Technology Leads a Rebound in U.S. Office Rents as Occupancies Increase

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Amazon.com Inc. (AMZN) drew attention from landlords in March when it leased most of a 36-story downtown Seattle tower built during the recession, a sign that technology job growth would help lift U.S. office rents and occupancies.

“The reduction of big blocks of space is always the first indicator of recovery,” said Patrick Callahan, chief executive officer of Urban Renaissance Group, a Seattle-based commercial real estate developer and investor that manages about 2 million square feet (186,000 square meters) of properties.

The U.S. office market gained 3.7 million square feet of net occupied space in the three months through June, the third straight quarterly increase, Reis Inc. (REIS) said today. Vacancies fell or were unchanged in nine of the 10 largest office markets, and declined in more than half of the 79 metropolitan areas surveyed, the New York-based property-research firm said.
Demand for space from technology companies is leading a rebound in U.S. office rents. Groupon Inc., the Chicago-based coupon-website operator, in June signed a lease for a 40,000- square-foot building in Palo Alto, California, to house its growing Silicon Valley product and engineering staff. The building, at 3101 Park Blvd., is more than triple the size of Groupon’s current space in the city, said Julie Mossler, a spokeswoman for the company.

Rising demand in large U.S. cities is helping increase effective rents, or what tenants pay after such landlord concessions as rent-free months. Effective rents rose in six of the top 10 markets last quarter, Reis said. San Francisco climbed the most, gaining 6 percent from a year earlier, according to the firm.

‘Tremendous Strength’
“Northern California in the last six months has shown tremendous strength,” said Frank Cohen, a senior managing director in real estate for Blackstone Group LP (BX), whose Equity Office unit has stakes in 19 million square feet of office space in the San Francisco Bay area and Silicon Valley.

Demand from technology companies helped drive asking rents in San Francisco up to $40.06 a square foot in the second quarter, a 19 percent increase from a year earlier and the biggest advance in four years, according to Jones Lang LaSalle Inc. (JLL) Net absorption totaled almost 1.3 million square feet in the 12 months ended June 30, making San Francisco the nation’s top-performing office market, the Chicago-based broker said.

New York, Boston and San Jose, California, also were among the top 10 markets in effective rent growth in the second quarter, Reis said. Demand from financial services and media companies drove the gains in New York, while technology and life-sciences tenants buoyed the Boston area, Cohen said. Technology demand also is strong in Austin, Texas, he said.

Increase in Rents
“In markets that have had the most growth, we’ve seen blocks of space dwindle and we are seeing strong increases in rent,” Cohen said in a telephone interview from New York. In midtown Manhattan, Equity Office has boosted gross rents by as much as 30 percent since the beginning of last year, he said.

New space coming onto the market prevented a decline in the national office vacancy rate, which was unchanged from the first quarter at 17.5 percent, Reis said. A year ago, the rate was 17.4 percent. A total of 1.8 million square feet of new space became available, the lowest since Reis began publishing quarterly data in 1999.
Financial services, insurance and real estate companies are the largest users of office space, accounting for almost 22 percent of the U.S. total, according to CoStar Group Inc. (CSGP) Services companies, including technology, are second, at 14 percent, according to the Washington-based research company.

‘Turning Point’
“Concessions are down and rents are up,” said Ada Healey, vice president of real estate at Seattle-based Vulcan Inc., billionaire Paul Allen’s investment and development company. Amazon.com’s lease at Schnitzer West LLC’s 1918 Eighth Ave., in Seattle’s Denny Triangle neighborhood, “was clearly a turning point” in the city’s office market, Healey said.

Employers in the U.S. probably expanded payrolls by 100,000 workers last month after a 54,000 increase in May that was the smallest in eight months, according to the median forecast of economists surveyed by Bloomberg News ahead of Labor Department data due July 8. The jobless rate held at 9.1 percent.

“The jobs we’re getting are in office-using industries,” said Asieh Mansour, head of Americas research for Los Angeles- based CB Richard Ellis Group Inc. (CBG), the largest commercial property services company. “The trend in leasing is up.”

