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NEW HOME PRICES HAVE NOWHERE TO GO, BUT…Up, Up and Away!!July 1st 2009 In an article published today on CNBC.com, it’s reported that the US Treasury is preparing to roll out its Public-Private Investment Program (PPIP) plan. This program was originally intended to combine public and private money in a $ One Trillion effort to have investors buy bad loans and toxic assets from banks. The program is now only expected to involve $ 50 Billion. The Article points out that the PPIP has encountered two problems: “the piles of bad debt sitting on the banks’ books and the dilemma of how to price this debt….Banks are still loathed to let go of assets at fire-sale prices.” The Article further points out… ”as long as these toxic assets stay on the books, they saddle banks with losses and constrict their ability to lend.” Read their entire article at the link listed below. http://www.cnbc.com/id/31638841 The point is that the Banks are holding a ton of loans on their books which they cannot afford to sell. If they were to do so, at the current market price of these loans, the Banking System as we know it would collapse. So, out of necessity, the Banks continue to hold all but a small portion of their bad loans. This is why so many property owners have been allowed to stay in their homes for a year or more, without paying the mortgage or having their property foreclosed. The simple reason is that the Banks would prefer to have the property occupied and cared for, then vacant and vandalized. In the meantime, the property stays off the market and does not, therefore, contribute to the supply and further reduce current market prices. With the coming massive inflation, the Banks must expect property values to raise a lot more than their internal carrying cost. The simple fact is that the only way to get the Banks to start lending again in volume is to have their underlying collateral (that is the value of the homes which secure their loans) increase dramatically in value. This would enable them to reverse their reserves, thereby increasing their capital base, and protect them from the exposure of having to write down more of their loan portfolio. Lending should then free up. Hence, with the coming inflation, look for a rapid increase in housing values, especially in those regions of the US where the economy is basically sound, but housing prices have dropped precipitously. It’s better for the Banks and for investors to hold on and wait. Massive inflation is just around the corner and we should all take advantage of it. The Fischer Investment Group buys new property on behalf of our investors below market prices and at or below estimated builder replacement cost. We allow each investor to buy direct from the Builder at our negotiated price. In addition, all of our properties are complete and new, with a one year warranty, front to back. The communities are new and well groomed. So, our properties rent faster and at a higher rent factor. Due to the condition of the properties and the neighborhoods, it is not uncommon for many of our tenants to live a number of years in the same property. In essence, our risk is much lower, and our potential gain much higher. Since our properties have a positive cash flow it’s easy for our investors to sit back and wait to take advantage of the coming inflation. For more information, review our website, listed below. www.fischer-investment.com
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