Preparing for the Coming Real Estate Collapse

Welcome to this week’s Urban Survival Newsletter, brought to you by the Fastest Way To Prepare Urban Survival Course.

Last week, we talked some about food inflation and how to use the subject to encourage loved ones to convert some of their emergency funds or rainy day funds over to food storage.

There are several reasons why we could experience food inflation in the US, including a weakened Dollar, natural disasters (including freezes), an increase in petroleum prices (The average distance that items travel to make it to the average family’s table travels an average of 1,400 miles, so transportation costs can be significant,) manmade disasters, and screwing around by the government (ethanol), and more.

As unrelated as they may seem, I think there’s a high probability that food inflation will have an impact on the residential housing market.  In addition to food inflation’s potential impact on residential real estate prices, we’re going to talk about another factor that is likely to have a negative effect on real estate prices.

The common factor that’s at play is the fact that most people don’t buy a house based on the price…they buy it based on the payment that fits in their monthly budget.  It doesn’t matter whether or not you paid cash or paid off your loan early…if you decide to sell, it will probably be to a buyer who uses a mortgage.

So, here’s how food inflation has an impact on real estate prices.

First, arable land has been shooting up as a result of demand for corn for ethanol.  I just talked with one landowner this week who bought a great piece of property for $2,000 per acre 2 years ago.  Another piece of land that’s MUCH lower in quality, but the same size across the road just sold for over $5,000 per acre.

Three items to think about here:

  1. If you want to buy farm land of any size, be aware that it’s a different world than it was a couple of years ago.  People are buying land trying to get in on the “ethanol gold rush” at the same time that preparedness minded people are trying to buy land to support themselves on.  As a result, land is going for what many would consider “stupid” or at least unsustainable prices.
  2. The more land that changes hands at these new, higher land prices, the longer it will take for food prices to come down if/when the ethanol mandate is reversed.
  3. If the ethanol mandate is increased, as the current administration is promising, it means that we can look forward to higher land prices, higher food prices, and an even longer period of time for these artificially high prices to work their way out of the market.
  4. I think there is a good chance that the increase in food prices will cause a DECREASE in the value of single family homes in urban areas.  Here’s why:

According to the Department of Labor, the average US family spends 12.9% of their pre-tax income on food and 20.2% on rent/mortgage.  If you squeeze a family by increasing the cost of their food by 10%, that money has to come from somewhere else.  If it comes out of the money they have available for rent/mortgage, then it means they have roughly 5% less available.  Here’s an example of what that means.

If someone has $1,000 a month to spend on a mortgage, they can get roughly $187,000 of house at 5% interest.  If that $1,000 gets cut by 5%, or $50, than $950 per month will only get them roughly 177,000.  This is bad if you bought your house before food inflation and need to sell it to a family with roughly the same budget as you after food inflation.

The second situation that I see happening with residential housing is a decrease in prices when mortgage interest rates return to sustainable levels.

Right now, 30 year mortgages are being advertised at 5% or less.  Meanwhile, real inflation is 8.5% or higher.  To explain why this is a problem, we need to look at banks quickly.

Some businesses are easy to understand.  A hardware store buys a wrench for $1, sells it for $3, and if they sell it in a short enough period of time, and cover all of their expenses, they make 30-60 cents apiece.  Do that enough times with enough items, and they stay in business.

The bank version of a wrench is cash.  They buy dollars from customers in the form of CDs at a low interest rate, and they sell those dollars to other customers in the form of loans, like mortgages with a higher interest rate.  So, a bank might offer 2% interest on CDs, turnaround and loan it out at 5%, and if the borrower pays on time, they’ll make 3%.  Historically, the spread has been about 2.7%, but it tends to get smaller as rates go lower and get bigger as rates go higher.

With proper underwriting, this is a fairly stable system.  Banks compete for CD money and usually have to pay customers close to the rate of inflation, or even a little more.

In recent years, this system has been turned upside down.  Instead of borrowing money from customers in the form of CDs, banks are increasingly borrowing money from the Federal Reserve at incredibly low rates that have driven CD rates and mortgage rates down to unrealistic rates.  In simplified terms, we’re borrowing money from China and other countries at rates that are lower than the rate of inflation, and that is propping up the real estate market.

At some point, China, other Treasury buyers, and CD buyers are going to demand a return on their money that is at or above the rate of inflation in the US.  So, let’s see what would happen if banks started offering CDs at 8%, or slightly below our current 8.5% inflation rate, and they loaned it out at 10%.