Related articles

• Spotlight on REITs: Equity Office Properties (moneymanager.com)
• Tech jobs near all-time highs, fuel office-space boom (sfgate.com)

Foreclosure Volume Expected to Peak in 2011

Image via WikipediaNext year could very well be a peak year for foreclosures, says Rick Sharga, a senior vice president at RealtyTrac, an online marketplace for foreclosure properties. The market is expected to tally about 1.2 million bank repossessions in 2010, up from 900,000 in 2009, he says. "We expect we will top both of those numbers in 2011."

That's partially due to issues the industry has faced with foreclosure processing that began in the fall and delayed a portion of foreclosures from being completed this year, he says. In the so-called robosigning controversy, some lenders halted foreclosures after learning procedures for signing off on foreclosure documents might not be in accordance with the law.

Continued high unemployment also is expected to exacerbate the foreclosure problem in the year ahead, as will upcoming interest-rate resets on adjustable-rate mortgages that will increase monthly payments for some homeowners, Mr. Sharga says.

In the meantime, data on the volume of loan modifications from the Treasury Department indicate that fewer borrowers were being approved for permanent modifications in recent months, says Greg Hebner, chief executive of MOS Group, a loss-mitigation service provider to mortgage lenders and servicers.

What's more, there's a growing feeling that modifying mortgages doesn't get to the heart of the housing crisis: "There is the perception that the answer to this involves trying to get job growth," which will help homeowners pay their loans and enable others to buy homes, said Jay Brinkmann, chief economist for the Mortgage Bankers Association, during a recent conference call with reporters.

For the longer term, however, the outlook for the foreclosure market is better since fewer homeowners are becoming delinquent on their mortgage payments. Thirty-day delinquencies are down 11% since the height of the recession in the first part of 2009, according to Mr. Brinkmann.

High housing inventory, along with high unemployment, will likely add up to continued depressed home prices in the year ahead in many markets, says Nichole Jordan, banking and securities industry practice leader for Grant Thornton, an accounting and business advisory firm.

"Realistically, you're not going to see home prices appreciate next year," says Jason Kopcak, head of whole loans at financial-services firm Cantor Fitzgerald. In fact, many in the industry are expecting prices to fall another 10% next year on a national basis, he says. RealtyTrac's Mr. Sharga says the national decline could be around 5%. Other economists are expecting prices to remain flat.

Next year "is going to be a wash, in terms of any meaningful recovery, and we're looking toward 2012," said Guy Cecala, publisher of Inside Mortgage Finance, during a conference call with reporters. And that's assuming there are no other major problems or delays to contend with, he says.

Related articles

• More Foreclosures Expected in 2011 (online.wsj.com)
• Amy Hoak's Home Economics: More foreclosures, home-price drops on tap in 2011 (marketwatch.com)
• Peter Dreier: Los Angeles Homeowners Take to the Streets to Protest Foreclosure Abuses (huffingtonpost.com)

Related articles

• Peter Dreier: Los Angeles Homeowners Take to the Streets to Protest Foreclosure Abuses (huffingtonpost.com)

Economy Shows First Signs of Growth

We are seeing the first signs that the US economy is showing growth. Though US gross domestic production remained flat in its August 2010 report, other economic gauges are showing that the US economy is increasing production. In it's Beige Book report released on September the 8th the US Commerce Department said that tourism, agriculture, consumer spending, non-financial services and transportation numbers expanded while manufacturing eased. Most of these industries were in decline through the summer and now are showing signs of increased production.


The real estate industry numbers were not as optimistic. As a result of the expiration of the home buyer tax credit in June, the real estate industry continues to show weakness. Median home prices and sales dipped in July and August. Business contraction is also weighing in on the commercial real estate industry. Tenants' shrinking business profits are overshadowing the sector. New pessimism is beginning to emerge as commercial real estate owners seek refinance and banks remain tight on underwriting guidelines. Increased vacancies and banks unwillingness to ease lending policies will increase commercial property foreclosures in 2011 driving the sector into further decline.

The good news in all of this is the Obama Administration latest economic proposals were received as one of the first long term solutions to a declining economy. The plan will stimulate small business growth through decreased payroll taxes and business investment tax credits. Though the plan is not enough stimulus to drive small business into the profit margin, it will provide the initial push the economy needs to increase business investment and hopefully job growth.

Why Economic Recovery Will Be Slow

I have been thinking of a good analysis for our economy. Imagine if you were told 2 years ago that you had cancer and needed emergency surgery to live. After the surgery the doctors told you they successfully removed the cancer, but there were several infections that will remain and you need to prepare for a long, slow recovery. I feel the same about the US economy. We are past the bad stuff, but recovery will take time.

