Prescott AZ Real Estate

The American citizenry has become much more atuned to the function and corruption of the elected officials in Washington D.C. We read reports of vast sums of money being spent on dubious projects and feel powerless to do anything about stopping them. Witness the “Shrimp on a Treadmill” expenditure of over $682,000. If you had line item veto power to stop this project, would you? I certainly would. Where do these budget items come from? Think about some politician trading his “Aye” to some  bill in exchange for the “Shrimp on a Treadmill” getting approved as it benefits some financial reelection contributor. A recent report by Senator Tom Coburn of Oklahomo identifies billions of dollars of waste. Click on the following link and see the line items and decide whether you would approve any of the items. Report on Government Waste

Remember the commitment by various presidents to scrutinize the budget and eliminate any items using the office’s line item veto provision? Well, if he can read it, understand it and make a decision, we, the citizens of the United States ought to be smart enough to do the same.

There are some rules that I think could make this work.

1. Pass a constitutional requirement that the budget be published by April 30th in advance of the coming federal budget year which commences on October 1st.
2. Provide for an independent, bipartisan research entity to condense the budget down to a readable document by June 30th.
3. Provide a way for “We The People” to vote “Aye” or “Nay” on each item by August 31st.
4. Publish the results by September 15th.
5. Permit congress to challange any line item rejected with published comments and let them debate and approve rejected items openly with names voting for and against the approval.
6. Enact the budget.

You might wonder how we would be given the medium to cast our vote. The census in 2010 cost the people $13 Billion.  Census Cost 2010 Imagine how much we would save by eliminating the waste.

I read extensively on the political environment as well as the economic environment and try to translate that into a perspective for Real Estate in Prescott. Over the past five or so years many of us have lost vast amounts of equity in our homes, large declines in our stock portfolio and many have lost jobs or have experienced declines in volumes in our small businesses. Then there is the “Risk Taker Investor” in real estate.  The success or failure of this investor is very much timing based. If you bought in 2004 or 2005 and you held on you were killed in a declining market. If you are buying now, you will probably experience handsome gains in the coming years. I bought in 2002 and 2003 but failed to see the bubble and am currently lamenting my lack of vision.

But this entry is not about failures or successes, but about one investors perspective as it relates to what we might expect in 2012. In order to make some measureable prediction we need to review the current landscape of real estate. Like any other segment of investing, there are many controlling factors as well as periphial factors that contribute to making a decision to buy or sell some asset.  When investing in real estate it is noteworthy that real estate assets  are illiquid. It has a high cost of acquisition and divestiture. It is subject to the conditions at the time of expected sale and it requires a serious amount of attention between buying and selling. I am most familiar with single family residential properties for rent. Finding a good renter is not at all easy. To find a good renter takes some serious fact gathering and a real solid sense of recognizing integrity. But, let’s get back to predictions and what 2012 will bring us.

In order for our economy to recover, we need to understand the connections and to voice our support for these with out legislators. Our economy is faltering because far too many workers are unemployed. Well, you say, that’s because there is no demand. Then you say companies are not hiring. The reasons are debatable. It’s the chicken and the egg scenario. What we know is that what has been tried for the last several years has not worked. I believe that companies will hire when they can see the opportunity for profit growth.

 Let me make the following fundamental argument that given the right circumstances, companies will invest in their future and hire. Let’s say you are tracking a certain stock, perhaps Apple. We all know buying high and selling low is bad. So we watch the stock price, the market conditions and the environment in which Apple operates. What do you do? Well, we wait until the stock is at its low, according to your analysis, and then you buy.  When you made the decision to commit your dollars, you wanted all the facts surrounding the potential success and price growth. Are today’s business owners certain that the environment is right for appreciation of their stock or that they will make more money by hiring more people? The economic environment shouts a loud “No.” What factors need to change to provide a certainty that it makes sense to hire?

Politics: At the federal level there will be much change. The policies of the past ten years have failed us. As a nation we should have a surplus of 15 Trillion dollars, not a deficit. The politicians in Washington do not have any connection to the emotion of losing money that you and I have on a day to day basis much less making a profit and the excitement that brings. When you cannot make you house payment you become emotionally concerned and vow to make sure it never happens again. They don’t care. They are not invested. We are finally waking up as a citizenry to this reality.

• What will happen – A change from the existing party to the other party. The result might bring economic growth because the incoming party has a difference philosophy on how to grow the economy and inspire companies to hire.
• There will still be gridlock to some extent because there will not be a filibuster-proof majority in the Senate. This however can be circumvented as was done with the Affordability Health Care Act by using a trick called “Reconcilliation.” This trick only requires a majority in the Senate. As it was used before on major legislation, it will most likely be used again.
• States with huge budget deficits may default. This will cause restructuring of pension and benefit plans for state workers. This must be done to save them. There is just not enough revenues to fund them long term.
• A balanced budget amendment will be tried but will fail as the keepers of the keys just cannot address fiscal responsibility. Besides, the states need a 3/4 approval to ammend the constitution to permit a Balanced Budget Amendment to the constitution.
• The Supreme Court will strike down the Affordability Health Care Act. This will cause a flurry of proposed legislation to  offer alternatives. Legislation to incorporate patient involvement in the decision to secure services from a cost standpoint will start. You will see the costs for a procedure and you will see how much you will have to pay. You will then decide to go forward or not or at least negotiate. Today there is no negotiations involving the patient. It is done by some bureauocrat who is not vested in the savings.