That $1,000 payment that used to buy a $187,000 house at 5% only buys $114,000 worth of house at 10% interest.  This is HUGE.  That’s a 40% drop in value, and in my mind it’s not a matter of if it happens, it’s how soon and how quickly it happens once it starts.

Houses have historically gone up in value due to inflation and rising wages, more demand than supply, low interest rates, and poor underwriting.  In most parts of the country, low interest rates is the only one of those factors that’s still having a positive effect on housing.  Inflation without rising wages doesn’t necessarily help housing.  More restrictive underwriting and higher down payment requirements has squeezed many buyers out of the market and made supply higher than demand.  All in all, we’re starting to pay the piper for the artificial increases in real estate prices since 2001.

Enough of the doom and gloom…what can you do to put yourself in a good position if this happens?

The first thing is to not worry about it happening.  You have control over the decisions you make, but there isn’t anything that you can do as an individual to keep food inflation or higher interest rates from happening.  I see this playing out in one of two ways.  Either prices will suddenly and catastrophically drop due to an event, or China will pressure the Fed to start raising rates gradually but consistently over the next several years.

If you have a home that you intend on staying in long term, enjoy it and don’t worry about the value.

If you just bought a home at “historically low” interest rates and don’t plan on staying there long term, you may want to reevaluate your plans with a trusted and competent financial advisor.  As a former stock broker, I’d suggest finding someone who understands and enjoys macro and micro economics and real estate.  This isn’t a conversation to have with someone who only understands insurance or only understands stocks.  Forward this article to them, have them look at it, and get their thoughts.  HOPEFULLY, I’m all wet and there’s no basis at all for my concerns.

If you are looking to buy a home in the near future, get to know the major players in the real estate investor community in your local area and try to buy a house that’s significantly under market value.  There are incredible deals (25%-50% below retail) across the country right now that will give you some cushion if interest rates shoot up and prices drop.

If you’re currently living in an urban area and looking to buy a piece of rural land that you could use as a retreat location and grow food on, don’t waste any time but don’t make any rash decisions.  Specifically, don’t pay too much for a bad piece of property.  Also, look in non-conventional places to find properties for sale.  As an example, if EVERYONE in your area looks in the MLS, Craigslist, and the newspaper to find properties, then make sure you’re also looking in the Thrifty Nickel and on Ebay.

Also keep in mind that the increase in farm prices, the drop in inventory, and increase in demand make it more likely that if a disaster happens in the near future that you’ll need to survive right where you currently live.  Remember, the workable plan that you have in place will ALWAYS beat the perfect plan that you haven’t taken action on.  Keep making daily forward progress in improving the survivability of your current living situation.  And if you haven’t checked out the Fastest Way To Prepare Urban Survival Course lately, I encourage you to head over to Fastest Way To Prepare.com and check it out.

What are your thoughts on the effect of ethanol, food inflation, and interest rates on the price of homes?  Please share your thoughts by commenting below.

Until next week, God bless & stay safe.

David Morris

usda.mannlib.cornell.edu/usda/current/AgriLandVa/AgriLandVa-08-04-2010.pdf

About David Morris

David Morris is the creator of the Survive In Place Urban Survival Course, the Fastest Way To Prepare Course, Urban Survival Playing Cards, Tactical Firearms Training Secrets, and other books, courses, and articles on preparedness, survival, firearms, and other tactical topics. He lives with his wife, 2 boys, and 2 dogs.

Comments

  1. Linda Chapman says:

    When I first was married 39 years ago, we paid for everything in cash.Until it came time to buy our first home. We could not go in and pay the whole thing in cash. We had a really healthy sizable amount of it in cash but, none would give us a mortgage with out first establishing credit. We had to buy something on time that we could pay for in cash just to get the home loan. This was crazy,we paid cash for our cars, we owed nothing, until we needed to borrow 15,000 in cash to pay for our home. I remember the banks talking to us as if we were stupid in not understanding their reasoning. What has changed between then and now?

  2. William Unger says:

    I would like to know if the entire United States of America goes “belly up,” what happens to all the mortgages? If the banks fail, the mortgage companies fail, credit unions fail, etc. What does that mean?