One of the "band aids" that was put on the economic "wound" initially was the Obama Stimulus Program. The program was designed to help the economy by creating jobs, prolonging benefits to the unemployed and elderly, provide tax cuts and other stimulus thus kick-starting the economy into growth. But, like drinking a caffeine soda, once the buzz is over you feel drained. The plan had good short-term intentions, but no long-term infrastructure was created by the plan to sustain economic recovery. The plan was intended to maintain household cash flow in a dropping economy, allow consumers debt relief via loan modifications thus increasing savings rates. Now a year later most of the jobs created by the stimulus have been completed, benefits are near end, tax cuts have helped somewhat, but with less income being earned tax cuts will only survive the economy not revive the economy.

The main infection we are facing is the depleting revenue needed to fund the infrastructure of government. Municipalities, being one of the largest employers in the US, are reliant on taxpayer revenue. Property tax, sales tax, payroll tax, personal income tax, retirement tax are all in decline and infrastructure costs (roads, bridges, health care, wages) are on the rise . We have reached a tipping point where alarming cut backs in schools budgets, police force, fire departments, water districts, department of transportation are deteriorating the fabric that holds everything together. Municipalities are searching for alternative revenue sources and will begin to include emergency sales tax increases on November ballots across the country. This move by municipalities will drive the economy into further decline by taxing the heart of the economy, the consumer. What else can government do? Without much needed revenue cities budget deficits face the same bitter economic reality as businesses and individuals. Just such an event is happening with the city of Half Moon Bay, Ca. The city is "strongly recommending" that residents vote to approve a sales tax increase or the city will consider un-incorporating and handing the city of Half Moon Bay back to San Mateo County because they are insolvent. Events like this show the depth of the problem we all face.

What we have a year later is an abundance of pessimism. Yes we are saving more money per household, but spending less as well. Consumer confidence, though currently on the rise, is the life blood of the economic revival. With interest rates low and budget deficits high the government is running out of tools to fix the problem. Small business are the back bone of this great nation. Governments can stimulate small business growth through hiring incentives, revenue tax cuts, payroll tax cuts, temporarily lowering the minimum wage and creating easy qualifier business loan programs. These measures will increase hiring and begin to turn the wheel of economic recovery. With these measures in place our patient will then get of bed and regain the health and strength it once had.

Let's Get Back to Work!

There have been several economic theories mentioned in the news lately about the correct plan to stimulate economic growth. The current plan is for the Federal Reserve to begin an aggressive attack on lowering interest rates. There are many tools in the Fed toll belt that could be used, but recently the Fed has been purchasing Treasury bonds with the proceeds of maturing mortgage bonds. The Fed did so to make sure that the money supply wouldn't start contracting at a time when cash-strapped states are cutting spending to close their budget gaps. Buying bonds in the open market lowers the inventory of existing bonds for sale thus decreasing bond rates.

Is lowering the cost of borrowing money the answer to economic stimulus? In theory, by lowering rates and increasing the ability for consumers to qualify for loans, the Fed would be adding money to the economy, boosting consumers cash flow and increasing consumer spending. The theory seems credible except for the fact that increasing consumer debt is the foundation of the stimulus.

Having originated mortgages for 15 years and witnessing the economic impact of borrowing money first hand, I can honestly say that lowering the cost of debt does not lower the long term effects of debt. It simply moves short-term concerns (cash flow) to long-term concerns (accumulation of debt). The pendulum swings, but unfortunately does not stop swinging. Over the long term it turns a fire cracker into a stick of dynamite. At sometime the debt needs to be paid back. Do we really want to add more debt to a nation with a savings rate of less than 3%?
In the big picture, after the immediate need has passed, did the stimulus really benefit the debtor?

Increasing consumer debt is not the answer to economic stimulus, creating jobs is. Jobs increase cash flow not at the expense of the consumer, but for the benefit of the consumer. Business expansion will do all the hard work for the economy. The Fed also has business stimulus tools in the tool belt that could jump start business loans. How about lowering payroll taxes, unburden business by decreasing health plan taxes, allow easier trade of goods to name a few. The Obama Administration is too focused on the benefits of the few and the expense of the many. Use the tools that stimulate business hiring. Let's get back to work!

