And the answer is …

In today’s economic climate there are many important questions floating around. Here are three of the most asked, and their answers.

Q. I’m worried about the national debt. What can I do about it?

A. Nothing! Our current budget deficit in the U.S. is encroaching on two trillion dollars. To give you an idea of the size or that number, consider that if we as a country were able to pay one dollar per second, every second of every hour of every day against that amount, it would take us the next 63,300 years to remove the current negative. Next, consider that debt is not an evil item. Debt is necessary to stabilize the economy. Debt is necessary to maintain our banking industry. Debt is necessary to provide capital for development, growth and the origination and expansion of wealth. Debt is not the problem. Greed and stupidity are the problems. Stop worrying.

Q. When will the economy turn around?

A. Now. Remember that we don’t even know that a recession is happening until long after it has gotten its greedy meat hooks around our collective throats and started to squeeze. Once we know it is there and begin to respond, it starts to turn around. People cut back, budget better and don’t spend extravagantly. They put off major purchases and quit feeding the inflation monster. Yes it is painful for a time because there are layoffs, cutbacks and bankruptcies. These things are not a result of the bad economic times, they are representative of the issues that actually caused the recession. Poorly run companies will inevitably fail. Poor investments will be lost. Bad decisions must result in negative consequences. It just so happens that we have experienced a kind of a perfect storm where these things all happened at the same time. The good news is that when management gets their businesses under control, people restrict their debt and investments yield reasonable returns that are indicative of profits and not unrealistic dreams, then things will improve. They are doing so now. Go out to dinner and a movie Friday night and see if the restaurants and theaters are empty. They’re not. In the real world things are OK and getting better.

Q. When will home prices stop their decline and start up again?

A. Now. Home prices have been grossly inflated. This market has operated in an irrational economy for years and has finally experienced an economic correction. Single family home prices were driven up by unrealistic expectations of appreciation in value. Buyers were “buying now” because they were told that if they didn’t they would never be able to afford to. Investors were told to load up because the prices were just going to continue to climb. Debt was not just 80%, 90% or even 100% of the value of a home. It often exceeded the value of the property. The income of the buyer’s meanwhile was not keeping up with the demand for higher and higher resulting monthly payments thereby insuring future defaults. Investors bought counting on continued aggressive emotion (not investment) based appreciation, but could not maintain their payments because rents could not keep pace with the investor’s payments. So the bubble burst. Still, even with up to 30% drops, home prices are only back to where they were two to three years ago. That’s no so bad when you compare it to the 60% to 65% of loss suffered by many investors in the stock market. Like it or not, current inventory needs to be absorbed, underlying debt needs to be consistent with the ability of borrowers to make their payments and appraisers need to value properties based on the economic realities of the market and not on the need to produce a high enough number for a buyer to qualify for a loan on an overpriced property. Sanity is returning to the market. There are positive signs in a number of local markets and this will spread. The worst is over, so long as intelligence reigns with regard to pricing and lending decisions.

Opportunity abounds for those prepared to seize it. However we must be prepared. That means availing yourself of information, experience and education. Learn everything you can, and trust only those with the experience to justify your trust. I believe it was Andrew Carange that once commented on the fact that men are often chauffeured in a Rolls Royce onto Wall Street in order to get advise from someone who came to work on the subway. That’s the way it is in real estate as well. People often get and accept advise from the most unlikely of sources. Get your investment advise from some one who is qualified to give it, not just licensed to collect a commission. I strongly suspect that unless someone has made a million dollars in real estate, they are not qualified to tell you how to do it.

Never go into any scenario blind. You know what the Good Book says about the blind leading the blind. So do your homework. If you do, you will do fine.

If we can help we would be glad to.