  3. Martin Fano says:

    The American way of life, the American dream is dead…why….because the average American is stupid..lives way beyond his or her means..hooked on material things..keeping up with the “Jones”..driving a fancy car. In other words Americans define themselves by thier possesions (toys) ..saves no money for his / her retirement. I have a house..paid off and 100% mine. I did not use my house equity as an ATM machine..I will have a house for my retirement..I feel for those you have lost thier jobs and their homes..but I do not feel for the fools who were stupid enough to get in over thier heads. The Government is partly to blame because they failed to regulate the banks properly. Self regulation of banks and financial markets does not work..as folks are stupid and greedy!The US is facing some of the biggest problems it has ever faced in its very short history. The politicians need to get their collective heads out of their butts to fix the problems. Land of the free…what a joke…Land of the exploited more like it.

  4. “So, a bank might offer 2% interest on CDs, turnaround and loan it out at 5%, and if the borrower pays on time, they’ll make 3%.”
    Sorry – your math is wrong. The bank is buying at 2 and selling at 5 – the bank is making 250% on their investment, not 3%. Even if you’re saying that they make 3% on the loan over time, you mislead folks by the way you state it. You need to look at the profit generated by making the loan. How do you think they can build those huge bank buildings? Even the 2% they offer isn’t their money – it belongs to depositors that get less than 1% interest so the profit margins get even higher. Want to make a lot of money? Start a bank.

    • Hey Jay,

      Thanks for your comment.

      You’re partially correct. I addressed it as much as I wanted to in that article with the next sentence, “Historically, the spread has been about 2.7%, but it tends to get smaller as rates go lower and get bigger as rates go higher.” I’ve got a background as stock broker with several designations as well as quite a bit of exposure to the inner workings of banks and financial institutions. I’ve explained the concept that you’re describing in over 100 face to face and front-of-the-room speaking engagements, and in my experience, it causes people’s eyes to glaze over. I didn’t want to distract from the central message of the article with a rabbit trail, so I didn’t go into the detail that you wanted me to.

      • You’re welcome, David, and thank you, as well. I understand the “eyes glaze over” comment. (LOL) It’s happened to me on more than one occasion. :o) Keep up the good work.
        Jay

  5. andrea francis says:

    I have a question about storing food. It seems that anything over 70 degrees significantly reduces the time your food would keep. What if the electricity goes off for whatever reason, and you have 3 tons of food stored? It is a kind of catch 22! our ancestors stored food usually over the winter when it was cold, and in the summer they had stone spring houses, which would keep things good for a few days , and when ice came they would put some ice in, which increased the keeping time. I live in the midwest , where it is quite warm and humid. If it wasn’t for air-conditioning I would -well, let’s just say I need to work on learning to be hot! So, can anyone tell me what they think about this, and what they will do bout their 2 tons of food they have stored when it’s 102 degrees.

    • try digging out a root/cold cellar or even an aboveground cellar with dirt heaped over top and the entrance on the north side. the ground several feet below you will average 52 -58 degrees year round and using cooling you could keep everything cool and fresh for a low cost

  6. I have the unfortunate distinction of living in New Jersey, where property taxes are the highest in the country. My mortgage payment is over $700 a month, but my property taxes (on an old, ratty split level!) work out to over $500 a month! If it weren’t for custody considerations, I’d have been out of this state long ago, but as it is, I have no choice. At any rate, property taxes definitely have to be factored in for some of us, and they are horrific.

  7. The price of gas is a bigger issue to me than food. I can grow and or store food but I can’t grow gas. My wife and I let a house go back to the bank and moved closer to work because the cost of gas was as high as our house payment, and the cost of gas is a lot higher now than when we moved just 3 months ago. We reduced our monthly gas bill by $400 (at the time of our move) and got a forclosed house that was almost twice the size of our old one with a $150 smaller payment. Higher food prices are as you said a result of gas prices but if we start seeing hyper inflation it will drive up the price of everything including housing. I have also noticed a change in the exchange rates lately. Items I purchased from overseas are going up in price and the value of the dollar is dropping fast.

