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By Jesus “Jesse” D. Gonzalez Jr. Broker / Owner of Liberty House Realty LLC

Mid Tn housing recovery is poised to bust.

For many, here in mid TN, you have seen your home prices rise over the past 12 – 18 months. If you live in the inner core of Nashville and your neighborhood has gone through a gentrification, not only have you see prices rise, you have seen them sky rocket. For all intents and purposes, the vast majority of mid TN residents can say their property values have at least returned to 2007 pre-recession levels and in some cases, have exceeded pre-recession levels. This robust housing recovery is spurred on by several different factors however, I am going to focus only on a few here in this blog, in order to explain why I believe our market is poised to bust in 2016.

Free Money

Like it or not, let’s all be honest and acknowledge the largest impact to our property values rising is the role government has played in making mortgages easier and easier to get, all in the name of affordable housing policy. If we step back a little and take a look at the even larger picture that government has played in creating cheap or even free money, you have to go all the way back and look at all the bailouts and freewheeling Federal Reserve policies on lowering and lowering interest rates. Lets also not forget the massive capital injections, better known as quantitative easing. All of this cheap or in some cases, free money is that our economy has started growing and as a result, the housing correlation that the better the economy does, the more housing we need has kicked in. As a direct result, here in mid TN, homes have seen more competition from buyers and a direct result prices have gone up.

The problem with this model is that borrowing money can’t always be free….or at least very cheap. Due to fears of inflation, interest rates have to go up, just as we saw last month. Of course, raising interest rates isn’t the problem, it’s raising rates when essentially the fundamentals of our economy are unchanged and the lessons of the 2007 collapse seem to be fading in the minds of policy makers and Wall street alike. The really scary part is, here we are, moving our economy forward through “free money” policies with no real plan in place to guard us from having to slam on the brakes, if necessary.

Europe is no Joke

People are always talking about how China is the huge economy in the room and that when it sneezes, the rest of the world economies get a cold. The problem is, that’s not true. Some of the world’s economies will get a cold but, others will catch the flu and, still others may end up terminal. Let’s be clear on a couple things about Europe, their economic fundamentals are no better than our own and in some cases, when it comes to wage growth, unemployment and the migration of refugees, their economies are fragile. Let’s not forget, some of those countries like Greece, Portugal, Spain, Italy and Ireland all had massive debt crisis that caused austerity measures that resulted in civil unrest. If and let me be clear, when China’s market collapse, as our number 1 buying partner, our economy takes a hit because the Chineese people just can’t buy as much of our stuff but, when this happens, it also causes Europe to take a hit and being our 2^nd largest trading partner not buying as much of our stuff, it would be a 1, 2, knockout punch for our economy. If and I speculate when, China’s market really starts nose diving in 2016, it will take Europe with it and as such, our two largest trading partners will keep their hands in their pockets and we will be left with products on the shelf that aren’t moving. Prices will drop, profits will be lost and short selling will begin. This will cause a ripple effect through our economy which will result in job losses, starting with the economic low classes. I truly do believe some of the first housing casualties we will see at the start of this next recession will be low income housing and by the time we react, it may be too late.

China is a Bust

I hear the media reports, like many of you, and I am lead to believe that China is now the largest economy in the world however, what if that was all a lie? What if it’s not as big as they say they are and all they have been doing is lying to the world about exactly what they are capable of economically? What if all these money control policies they enforce on their market place like, no short selling and the mandatory 15% cut off were all in place just to keep the world from seeing that all the money we have put into China to develop its economy and turn it into a consumer economy was a waste? Even worse, what if….just stop and think about this for a minute, what if this fall of the Chinese economy was purposefully planned by their Communist regime in an effort to collapse the American economy to ensure a change in the world currency from the American Dollar to the Chinese Yuan? China is no trading partner with the USA, it’s a trading adversary and sadly, our politicians don’t see it this way and as a result, we are heavily leveraged and as a result, we will pay the price with whole American companies collapsing with China and as a result, job losses on a global scale.

Unemployment, not as it Seems

So…you think unemployment is at 5%.....how wrong you are my friend and let me explain. In an effort to prop up a failing domestic jobs policy, the Obama administration has decided to put some of that common core math logic to our unemployment numbers. In fact, our government has 6 different ways of describing unemployment and sadly, most people don’t even know this. The U3 Unemployment rate is the “official” unemployment rate used by the bureau of labor statistics however, it’s not the real unemployment number. For the real unemployment number, you need to look at the U6 Unemployment number which as of last month, was at a 9.9% unemployed. You heard me correctly, that 5% you have been hearing on the news is a farce at best. In fact, this is why our economy isn’t seeing a boom with gas prices as low as they have been because the truth of the matter is, all that money people are saving from cheap gas is going to pay bills just to survive because nearly 10% of our population is unemployed or marginally employed at best and can’t spend those energy savings on anything other than bills, just to survive. For more information on where our nation’s real unemployment is at and descriptions of what it all means, visit, http://portalseven.com/employment/unemployment_rate_u6.jsp

