Regardless of which side of the isle you subscribe to, last night was a nail biter for all of us. With Republican control over the House and a narrowing of the gap in the Senate, what can we, as Real Estate Professionals expects to see in the upcoming 2 years?
As most of us all can agree, the new Speaker of the House, John Boehener has pledged that jobs will be his primary focus. As a conservative, I would expect he would fight for reducing taxes and reducing the size of government in order to create those jobs, he has said as much more or less. So, does this plan bode well for real estate?
My first impression is absolutely. We know from history that a reduction of taxes frees up private sector capital and in return, that capital is used to grow private sector jobs. My only problem is, freeing up capital hasn’t been the problem with this economy, it’s been confidence. We here every talking head on television tell us that big business is setting on large amounts of cash but won’t invest, they won’t spend it and, most of the time it’s because they don’t know what the will be specifically, their taxes. Now, with a normal Republican, I couldn’t say I would believe taxes would be reduced however, in many of the races last night, we saw Tea Party Republicans win and I do believe these men and woman will staunchly work towards a reduction in taxes and a restriction if not a drawback of government. If the Tea Party Republicans can move an agenda of lower taxes, restricted or drawnback government, I really do believe we will see jobs start to recover however, will it be enough?
The truth about jobs is, at no time, in this country’s history (that I am aware of) were we ever able to recover millions of jobs in less than 2, 4 or 6 years. My point is, it would take an unprecedented, history making, future changing legislation supporting capitalism and individual liberty to recoup the millions of jobs we have already lost and, with a progressively controlled democratic party, who is in control of the White House and Senate, that isn’t going to happen.
So, what specifically do we need to do? I suggest we have “A Return to Normalcy”. Many of you reading this won’t know what that means but, some will, let me explain. The date was April 12, 1921 and President Harding (A GREAT PRESIDENT) laid out a plan to Congress that he called, “A Return to Normalcy”. This plan was a economic stimulus plan and it consisted of 6 key points that, are just as relevant today as they were back then.
Those key points were (in no particular order)
1. National Debt Reduction
2. Tax Reduction
3. National Budget Program (Balanced Budget Law)
4. Tariffs to protect industry and farm commodities (an end to the unfair trade practices of other countries, today it would be China)
5. Immigration restrictions (or in other words, American Citizen get American jobs, not illegal aliens)
6. Farm Relief (could now be industry relief or real estate relief)
The Roaring 20’s were an era of extreme prosperity for this country and it was a direct result of Harding’s “stimulus” program. Now granted, Harding didn’t get to see the program to fruition, it was Calvin Coolidge who stayed the course and ended up truly being able to experience the benefits of Harding’s plan but, it doesn’t diminish the fact, these 6 points transformed this country and led to an inventive, creative, unrestricted society that arguably could be considered one of the most prosperous times in our nations history.
The reality is, times have changed. Our country has become so dependent on the Federal Government to provide their paycheck, we may never be able to institute the kind of plan Harding and Coolidge did. I recently read a report that said over 46% of Americans depend on the Federal Government for the bulk of their income…..what?.....yes….I said that right. If that doesn’t scare you, it should. None the less, this country was built by men and woman who laid an incredible foundation Faith, Truth, Integrity and Personal Responsibility and as an American, it seems to me we are genetically hard wired to return to our founding father’s principals therefore, I truly expect the next to years to be volatile fight between 2 ideologies. One will be that of progressive socialism and the second will be staunch conservatism. Who wins, well….that depends on you, the voter.
With all that said, I believe real estate will be volatile for at least the next 2 years. I think we will start to see an end to foreclosure moratoriums, failed homeowner preservation programs (HAMP), and a more common sense approach to lending. I believe we will begin to see a paradigm shift back to personal responsibility and a reduction of the current REO housing inventory. I think this political climate will be beneficial for real estate simply because it will force our government to be more practical in their methods and let’s be honest, being practical is a conservative virtue, not a progressive virtue.