  8. Valerie Bate says:

    I agree with David almost 100% of the time. I am currently living in a house I bought last year to flip to help towards buying out in the country. At this point that’s just not going to happen. First of all I am a mortgage loan officer so my income has dropped by about 75% and our beloved Barney Frank and Chris Dodd have made it their mission to destroy the mortgage industry! Sorry I got sidetracked……so I will indeed be “Surviving in Place” . The foreclosures are nowhere near done….in 2004,2005, 2006 ARMs (adjustable rate mortgages) were still being written in 5/7/10 year terms so they will be coming due this year, next year which means the rates will be going up if the people haven’t already refinanced it. I have a very low pymt of $281.00/mo and feel I could make that working at McDonalds and that’s why I decided to keep it for myself at this point. Turned my laundry room into a food pantry and have really ramped up after Christmas. I probably have at this point 2 mo supply for myself and my family (total 12 people) who all will be coming here. I dream of 1 yr but working towards 6 mo……..my motto now has become “It’s not where you live, it’s how you live”

    • valerie, don’t forget the toiletries and herbal seeds. It would be best for you not to tell your neighbors of your storage plan because the govt. will be looking for anything to confiscate at gunpoint. also look into bicycles and mopeds as ways to get around cheaply.

  9. These are all valid & valuable replies to a good article. It’s demonstrative of how complex and interwoven the world economy is. That said, I believe that although the powers that be may try to make certain things happen, the real power lies with the consumers. Unfortunately, too many consumers have been sold on poor financial concepts. Fortunately, more and more are getting themselves up to speed every day.

    Of our 14.5 trillion debt, a total of about 4 trillion is foreign investment. The remainder is all domestic pension funds & such. Of the foreign debt, less than 1 trillion is held by China (little under 6%). Debt is still debt, but I’m much more comfortable knowing that the bulk is held domestically.

    For an uncountable number of reasons, food will go up in cost. In some areas houses will go down in value significantly. In other areas, especially rural, land will go up in value. Things of intrinsic value will continue to increase while others will decline. Pruning our lives of the unfruitful branches.

  10. Dear David,
    Love your newsletter and am a subscriber to your course.
    I’m developing an Excel spreadsheet that allows you to setup foodlist and then generate daily menues for breakfast, lunch, dinner based on a required calorie intake. Then using this you can determine how much of the different foods you need to stock over time to ride out a storm for 1, 2 3 6 or 12 months.

    The amount of food needed is surprisingly large and I haven’t tackled the water situation yet either. I’d be glad to share this with you once I’ve completed it.

    Thanks for everything you are doing.

    Tom

  11. David – I’ve been in a real estate agent for 32 years and I just finished my continuing education requirements at school. One of the courses was in the stock markets and general economic conditions. Speaking for the Phoenix area only, they say 67% of Arizonans are underwater in their homes.

    He says that over 100,000 homes are in line to be foreclosed on now, but the banks didn’t want to show it on their books in 2010, so they have started these foreclosures starting January 1st 2011. BUT.. thats not the worst part…..

    The worst part is that he says that there will be a HUGE stock market crash in late summer/early fall THIS year. It will be much worse than 1929. He says some government report that is normally issued in late summer will be the feather that tips the scales. A report that Obama cant Screw with, like he did the unemployment stats. Actually the unemployment rates for the US and AZ is over 19%. Incredible! He says this will be the big one.. complete social upheaval. He suggests getting out of the Stock market early summer, and converting to Gold/Silver AND other “things” that will see you through for upwards of a year.. He meant food/water/supplies.. although he did not say those exact words. Some of the liberals in class would have freaked out. I am just starting out as a prepper. Take care!

    -Bartley

  12. We patented our property several years ago due to intrusion by the city concerning my activities in earning part of my income with activities they frowned on. Since patenting, we have endured no further problems with “code enforcers” stomping around on our land in our absence and taking pictures of “illegal activities” to be used against us in court. According to our patent we are in compliance since it was established prior to the city annexation into it’s city limits. My question is what protection does the patent really establish as protection against foreclosure (in the event that it isn’t addressed in the mortgage contract) and if there really is any protection from government auction for unpaid back taxes, especially with the thieves we currently suffer from that are “in charge”? I wonder if the patent process might offer others a bit of security.
    Another thought on self sufficiency…We have solar that we installed ourselves for far less than any commercial establishment could compete with. We use battery bank storage and inverters for our 110 volt needs. We run a small manufacturing facility strictly on solar, isolated from the grid. As a backup that we so far have not needed , we have a propane generator. What we feel should be a consideration is that propane stores over long periods without the degradation of gasoline and the need for cleaning varnish from small carburetors. Propane is also more available when power from the grid closes most gasoline stations that provide fuel. For those just begining to establish themselves with becoming
    independent, that may be a consideration. Thanks for all the information posted here. We will survive, partly due to your help.