Wage Growth or Lack Thereof

Not only is our government trying to deceive us about the unemployment status of America, even worse is that those who do have jobs are noticing that they aren’t making as much as they did before the Great Recession. Simply put, we have so many people looking for jobs, employers can offer jobs at lower and lower wages. It’s a matter of supply and demand. When you have hundreds of people competing for the same jobs, that competition puts downward pressure on wages and benefits. Even if you have a job, you are much less likely going to ask for that annual raise when you know you have 20 people in the wings ready to take your job for the same wage you’re making now…or in some cases, willing to do your job for less. Truth is, wage growth is a great way to see just exactly how well or in this case, how poorly our economy is doing. Let’s face it, if we were doing well as a whole, people would have jobs and those jobs would pay well and the truth is, that’s not where we are at. Make no mistake my friends, we aren’t as recovered as the media and politicians would have you believe.

Energy May Send Us Into a Nose Dive

Everyone need to be watching energy prices, specifically the cost of sweet crude oil. Essentially, this is where America get’s it’s gasoline and gasoline is one of the biggest cost of goods and services. Today, crude got below $30.00 a gallon and closed at $30.44 per barrel. The fact is, most American energy companies can’t pay their bills with crude prices at this level. What’s causing me to stay up at night is the fact that leading economist are suggesting, by end of the year, crude prices could be as low at $22.00 per barrel. At this price, we will begin seeing energy companies go bankrupt and massive energy sector layoffs will begin. Truth of the matter is, I really suspect that 2016 will be the year that the oil wars escalates, prices fall and the largest contributing factor to the 2016 recession will be cheap oil.

Conclusion

Our economy has a lot of downward pressure from many different sources both nationally and locally. Like I said earlier, we just don’t know what the straw will be to break the camel’s back. Right now, I see too many home buyers paying too much for their homes, yes…I said that. Sadly, I do believe a lot of buyers are going to be stuck holding the bag when the bottom falls out of this fragile economy.

Many REO Realtors who were closing a record number of deals in 2012 may not be able to close that same number of deals, or anything close to it in 2013. This really shouldn't come as a surprise to anyone considering, we have been noticing on dramatic pull back in REO now....for about 6 months or so, This all cumulated for many of us when Fannie Mae decided to fire all of thier outsourcers...or at least, the vast majority of them. None the less, this has many speculators out there talking up the "Rise and Fall of REO" and yes....make no mistake, it is definitely in declined however, let's not forget one, simple, truth. Home sales are directly correlated to jobs. No jobs = REO.

Now, it's true, short sales are playing a much larger role in the default real estate industry...in fact, as the article outlines, they seem to be up....much more than REO. In fact, from what I am hearing in the industry, many of these lenders and participants in "community stabilization" programs are seeing that short sales do a much better job at maintaining home values than REO ever could and as such, are holding back from foreclosing and giving bank directed short salesa much stronger look.

I have heard, the word on the street is, Fannie Mae and HUD are very likely going to be coming out with their own "Pre-Approved Short Sale" .... which isn't anything new however, it will have one dramatic change and that is, it will be bank directed. What that means is, instead of waiting on a homeowner, desperately trying to save their home, holding onto it from either desperation or flat out resolve, banks will hire their REO agent to go out, make contact, discuss options and give the REO agent a "Pre-approved Short Sale".

If you want to read the article, "The Rise and Fall of REO" I referenced it below however, make no mistake people, REO isn't going to fall....untill unemployment falls. These two are one in the same and as long as we stay over 7% unemployment, REO will, at the very least, level out but, it will stay strong.

By the way, for all you agent out there who are just hating the idea of doing a short sale, won't do a short sale or simply think its too much work for the money.....you might want to be changing that attitude because, as Corelogic reports, short sales had a banner year in 2012 and no one expects anything less in 2013.

To learn more about short sales, maybe even attende the industry's only Short Sale Symposium, you need to attend the Short Sale Specialist Symposium at Sea.

Link to: The Rise and Fall of REO

Link to: Short Sale Symposium

In a article published by The Arizona Republic on July 27, 2012 @ 4:30 pm written by Catherine Reagor it's alleging that Fannie Mae is purchasing their own REOs through a LLC that Fannie created. To read the article yourself, follow this link, http://www.azcentral.com/business/realestate/articles/20120727mystery-buyer-snaps-up-foreclosure-homes.html

I reached out to the REOPro community to verify this article and it's accuracy and I recevied some interesting information. From a confidential informant, I got a copy of the Arizona Corporation Commission vi State of Arizona Public Acess System...see below...

