knows how to bilk the system and by this week it appears that the kid that brought the charges has stated, “well maybe Michael didn’t do anything improper.” Other witnesses that spent the night with Michael gave supporting testimony. What is going on here? Advance jury tampering by a skilled PR lawyer his deliberately and willfully contaminated the jury pool by using the media to the point that there is no way a jury will convict Jackson. If they did convict Michael their lives would be endangered. So my guess is that Michael’s lawyer goes to the kid’s parents, explains the facts of life to them, gives them a payoff and the kid’s memory takes a different view of things. Why not? It’s either take the payoff and shut up because Michael will walk anyway.

    What is the common element in these two examples: ***** lawyers and politicians have learned how to take advantages of the weaknesses in the system by fooling the simple-minded masses that compose the electorate. CA is a perfect example of this. CA got into trouble by people electing leaders that promised them pie in the sky. Recently they elected a leader to get them out of the mess but the only rational solutions to the problem will insure his defeat because the ***** Democrats know they can fool the idiots with fools promises, and so the cycle continues ad nauseum or at least until the bottom falls out and a republic is restored.
     
  9. Mike Garrett RAA

    Mike Garrett RAA Elite Member

    25
    Jan 14, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    Cycles, boys, cycles.....the only sure thing is change...and change it will. Buy low, sell high! That's true economy.
     
  10. Steve Owen

    Steve Owen Elite Member

    0
    Jan 16, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Missouri
    That's true, Tawfik. But, don't forget that even governments are not immune to the laws of economics. Consider the situation in Japan. No amount of politcal pressure will solve that problem until they clean up their house.
     
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