  13. I enjoyed reading this article and thanks for the newsletter David. I am a licensed real estate broker and have made my living investing in real estate at one point in my life. I stopped turning homes just prior to the run-up in prices in 05-06. I also have an intense interest in self-reliance and the economy, since it will affect my current RE holdings. I read about the economy and study self-reliance for hours every night as a hobby. I have purchased two small farms with water and have slowly been improving them to serve as food security/retreats for my family. I realize that the welfare of future generations of my family will rise or fall based on decisions and actions that I make today.

    My personal opinion is that it is difficult to say that food prices specifically, and inflation/interest rates generally, will act to exert downward pressure on RE prices. There are varying complex factors that will interact and its difficult to predict what their effect will be. It’s possible that higher interest rates and food cost percentages of disposable income will dampen home prices, but there are other factors that may impact market dynamics:

    1. Monetary inflation will cause building materials to increase, which should cause the intrinsic value of existing homes to increase ( the cost to replace an existing home will increase, and the cost to build a new home will increase).
    2. I have studied resource scarcity for many years and believe in “peak everything”. In addition to monetary inflation, increasing scarcity of resources
    (builiding materials), should cause the intrinsic value of homes to increase.
    3. Peak oil ( it’s debatably here already) may have conflicting impacts on home prices. It will most probably contribute to inflation of building material costs, yet suburban values may decrease as commuting costs become prohibitive to some families.
    3. Household formation marches on regardless of the economy. The young adults who are getting married were born 20-30 years ago and demand for homes is being pent up as home purchases are delayed in the current market.
    4. Inflation typically causes a flight to tangible assets, which RE and homes are. In past periods of inflation, home values have typically increased.
    5. Expectations of inflation are sometimes very powerful in causing inflation. Believe it or not, there is a lot of money sitting on the sidelines (both corporate and individually). If there is an expectation that RE values are going to increase, some of that money will start to flow into the market, further increasing values.

    • Hey Walt,

      Great points and I HOPE you’re right about me being wrong.

      There’s a couple of points that I want to challenge you on and get your feedback on.

      On your point #1 about intrinsic value, I completely agree that as materials prices go up, the replacement value of housing will go up. It’s probably only a fun late night conversation, but I wouldn’t agree that the replacement value of a home is the same as the intrinsic value.

      That being said, the price of a house is whatever the market will bear, so if the free market value of houses are less than te replacement value, it probably means that construction practices will have to change. In any case, people will pay what they can pay and it won’t matter what the replacement value of the house is.

      On #3, #4, and #5, I agree with you that if today’s housing prices had a basis in reality, then inflation would have a generally positive effect. But keep in mind that inflation ONLY increases the price of houses if incomes keep up with it. But fundamentally, the prices that we’re experiencing today are artificially high due to monkeying around by the Federal Government. Once mortgage rates reflect a realistic rate of inflation and a risk premium for lenders, loans are issued with REAL underwriting, and the government stops their short term housing credit programs, THEN prices can start going up with a relatively stable foundation.

  14. The overriding fallacy in all of the above is that it assumes one SHOULD borrow money to buy a house; that one NEEDS to borrow money to buy a house. This is WRONG.

    No one should EVER buy ANYTHING they cannot pay for as they go–and this includes housing. Do not borrow your way into a home, but save and pay cash for a lesser home then make it livable within your budget fixing the most important things first and the fluff if later ever comes.

    Better yet, if you have reason to borrow, (and there are some reasons) save the amount you will need to pay for the house, then make a large enough down payment to force monthly costs down to almost nothing. Don’t count on a paycheck to cover your mortgage, but be sure you have a banked reserve large enough to cover it should you lose your job(s). Pay the mortgage from this account.

    Live not to spend freely, but save to live free. I believe Dave Ramsey says: Live like nobody else so you can live like nobody else.

    This has been our policy for over 45 years and IT WORKS. We never owed money then and we owe nothing now. How set to survive are we? It takes discipline. The ball is in your court. SAE

    • That’s not a bad philosophy, but the simple fact is that housing prices are determined by people buying with mortgages, not cash buyers.

      The fact that you paid cash for your house is great, but it will have no impact on the market value of your house.

  15. Vicki Slayton says:

    I am a single female. Own my stick built house in Dewey, AZ.
    Looking for a property where I could be self sufficient with its
    own well, etc. I know how to can, sew on a Singer treadle machine,
    am very practical, own guns, used to work on ranches, a young
    age 61, I need a group, or person, to work with. Is there
    anyone out there?

