Fritz Pfister

For several weeks now I have recommended to the listeners of my Let’s Talk Real Estate radio program, to co-workers, family, and friends to read Aftershock by David Wiedemer PhD, Robert A. Wiedemer, and Cindy Spitzer. These were one of only a handful of people that predicted the financial collapse of 2008, and now they’re predicting what’s coming next for our economy.

If they are correct, it is down right scary. Ignoring their evidence regarding Federal Reserve actions, the massive deficit, and the falling bubbles in real estate, and the stock market will not change the ultimate fate of our economy.

I am not a financial planner, economist, tax specialist, or stock expert, however I can read. Educating yourself at this very moment may save you severe financial pain in the coming years. There is a window of opportunity with interest rates at the lowest level in our lifetimes. When interest rates begin to climb they will never be this low again in your remaining lifetime.

You can take advantage of this opportunity now by refinancing to the lower rate and guaranteeing a low and affordable house payment when the economy declines into a double dip recession. You can buy a home if you are currently renting that will insure you will know your housing cost going forward.

What the authors are predicting is a triple double, which is good if you’re a basketball player, but catastrophic for an economy. Double digit unemployment, double digit inflation, and double digit interest rates.

In spite of what many ‘experts’, talking heads, economists, our president and vice president are saying, there is no recovery. The administrations ’summer of recovery’ tour is merely cheer leading with hopes of building confidence. The underlying fundamentals guiding our economy have us headed for another serious downturn.

Let’s put aside Democrat, Republican, liberal, and conservative labels and just look at the reality of our economy.

The real unemployment rate is over 17% when counting the underemployed and those who quit looking. The recent fall in the ‘unemployment’ rate is misleading. Consumer spending has fallen two straight months.

New home sales are at the lowest levels since records have been kept. Millions of homes are either in foreclosure, or behind at least one month on payments. Twenty five percent of Americans owe more on their home than it’s worth, and without home equity their discretionary spending has ceased. Deutsche bank forecasts fifty percent of homeowners will be under water by 2011. Fifty six percent of economists say home prices will fall the remainder of the year. Mortgage analysts forecast interest rates to increase to 5.5% by year’s end.

Existing home sales fell in May in spite of record low interest rates and the tax credits (excepting Springfield who has a tendency to run opposite national trends). Springfield area home buying activity has been nearly halved since the tax credits expired with pending sales down 48% when compared to the same number of days before and after the April 30th expiration. 

Our government continues to deficit spend at record levels. The Federal Reserve has inflated the money supply by bailing out banks and Wall Street. The U.S. is buying our own bonds with printed money because foreign investor’s have slowed their purchases. Forecasts are for the national debt to pass $19 trillion by 2015 due to the costs of health care legislation, a 42% increase in welfare spending since 2008, and funding for social security benefits.

Admiral Mike Mullen Chairman of The Joint Chiefs of Staff said the most dangerous threat to our national security is our debt. The comptroller reported this week our interest payment on our debt will be $537 billion by 2012 (at today’s low rates) which is greater than the budget for the entire defense department. Due to our debt we won’t be able to afford to protect ourselves.

The problem with the new transformative laws being passed such as health care and the financial reform bill are what is being claimed these bills will accomplish and the real world economic, and societal consequences are polar opposites. The health care bill will cost more than claimed, won’t save money, won’t improve delivery of health care, and won’t stop the rising costs of health care or health insurance.

The financial reform law is so bad an analyst on CNBC said that within two years congress will be scrambling to undo this bill because of the harm it will cause the economy. Higher reserve standards sound good, but that means less money available to loan. However the most egregious portion of the law is the granting of unrestricted power to the executive branch allowing the Department of Treasury to declare a company, bank, or brokerage a systemic risk to the economy, seize the company’s assets and liquidate them.

With this threat of unchecked power to deal a death blow to their corporations, banks that would have viewed a loan permissible under prudent lending guidelines will now begin to deny even safe loans. All this will add to a falling economy, driving up unemployment, and curtailing business spending.

These are the facts on the ground. Does not matter your political affiliation, does not matter what you want. Between Arthur Laffer, the Aftershock authors, and Roubini the evidence is overwhelming we have not seen the worst yet.

We are insulated in Springfield because it is the state capitol. This will not change, however the number of people employed by the state will fluctuate. We have a strong health care community that will serve as a stabilizing force. Tax revenues however will continue to decline to all levels of government with rising unemployment. People with jobs pay taxes.

While the nation reels from the next phase to come we won’t be as severely impacted. Our housing prices won’t collapse, they may fall some, because they never took the meteor ride up. The number of sales however will decline. Those most impacted will be the ones who must or need to sell their homes. The market will favor buyers.

Something to be said about the security that this window of opportunity presents with the lowest interest rates in our lifetimes. Secure your future now, so you can better weather the economic storm that is on the horizon. Taking action yesterday wouldn’t be soon enough.

The opinions expressed here are solely those of Fritz Pfister, or identified sources,  and not those of RE/MAX Professionals of Springfield, or RE/MAX International.