Prepare for an Uppercut!

I hate getting hit in the face, so when I see a punch coming my way I try to duck. An uppercut to the jaw is coming to most Americans next year so here is your chance to dart and weave. Not that you need more bad news, but the Obama Administration will have sweeping tax increases waiting for most Americans in 2011 and 2012. This is especially bad news for small business owners struggling to stay afloat. If your best friend is not a tax consultant you may want to begin to find one, because your net income for the next two years will be on the ropes taking body blows and jabs.

Personal income tax rates in 2011 will begin to rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:

The 10% bracket rises to an expanded 15%
The 25% bracket rises to 28%
The 28% bracket rises to 31%
The 33% bracket rises to 36%
The 35% bracket rises to 39.6%

Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.

The return of the Death Tax! This year, there is no death tax. For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones. Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.

This "Robin Hood Agenda" will rob Americans of much of their income tax deductions and distribute it to Obama funded health care programs, public infrastructure costs and a very expensive war overseas. If you feel that small business owners or families with children are feeling rich these days, you have another thing coming. This tax increase will drain the demographic, further decreasing consumer spending, thus extending the trend of bankruptcies and foreclosures. Worse than that it will extend US economic decline further into the future, decreasing jobs and business expansion. Hard to say what the impact will be to an already battered American, but imagine how Rocky Balboa looked after his prize fight with Apollo Creed after 15 rounds. "Yo, Adriane!!"

It's the Spending Stupid!

News reports are commenting on how the US consumer is spending less these days.
Why is consumer spending so important to the recovery of our economy? What about government spending, corporate spending, industrial or agricultural spending? Shouldn't these numbers far surpass the spending of Johnny Lunchbox?

Consumer spending taps into the very psych of the consumer. Think of it like a pulse on a patient in a doctors care. If the pulse is weak it says much about the patients overall health. Consumers spend with their emotions. Low confidence about future employment will equate to low spending at the retail counter. So if consumers are less confident are there any economic benefits to reduced consumer spending?

Consumer spending accounts for a whopping 60% of the US Job growth. Needless to say it is a key to the the economic recovery equation and 1.3% of the US growth rate is tied to consumer spending. Though second quarter 2010 GDP grew at a solid 3.2% annual pace that’s slower than the 5.6% pace of the previous quarter. This news arrives against the backdrop of a national unemployment rate that stubbornly remains at 9.5%. All this means that our economy is not changing anytime soon because the consumer has no confidence in the near term recovery.

The only benefit to not spending cash is saving cash. In the second quarter, the consumer savings rate was 6.2%, up from 5.5% in the prior two quarters. That's much better than the anemic savings rate of just 2.1% in 2007. If there is a silver lining to the slow economic recovery it is that the typical US consumer is reducing debt, saving more and being frugal with what they purchase. If we can maintain this pace the consumer will come out of this more stable and more financially sound. It is the spending that makes us or breaks us.

The Truth About Inflation and Deflation

There are warnings from the economic forces that we are in a new period of deflation and there needs to be a mindset adjustment to survive financially. The past 20 years or so have been a blessed time where jobs were plentiful, companies sales volumes increased and stock prices rose accordingly. The next several years will be plagued with quite the opposite. In these times of economic contraction what skills do consumers need to stay afloat? First let's define inflation and deflation.

Inflation is a good and bad thing. The good thing about inflation is that companies are increasing prices because there is a scarcity of goods in the market place (demand is high). With the factory conveyor belt turning faster more employees are needed to process the goods being manufactured. More hiring means more cash streaming into the economy. That seems like a perfect scenario except most times wages do not keep up with rising prices. If you cannot buy enough groceries to feed your family with increased earnings are you truly better off?

Deflation is also a good and bad thing. During times were prices are falling your dollar will go further (you can buy more goods), but at the cost of decreased income. Economic contraction means the factory conveyor belt is turning slower so less employees are needed. If your dollar is buying more, but your wages are less are you truly better off?

The truth about inflation and deflation's affects are your ability to adjust spending. The mindset for the years ahead is to focus on saving money. Stay away from debt and unnecessary spending across the board. Commodities such as homes, cars and clothes that are currently sold at a premium will adjust down eventually as less are being purchased. In periods of economic contraction cash is king because there is less of it. Unlike times of inflation, in deflationary periods where prices are falling, a penny saved is really a penny saved. If you are a saver the next few years will be a blessed time. Be frugal and your piggy bank will be your new best friend.