    • I support your efforts and hope you find the partner/s you require. I believe in being self sufficient and would love to see more also be prepared for any event.

      There are many groups that also believe in being prepared and you don’t have to be paranoid about it

  16. Ike McArthur says:

    The increase corn prices is due to a world wide shortage of food. Countries like China, India, and others plus the entire continent of Africa, have increased their populations by 50% in the last 25 – 30 years. All of them have decreased their food production during the same time. Many of them depend on US Foreign Aid to feed their people. This Aid is often our food products instead of Cash as most people think. China has increase their food import by 70% over the last 25 years. Much of the Dept of Ag’s budget is for things like the School lunch program, Foreign Aid, and disaster relief donations.

    Those who blame ethanol for the increase in corn prices and demand for planting acreage for the increase in AG land prices need to go back to school. City expansion and people moving “Back to the Farm” are the root cause of Ag land price increases

    As for Ethanol (A) It takes approximately 1 bushel of corn or grain sorghum to make a gallon of 90 proof alcohol. What is left is water and brewer’s grain, which has the same Total Digestible Nutrients as the grain had to start with. When dried, it is sold as “Dried Brewer’s Grain” for livestock feed at about the same price as the grain originally cost.

    (B) Most of the cost of Alcohol for fuel is caused by Governmental regulation and Taxes. The distillation process could be simplified and cheapened by half if the BATF&E and the rest of the Federal Gov. would get out of it. Good luck on that!!

    (C) Ethanol cleans your engine and keeps it running longer, which over time will of set the drop in energy per gallon. Without Governmental intervention the cost of fuel would be decreased more than the decrease in energy by the addition of Ethanol. 15 to 20% ethanol does as much good for your engine as 85% does and your engine is more efficient at that mixture. So why is the Government pushing E85?

    (D) We have enough oil to run this country for more than 100 years, that is not counting our coal and natural gas or nuclear energy potential. Our current price increases in Gasoline and Diesel are entirely due to the actions of our President and inaction by our Congress. The Federal Courts have said the President’s actions in the Gulf and elsewhere are Unconstitutional. The Courts have even issued the President Contempt Citations for his continued defiance of their rulings. Yet the President acts as if he is above the Law and Constitution and continues his illegal activities. Hurry up 2012.

    I do agree with much else you have in the article. I personally subscribe because you are saying what I have been saying and doing for more than 40 years.
    Ike

  17. George Feist says:

    Hello David.

    I think your analysis is spot on.

    The first wave of foreclosures took out the people that were way out of line financially and therefore weak and suseptible to the economic downturn. There are a vast majority of people and families who are now on the very precipice financially who will go over the edge if food and energy prices rise much higher.

    Higher interest rates will compound and exacerbate the already lagging job market as well putting more people into foreclosure and onto the public dole further increasing costs.

    You haven’t even mentioned higher income and property taxes which are inevitable.

    My wife doesn’t agree with my preparedness position but as I tell her, it’s better to be safe then sorry and the time to plan is now.

    We hope for the best, but try to prepare for the worst, which I’m afraid is just about innevitable at this point.

    • Thanks, but I still hope it’s completely wrong.

      Property taxes have been an interesting monster. In Florida, home prices dropped and the amount of taxes owed stayed the same…in some cases effectively doubling the tax rate.

      As foreclosures increase and cities tax bases shrink, they’re cutting services and looking for every way possible to increase revenue.

      • John Sherman says:

        As a former renegade assessment officer in Florida who loved to reduce assessments when appropriate, and had the authority to do so, I have long observed that the tax assessor culture is for all out high numbers, as if their pay depended on it. It doesn’t. The right kind of pressure can sometimes open their eyes.Don’t be bashful.

  18. Citi Bank is apparently accepting payoff’s of second mortgages at less than 20% of the remaining balance. That may help you as the property owner depending on your first mtg.

    I’ll bet other bank are willing to cut to that level as well.

  19. Dave.
    You are absolutely correct.
    We are heading for soaring inflation in all areas. not just real estate and food.
    Water, electric, gasoline, taxes both state and federal, medicine, healthcare, insurance of all types and any thing you need to buy for dollars.
    My family lived in the Great Depression.
    What is coming will make the Great Depression look like a Sunday School Picnic in the Park.

