A Look Back At the Year That Was
2008
Right now, it seems the world is mired in a cycle of asset deflation and recession more severe than anything seen since the Great Depression of the 1930’s. 2008 was a year of financial strain and over-leverage so dramatic that the financial system of the US and the world was shaken and pushed to the point of failure. Without the many liquidity injections and equity stake interventions of the Federal Reserve, hundreds more of world’s most celebrated financial and “main street” institutions would have stayed insolvent, and crumpled underneath the weight of over-leverage and toxic balance sheets. The result was extremely rapid asset deflation and balance sheet de-leveraging that took about 30-40% out of most asset classes. The result has been a decade worth of losses in many asset classes over a few short and very painful months.
The fallout has been financially nuclear and it feels worse. Although most expert economists feel strongly that a second depression has been avoided, the economy is in recession and many figure has been since December 2007. Recently released unemployment statistics show US unemployment at (7.2%) which is higher than average or desired. Jobs are being lost at a rate of over 500,000 per month. Due to the magnitude and speed of the real estate and equity market declines much wealth has been evaporated in the wallets and portfolios of individuals and corporations globally. There is still a twelve month inventory glut of primary residential real estate around the country focused mainly in areas like Las Vegas, California, Arizona, and Florida. This glut continues even though existing sales prices in those markets on primary residential real estate have tightened 30-40%.
Worse than that, very few are willing to move forcefully into any asset class including real estate. Despite the efforts of the Federal Reserve, credit although improved is still much tighter than norms. This is making it difficult for small businesses and individuals to create new lines and extend existing credit facilities. According to (http://www.bankrate.com) 30 year fixed mortgage rates have decreased significantly and currently hover around (5.13%) which is historically low. Foreclosures continue to pile higher as folks can no longer or choose not to pay for their homes.
Most people are “shell-shocked” and are sitting on the sidelines to watch what happens. Nobody can question anyone for waiting to do anything at a time like this. After all, the above sounds like the financial apocalypse right? Many have given up all together in complete capitulation, general disgust and mistrust in the financial system of their country, and those that run it. It seems right now that there will never be another dollar enjoyed in real estate appreciation or rental income. The only risk most people see is to the downside and that the catalyst to real estate ownership has vanished forever. This lack confidence can be seen in the horribly low confidence numbers released in the University of Michigan monthly confidence reports. We are currently in grim economic times globally…sad but true.
It is great to know what has happened and where we are today, but what is most important and what decisions should be based upon is where are we going from here?
Our next few letters will focus on the present and our belief of how things could and will play out in the secondary luxury real estate market moving forward now and over the next few years.
Happy Reading J