The New Value

I have been reading articles lately how determining value is becoming an art form. How do you appraise an asset today when so many economic variables effect its value tomorrow? New appraisal repositories are entering the field of reference. A once easy task is becoming a sophisticated venture. When it comes to financial assets (houses, boats, cars, stocks, cash, gold) which is the best to hold when most hard assets are in decline?

As the economy contracts so does the value of most hard assets. Some will reduce in value greater than others. The most expensive of financial assets would be real estate. One of the main contributors to the housing decline (besides supply increasing and tight lending) is that most homes needs to be acquired through obtaining a loan. In a down economy shouldering excessive debt can make life challenging. The affordable homes market is not as affected (less debt) than the expensive home market (more debt) and therefore is selling easier. Other assets such as boats, autos, art, and jewelry have had a significant decline in value as well. Most investors at this time would rather hold cash that any of the above mentioned assets. In down economies cash is king.

We should also mention gold. It has been said that gold is the best asset to hold in a down economy. With declining value in cash and exchange rates of foreign currencies, investors are selling cash and buying gold. There has been a huge run on gold as investors sell other "cash like" assets such as commercial paper, bonds, stocks, and Cd's. In down economies gold has always been the counter-cyclical assets of choice. It is easy to sell and looks pretty on your finger.

So what is the most valuable of assets? It would be your health! Having good health will save you thousands of dollars on prescription medication, keep your medical insurance premium low, reduce sick days from work and generally make you a more pleasant person to be around. Health is the #1 asset to hold in any economy. So be a smart investor and take your vitamins, get on that treadmill, floss your teeth and cut back on the ice cream. The return on investment will last a life time!

Gains Are Found in the Highs and Lows

It is always insightful to see changes in the landscape. The feeling you get after a rain and seeing the flowers in full bloom. Being in the finance industry since 1985 I have gained much perspective (and a grey hair) in the highs and lows that come with investing. It is insightful as well to see the many changes that come when financial reforms are put into place. The feeling you get when you know the impact reforms will have on an industry will shift the balance of power.

During the meteoric rise of real estate values during the years of 2002-2007 it was insightful to see investors stumbling over themselves to scoop up houses to the tune of 20% annual appreciation. I had experienced the same unbridled consumption during my stock broker years in the 80's. Movies like "Wall Street" glamorized the edginess of being on the inside and capitalizing on fast money. Stocks were the rage and hot-shot money managers had rock star status predicting the next up and coming, million dollar, over night trade. Stock investors were earning 200% gains on penny stocks, new technologies were making the medical stocks rocket and even sleeper industries like retail companies were growing double digits. All good things must come to an end and as the SEC tightened rules after the market crash in October 1987 the balance of power shifted into tighter trading reforms.

What impact will the current reforms have on business? Reforms make the system contract as new rules fall upon the players. Regulations act like filters to decrease the pace of expansion. Business loans will become harder to fund, both "stay afloat" loans and "business expansion" loans, as businesses collateral-backed assets dry up. With less money to lend business will need to become more innovative to survive. There is a natural selection in process. Businesses that fail were targeted by the system to fail. It is the way it is meant to be. As the business landscape changes there will be new and innovative "rock star" business that will thrive. Just like flowers after a rain they will bloom brightly for all to see.

http://money.cnn.com/2010/07/20/news/economy/small_business_lending.fortune/index.htm

One Step in the Right Direction

Very soon our president will sign into law the Financial Overhaul Bill of 2010. This 390,000 word document was created from the ashes of the 2008 banking collapse that brought the worlds financial systems to its knees. The bill, being released from the Senate next week, will be the heaviest piece of legislation ever created and the most sweeping reform bill since the great depression. Though the repercussions of the bill will not be felt for years, it stands to protect consumers from predatory lending, sets up systems to more heavily scrutinize financial institutions and generally make banking a more transparent operation.

This is not the first time the banking system has failed though. The Savings and Loan crisis of late 1980's was the first major event to call into question where banking executives bread was being buttered. Systems become corrupt when individuals that are being compensated by volume incentives are told to "ethically police" the system. Any organization managed only by its internal components is doomed to fail. Leaving the Rooster in the hen pen will not always make more chickens.