    Just a kicker to make the uninformed set up and take notice, the real rate of Unemployment, in the USA, is 15.6% right now.
    Our government keeps changing the way they calculate the Unemployment rate to keep us FAT, DUMB and HAPPY.
    The highest it was in the Great depression was 23%.
    In the month of my birth, November 1937, it was 19.8%.

    My relative lost there jobs in 1933 and did not have a steady job until they began working in WAR plants in the early part of 1941

    Don Ruane

    • Unfortunately, most of the reports from the government are lies. Fortunately, they’re consistent and we don’t really have to spend any time trying to figure out wether or not they’re telling the truth…we can just save time and assume they’re lying.

    • Don,

      FYI, this morning Fox News reported that a recent poll of 18,000 people across the US disclosed that the true unemployment rate is really at 20 percent. The poll included part time and underemployed workers, such as laid off lawyers stocking shelves at the local Home Depot, just to keep food on the table. The government has been lying – and continues to lie – to the American people about unemployment and the fact that the economy has remained flat for the past year. Personally I take government statements with a grain of salt.

      Ed

    • This was also AFTER the banks shut down, they confiscated the gold, they destroyed herds of cows( saying they might be diseased). People were glad to get a SS number , in order to get a govt job. My grandparents literally lived on dried peas for months.
      This will be a big push to encourage everyone to get an electronic chip ID card.

  20. You failed to mention the effect of taxes imposed by the lying, cheating, stealing, blackmailing, eletist, bastards.

  21. Are you related to the political analyst Dick Morris?

    Is there a biography of you posted somewhere?

    Thank you.

  22. Jeffrey Calhoun says:

    10 years ago my wife and I had our retirement home built for us just outside of the small community (pop. 14,000) that we lived in. It’s on 1 acre of land with rural water, natural gas. We needed to put in a septic system. I had a larger than required one put in just in case we had long term ‘visiters’.

    We have a total of 20 homes around us for a small tight community. I plan on putting in a well in the near future.

    I just refinanced my home down to 4.62%. This drop saved us over $400 a month. We plan on staying there thru any crunch that might happen. It’s defendable and sustainable. I expect some relatives to show up, but have told them they will need a ‘ticket’ to enter. The ticket will be food, ammunition, fuel. No one stays for free.

    I have have 3 friends that have done the same thing within 20 miles of me. We stay in touch with each other thru the use of SSB CB radios and base station antennas.

    I wish you’d touch upon communications in one of your next articles.

    I have a command room in the basement. I have my short wave radio, CB’s, scanners in it. the antennas are hidden in the attic of my home. No neighbors even know that I have any radios.

    Thanks for the newsletter, and keep up the good work.

    • That’s a perfect use of these low interest rates!

    • 3rdMarDivCom says:

      Communications in the coming debacle will be problematic. You see, communication signals people that are prepared and organized. Communication also signals people that have supplies, electricity, generators and fuel. Long story short; you pop up with your ssb, cb, aviation or marine radio and you’ll stand out on the grid like a gigantic target for anyone that’s out there. Now you might think that all you have to worry about is the “Bad Guys” and that you can take care of them. That’s great and I’m sure that you can but I’m here to tell you that eventually the Armed Forces of the U.S.A. will come your way and ensure that you never transmit a signal again.

      You and your friends might want to look into some version of this: www.radusa.com/10/Broadband_Wireless_Multiplexer/9886/?WT.srch=1&utm_nooverride=1&gclid=CPGvn_n_kqcCFS9m7AodmWOmdw#

      Granted it looks expensive and all that but I’m sure that if you started looking you’d find what you need… this is just an attempt to guide you in the right direction.

  23. David Ozanne says:

    The corn shortage is manufactured as well. Slovakian farmers planted more corn then the EU would allow. They were not allowed to sell it nor even to give it away, so it rotted. Wonder why??

    • It happens in the US as well. Farmers have been paid by the Federal Government to NOT plant crops on their land for the last 25 years. It’s called the “Conservation Reserve Program” although many midwesterners call it the “Crop Reduction Program.”

  24. Last year there were about 1.5 million foreclosures, and right now there are 4.5 million people who are behind on their mortgages 90 days or more. Real estate prices are headed way down. Mike Maloney, the Precious Metals Guru, says that Silver will continue to rise in value until a median value home in the US can be purchased for about 500 – 600 ounces of Silver (forget “dollars” – as inflation will make the value of a dollar smaller and smaller). His belief is that real estate will bottom out about the same time, so you cash in your Silver near the top of the Precious Metals bubble and buy into real estate when that bubble has totally deflated. Then you ride the wave of the next real estate bubble / recovery.