Economy: There is a high probability that Europe will go into recession and the United States will follow as a high percentage of American corporations have large percentages of their revenues generated in Europe. As countries across Europe slow down so will their purchases of American goods. As their currency gets cheaper they will compete for the same business that American companies do and they will take some of that trade. Greece will never recover. Their unfunded liabilities are a systemic time bomb. You can’t give them enough money. They will continue doing the wrong things. It’s cultural. This will lead to other governments defaulting on their debt. Look at MF-Global. They went down betting there would be a solution to European debt.

• Europe goes into recession and there is less disposable everyday income and people will stop buying.
• The U.S. goes into recession and the same thing happens.
• The U.S. Congress fails to address the entitlement issue in a meaningful way. We are on the way to a 27 Trillion dollar deficit. We borrow about $.40 of each dollar at roughly 2%. That is over a half billion dollars in debt service each year that goes to countries who basically hate our way of life and would love to see us fail. Wake up America! This is very scarey. The debt payments to China today fund their military buildup.
• The stock market will decline at least twenty percent. As corporations sell less goods their earnings drop. As their earnings drop their Price/Earnings ratios drop. As the P/E ratios drop, they stock pundits lower estimates and the stock prices fall.
• Unemployment wll falsely be reported as declining as more and more people decide to stop looking for a job and unemployment benefits end.
• Real estate can’t decline much more as prices are already at a low compared to historical statistics. There are still a lot of properties held by the banks that they will not release because by doing so will cause another decline in prices. Watch them trickle them out over time.
• Loan modifications will be insignificant as the banks who have money, time and expertise, drag out the process in order to discourage owners. This will result in continued uncertainty and more renters. More renters makes for higher rents.

America is the greatest country in the world. Where else could someone write what I have just written without some armed official showing up at mey door and asking me for “My Papers?”

Things will improve, but not as quickly as we all would like. Some things I like to suggest while radical, would speed up the healing and move us to a better place.

1. Balanced Budget Amendment to the constitution
2. Repeal the Affordability Health Care Act.
3. Term limits for all federal politicians. One term, no more. This would eliminate campaigning.
4. Flat tax. Everyone pays something.
5. Eliminate deductions for everything except real estate and charitable contributions. We need housing growth and there are a lot of people in need. Charity should be a choice by the individual not the government
6. Scale up the retirement age.
7. Move medicade to the states. They know their people and the federal government should be out of this.
8. Establish local councils that the local representative and senator must report to quarterly. Establish recall rules for every representative and senator.
9. Repatriot overseas dollars at a low rate to get that money back home.
10. Penalize countries who refuse to fairly price their currency
11. Provide line item veto power to the people. Publish the budget and create a mechanism for the voter to vote “No” to ridiculous elements of the budget.  Teaching shrimp to run on a treadmill needs funding? $682,570.
12. Eliminate the Department of Education. Have our children become more competitive due to the DOE’s oversight? Really?
13. Become energy independent. Let’s stop chasing wind mills. We need to drill, frack, drill offshore (Where other countries are already drilling.) How does that make any sense? We need more nuclear power. We know how to mafke failure-proof reactors,. Don’t let anyone tell you differently. Eliminate the Department of Energy. Do we even know what they do? Do we approve of their charter?
14. Homeland Security Department is a failed agency. Restructure it or eliminate it. Can’t protect the borders so what exactly are they doing that the FBI, CIA, DOJ and on and on, is not already doing?

More later. There is so much to fix, it is incomprehensible.

I still think we should have $15,000,000,000,000 in the bank instead of being in debt $15,000,000,000,000. Would we have power to influence the emerging countries? Think about how money drives behavior of those who need it.

Simple Solutions to Solve What Ails the United States Economy – Part I

Common Sense View of What’s Wrong and How to Fix this Mess

So we read a lot about what’s going on in our economy and the world but we are confused because there is so much interconnected data and opinions.  Let’s try to cut through the fat and provide one person’s view about what should be done to fix the biggest problems the United States is experiencing today.

Setup

We all read the newspapers, watch the news, read articles from magazines and occasionally read those hated email messages forwarded by our friends. They all support one idea or another, some of which we think might merit consideration, and some that make no sense at all. Those that make no sense at all are the ones proposed by some PhD in economics and are so infused with statistics that many of us gloss over, roll our eyes or go immediately to the safety of the comic strips. Some of us actually try to store the data away someplace so we can effectively argue our political beliefs with our obviously misinformed friends or family. This is the best way, by the way, to insure you won’t receive visitors from the North to your home in the South, over the summer. [Read more...]

I deal with Real Estate in Prescott and the Prescott Quad- City-Area. I am frequently asked about the negative effect various desperate financial decisions have on the ability to recover from your financial decisions. “How will a short sale, foreclosure, Deed-In-Lieu or bankruptcy have on my credit rating? How about my ability to buy a home in the future?”

While all banks have differing standards there are generally some guideposts that you can use if you sit down with a few bankers and average out their responses. I did this with just one of Arizona’s premier lenders and here is what was concluded. [Read more...]