In my opinion the reform bill is a very good thing. Being an ex-mortgage banker myself and experiencing first-hand the rise and fall of the financial industry, banks need more scrutiny for their own good. Consumers will be the residual beneficiaries of the bill, but so will the global banking system. Initially, as in 1991 when the S & L Reform Bill came into law, there will be complaints, increased fees and substantially greater processing times, but over time the global banking system will be in better synchronicity. This is one step in the right direction.

http://www.dallasnews.com/sharedcontent/dws/news/washington/stories/DN-overhaul_16nat.ART0.State.Edition1.29a137f.html

Is the Truth Black, White or Grey?

Many mixed signals are coming from Wall Street. Every day we get peppered with positive and negative reports. On one channel we get that unemployment is increasing (bad) then another channel reports that the unemployment "trend" is improving (good). I turned on the radio and heard that mortgage rates are the lowest that they have been since 1963 (good), but home foreclosures outpace new home sales (bad). Oil giant British Petroleum capped the gushing oil well in the Gulf (good), but the Gulf Coast may take centuries to recover ecologically (bad). I guess it is how you see things that make you either smile or frown.

For home buyers or home sellers the recent drop in property values can be seen in two perspectives as well. If you are a homeowner selling the home you have lived in for years then you are probably thinking "Why didn't we sell years ago when values where higher". The other perspective could be "Look at how cheap homes are now! When we sell we can buy a bigger home cheaper than what we owe on this home". Home buyers are pummeled with decisions. The shear volume of properties that are hitting the market daily is overwhelming. For a home buyer, in this crazy market, it is hard to hit the bulls eye when the target keeps moving.

Fact is that value is very subjective. Each human is in a slightly different space and sees value proportionate to their interests. Mixed signals, whether they come from Wall Street or Main Street, are a way of life. I was told long ago to never believe anything you hear and only half of what you see. Most feel that news is presented with some form of bias and we must go with our gut and find the truth out for ourselves. Bad news sells newspapers and over-dramatization is the norm. We are taught that truth is black or white, but in today's media, truth is somewhere in the grey.

Eliminate Mortgage Interest Tax Deduction?

I have read recently that in an effort to increase government revenue the Obama Administration is considering eliminating the mortgage interest tax deduction. I can only imagine what a quagmire government cash flows must be in from funding such colossal projects as the 2008 banking crisis, the ongoing and escalating expense of the Afghanistan war, Haiti relief efforts and now the Gulf oil spill. Trying to understand the myriad of government economics would take a brain much larger than mine. Given that there are big brains on government payrolls I am sure there must be better ideas on the plate that nixing the mortgage interest tax deduction. What are they thinking? Hasn't the real estate industry had enough impact? Even the consideration of such drastic measures would deliver a knock out punch to an industry barely hanging on to the ropes.

In an effort to better understand the "Robin Hood" mindset of taxing the rich and giving to the poor, what would elimination of the tax credit render the average American? If you had a $200,000 mortgage and were claiming $10,000 a year in mortgage interest deduction you would now pay taxes on $10,000 of income that was shielded by the deduction. If you were in the 25% income tax bracket you would have to pay $2,500 additional in taxes per year ($208 per month). In a down economy with national unemployment just under 10% how is that going to stimulate consumer confidence? Talk about a regressive tax. This would kill the economy, unfairly burden the homeowner and hurt everyone employed by or associated with the housing sector.

Might I suggest a more progressive attack. If you want to go after the rich (I mean the really rich) start by taxing capital gains more aggressively. Then go for the ultra rich by taxing drug and oil companies. How about manufactures who produce products that damage our water, air and soil like tobacco, plastics and pesticides. How about a tax on the fast food industry that create products that produce high blood pressure, cholesterol and diabetes. Leave the homeowner alone. Yes, Robin Hood would be very proud of all that.

How European Woes Effect You

The European debt crisis is showing new signs that its credit problems are far from over. The European Nations, being one of the largest buyers of US mortgage backed securities manufactured from 2004-2007, is beginning to face the fact that their exposure to sovereign debt could haunt them for years to come. In 2009 US banks imposed “stress tests” on their ability to adequately provide sufficient liquidity during an emergency run on assets and avoid another round of government bank bailouts. European banks are now implementing similar tests.