    While I agree with this, I can’t figure out what the future will look like. All these empty homes are going to have to be occupied – or they will just rot away. So I’m figuring the banks will accelerate their short sales, but that will cause a glut of supply, further suppressing the home prices. The only way out of this is with (I hate this) some government intervention, which usually ends up making things worse..

    I would say to look for hyperinflation and a whole lot of people renting the homes that they used to own. I think that the banks will write down the loans to something people can afford, thinking that something is better than nothing, and this will help to stop the foreclosures. The banks’ losses will somehow be covered by the Federal Government (or the Fed), which will be another big bailout. This will cause some temporary stabilization, but then will prove even more inflationary….

    It’s going to be horrible, any way you slice it….

    • To a certain extent, I agree with the “government intervention is the only way out of this” argument, but maybe not the way you would think. In my opinion, at the beginning & middle of 2001, it looked like the correction would happen at the end of 2001 or beginning of 2002. It would have been relatively gentile, but it needed to happen.

      Instead, we had the September 11th attacks and the government stepped in to create massive growth. My guess is that the intent was to increase tax revenues to fund the war, but that’s just speculation.

      As a result of government intervention in the form of pressure on banks to do less stringent underwriting, lowering interest rates, and tax incentives, real estate exploded instead of having a minor correction.

      I’m a mountain guy, and this is similar to a wind loaded cornice. Basically, a wind loaded cornice happens when wind blows snow across a mountain peak, creating an unsupported overhang of snow. From the side it looks like a wave that’s about to crash, and it’s obvious that it would not be wise to stand on it. From the top, it looks stable and standing on wind loaded cornices leads to the injury or death of hikers and skiiers every winter.

      Government intervention had the same effect…creating the illusion of growth on a stable platform when in reality it was growth that had no support.

      How can government intervention help now? Well, if they would drastically cut wasteful government spending, there’s a chance that inflation would come down. The combination of lower inflation and slightly higher Treasury rates might allow us to keep the Chinese happy AND give us sustainable mortgage rates. In reality, it’s just a bandaid and the piper has to be paid at some point…we just have to be ready for when that happens.

      • Not to go off on a tangent, but some economists believe that so called “Muslim extremists” are working overtime to drag the US into protracted spending of the type you mentioned in this post. In other words, when we disengage from one hot spot, new ones will emerge because their plan is to bankrupt the USA and destroy it permanently as a power and influence.

        • SiliconSurfer says:

          You mean like we did to the Soviet Union in a very similar way? It worked there…

        • I don’t think it is only Muslim extremists–it’s everyone else in the world who is jealous of the United States and our way of life. If they can’t have it, they want to destroy it–isn’t that primitive response part of the human condition? Of course, another primitive response has to do with being fearful of something more powerful than self, i.e., the baddest dude in the West. The line between friendship and enemy is very thin. Could we be flaunting our power and technological expertise too much? Could looking down our noses at others by forcing our “help” on them be somehow misinterpreted? Maybe we shouldn’t try to be so helpful and stop arming other countries and fighting their wars for them and see what happens. It seems to me that what we are doing doesn’t seem to be working. How can we presume to lead other countries in the “right” way when we can’t even manage our own affairs very well? It seems that these “hot spot” countries choose to become a hot spot after they see what we pour into other hot spots! We just need to bring all our troops home, make our own country strong again by enforcing our laws, putting greedy crooks in jail for life or execute them (Enron, Madoff, etc), stopping ILLEGAL immigration and keep our cash at home. There was a day when no one could touch us.

          • I agree with Write and Grambo with one caveat. Rather than call them “Muslim Extremists”, it is more accurate to call them “Muslim Activists.” Orthodox Islam, by historical definition, is “extremist” from the west’s perspective. Basic Islam is extreme. To be a good Muslim one must practice Islam, which is extreme by our standards. And to gain power and influence, they need to neutralize western influence. And to help them do that, they have formed tacit alliances with leftists and others who have similar objectives of destroying the west, capitalism, our religions, and our culture. We are now in full scale retreat as a culture and as a financial and a military force in the world due in no small part to buying into the lie of how “horrible” we are as a nation.

          • BINGO, gfmucci! Islam is extreme by definition.

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