Friday, May 7, 2010

Real Estate And Our Economy, How Are They Connected?

Most have watched the real estate market wondering what lies ahead. While no one can predict the future various government programs for delinquent and financially challenged homeowners reveals a disturbing fact. The delinquency trends for all the types of loans are up.

Wait you say those aren't those just sub prime loans I hear about on the news? Does it really matter if it's prime or sub prime? The national average is 13.2% for total non-current home owners. This statistic counts both delinquencies and foreclosures. The largest market, California ranks at 15%, Illinois at 14%, Pennsylvania at 10.7%, and Florida, the highest, at 23.5%.

For example homes in Orlando Florida that were selling for $150,000 to $200,000 four years ago are regularly being bought for under $50,000. Everything that happens in real estate can happen because of other things. Just a few of the many examples are taxes, lending practices, interest rates and unemployment.

Many of us who thought that we were going to see REOs (real estate owned by lending institutions) all over the place for the last year were surprised. That hasn't happened to the extent most thought because there was an intervention by the government. But how will that intervention and the aging population impact us moving forward?

Having a Federal deficit that is trillions of dollars (still growing) with the aging of the baby boomer generation will cause big changes that effect finances and real estate. I've recently read a report that says we are going to see higher taxes too, maybe even up to 45 percent for the top tax bracket in 2011. If we're going to try to resolve our problems and pay for past mistakes using government intervention, the money has to come from somewhere doesn't it? Logically we're going to have to pay higher taxes. Yet raising taxes over time historically leads to higher unemployment. With aging consumers buying less (because savings and equity in their home are now less) this will put more of a burden on the government due to fewer tax revenues and greater government expense.

There is at least one silver cloud. The prediction is for low interest rates for the next couple of years!!

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