File Number: R-1776305-1

Check Corporate Status

Corp. Name: SFR 2012-1 U.S. WEST LLC

Domestic Address

2338 W ROYAL PALM RD STE J

PHOENIX, AZ 85021

Foreign Address

2711 CENTERVILLE RD #400

WILMINGTON, DE 19808

Statutory Agent Information

Agent Name:

CORPORATION SERVICE COMPANY

Agent Mailing/Physical Address:

2338 W ROYAL PALM RD STE J

PHOENIX, AZ 85021

Agent Status:

APPOINTED 07/18/2012

Agent Last Updated:

07/23/2012

Additional Corporate Information

Corporation Type:

FOREIGN L.L.C. Business Type:

Incorporation Date:

07/18/2012 Corporate Life Period:

Domicile:

DELAWARE County: MARICOPA

Approval Date:

07/23/2012 Original Publish Date:

Manager/Member Information

FANNIE MAE

MEMBER

3900 WISCONSIN AVE NW

MAIL STOP 11H-734

WASHINGTON,DC 20016

Date of Taking Office:

07/18/2012

Last Updated:

07/23/2012

DELAWARE County: MARICOPA

Approval Date:

07/23/2012 Original Publish Date:

Manager/Member Information

FANNIE MAE

MEMBER

Of course, we all will have our own opinoins on if this is a good or bad idea but, I got an even more intersesting article sent to me that said, "

The address that Fannie Mae used in "creating" this LLC is in the same building as East West Bank, a subsidiary of East West Bancorp, which is a Chinese-owned bank. Yes, this is the same East West Bank that received $306.5 Million in TARP money. So, not only were buyers in our market robbed of the opportunity to purchase 275 homes, but it appears that they were sold to a Chinese Bank. Thus, the reason they are trying to hide it from the American people."

Now, once again, I can't verify any of this but, if anyone can independently verify this information I would greatly apreciative.

Here recently, my business has been going well enough that I am now at the point that I need to start looking at expanding the task I complete to another agent.....a co-list agent. In thinking about this, I did have a agent in mind however, I am not exactly sure he is a good fit for what it takes to do the things I do. That got me to wondering, what exactly do I do? Yes, that may seem like a silly question but, it got me to wondering even further about what exactly it takes to be a REO Listing Agent and thus, this blog.

So, before we get to talking about the day to day task, let's talk about some larger concepts that need to be realized by any REO Listing Agent.

First off, let's talk about commitment. Yeah, yeah, you know what commitment means but, how many of you actually put it in to practice daily. I suspect that many of us have so many commitments that sometimes we feel overwhelmed and can't actually get to all of our commitments in a day. In these cases where we put our commitments off till tomorrow because today was so busy, I have to stop and ask you, is what you put off till tomorrow really a commitment? To me, it sounds more like a obligation but, nothing like a commitment. The way I distinguish a commitment from an obligation is by using a time line. More specifically, if my Asset Manager gives me a task and says they need it completed in 48 hours or less, I am committed in that I no longer have the option to complete the task in 48 hours and 1 second later. This is different to me from an obligation because in my mind, an obligation doesn't have a timeline...a deadline. I am obligated to do something but, I can do it in my time....hence, my difference between a commitment and a obligation. In other words, are you committed to doing the task at hand in the time provided, regardless of other obligations you may have? If you are not because of priorities, ie.....I can't complete the assigned task because I have to pick up my child from school, then I would tell you that you may want to reconsider being a REO Listing Agent. At least my Asset Managers are looking for commitment from me and that means when they tell me at 3pm on Friday that they need a monthly marketing report completed no later than 4pm the same day.....it gets done because I am committed.

Secondly, let's have a discussion about priorities. Once again, I know you know what a priority is however, do you prioritize daily? Of course you do, we all do however, the better question is, are you prioritizing your commitments correctly. You see, many of us don't and it's not because we don't know how, it's because in many ways we have too many obligations. For example, I have a priority in my life to spend more time with my family however, that priority doesn't out weight my priority to my clients. Yeah, you heard me correctly, I said it, my family isn't a greater priority than my clients. Pick your jaw up off the floor and breathe. If you are going to be a REO Listing Agent, you need to know that your clients needs and priorities are more important than yours. As such, your clients priorities will always trump yours. For many of you, this is a problem because when I said that my client takes priority over my family, I am sure a lot of you bristled at the idea and some of you may have even said, HELL NO! It's for this very reason that you will not make a great REO Agent. Why? Because people like me will be ready to pick up your slack, show your Asset Manager that we are committed and that they are a great priority in our daily lives. Now, put yourself in your Asset Managers shoes, who would you want to work with? That's what I thought.

Thirdly, let's talk about balance. Believe it or not, you can be fully committed and, have proper priorities and still keep your life in balance. It's not easy....let's be real, it's almost impossible but, it can be achieved. You can give your client all they need....and more, as well as complete the task of other commitments, obligations , and or priorities. What does it take on your part? An incredible amount of attention to details, planning ahead, open dialogue with others, understanding your own limitations and most importantly, knowing when to ask for help. For me, balance is achieved by having the right people around me who share in the heavy burden that being a REO Listing Agent is. Team work is the only way a single person can achieve being a REO Listing Agent who close multiple millions of dollars in deals a year. Now, not all of us have the inventory on hand that would require us to have a team but, if you aren't there yet in your business, trust me, when it comes, this may be the most important thing you take away from this blog and that is Team Work.

Finally, I could go on with this blog and talk about trust, task, following instructions, etc...etc...etc... however, I have a sneaking suspension that for many of you, you never got past the second point I made....lol