Highly publicized economic events show stress on the system such as Greece’s public revolts against reforms as the government slashed programs and raised taxes to cover their mounting debts. Germany and Spain are also engaging economic reforms restructuring debt, reducing political banking appointees and branches. The Bank of England, in similar fashion, recently increased their “capital cushions” to protect banks liquidity.

How do European credit woes affect you? Banks are trying to avoid another liquidity crisis by increasing reserve requirements. These reforms have made rates banks lend to each other (over night funds) increase. Tighter banking reforms will drain the system of liquidity. Less liquidity will hinder banks ability to lend freely. Underwriting guidelines will become tighter and loan application scrutiny will increase. If you haven’t applied for a loan in a few years get ready for a new experience. Tighter regulation will not only affect the amount of information you will have to provide, but also lengthen the process, increase costs and ultimately may hinder your loan approval. Over the long term these reforms will provide a more stable global financial structure with significant safety valves, both high and wide, to protect itself from another melt down. Over the short term there will be more pain and less gain.

The New "Downsized" Real Estate Forecast

There are new economic forecasts pouring in from Wall Street that there will be another down turn in home values in the months to come. Economists are predicting decreases between 3% to 5% nationally, but some markets could see greater declines. This should come as no surprise as new home ownership economic stimulus money dried up in April of this year, employment is sluggish at best and consumer confidence is in steep decline . It is sad but true that without government incentives people are just not that optimistic about purchasing real estate. You would think with mortgage rates at historic lows, home prices 35% off their market highs (much more in some areas) and plenty of seller incentives on the table, buyers would be flocking to home ownership. Fact is in down economies cash is king and most are holding on to cash for necessities and emergencies. People feel in their gut that we will be in a down economy for several more years and gambling on home ownership is not a option at this time.

What drove the boom in real estate values from 2001 to 2006 were market speculators, investors and huge Wall Street REIT pools. There was plenty of cash to be made and everyone wanted in on the game. Cash was everywhere flowing like a river. Like all good things must come to an end, in August of 2007 financial markets froze and the party was over. There is an old adage that greedy pigs get slaughtered. Most "pigs"who participated in the speculation are now broke or slowly becoming broke. Real estate can be a good investment depending on what time frame in the economic cycle you hold it.

The bottom line is that real estate is in essence shelter. Along with food, air and love we all need somewhere to lay our head at night. There have been decades where real estate was never seen as an investment, but as a home to raise your children and shelter your family from the storm. Purchase real estate not on speculation, but on becoming a member of the community and laying down roots. Owning a home adds value to everyone that surrounds you, not to mention tax advantages and a potential for appreciation. Renting will never feel as good as owning and owning now is cheaper than it has been in 10 years.

http://money.cnn.com/2010/06/23/real_estate/new_home_sales/index.htm

Why We Drill Offshore and Pay $3.00 for Gas

It is a very sad moment when you suddenly realize that we are all just being led down the chute like pigs in the poke. As individuals we like to feel that our contributions helps the world somehow and what we do everyday matters. Then you read an article that sets you back a few feet and makes you question what really is the big picture? Who is really running the show? Is our world run by a planet of individuals or is it run by governments and corporations back slapping, cigar filled, back-room hand shake deals.

We have all been led to believe that the world of goods and services runs on a system of supply and demand. Prices for these goods and services are determined by how much we demand and how much is available (ie, higher prices if what we demand is a scarce resource). Then you find out that prices of something that everyone on the planet demands is not calibrated that way. Maybe the world as we know it is not as we know it. Maybe governments and corporations have back-door agreements that artificially fix prices so that they can benefit financially while the rest of us suffer.

Imagine how much better we would be economically if gas prices were allowed to be a true supply/demand market price. How much better would your bank account look if it only cost $25 to fill your gas tank instead of $60? How much lower would your power bill be? How much would air fares go down? Fact is gas prices have a HUGE impact on us all and not just at the gas pump. High gas prices ripple through the economy like waves, effecting everything in its path. Though there are other artificially priced industries due to government subsidies, tariffs, fines and taxes, none that impact us as much in the pocket as gasoline. The article below says it all. Time to squeal...

http://www.usgs.gov/newsroom/article.asp?ID=1911

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