September 2009

Speaking of real estate, as we do occasionally here, we were fortunate to see a little good news in the previous newsletter. The July 2009 total homes sold in Santa Fe City and County exceeded the July 2008 figure. And that was the first month (year to year) that had seen an increase in over 3 years. Hooray! Unfortunately, August did not follow the good example set by July. The attached spreadsheet reflects the details. Every month is not going to be better than the previous month and it’s not always up from here. We will see some hills and valleys along the way. Some are saying this big old mess is a V shaped timeline, where we have already had one deep bottom and now are climbing out. Others think maybe a W shaped chart, with a bottom, then some improvement, then another bottom (just to mercifully finish off those still suffering), then finally a climb out. Nobody knows. I just call it a roller coaster; up and down then down and up with some twists, spins and sharp curves. The person next to you might be screaming at the top of their lungs.

Anecdotal reports today are of an increase of real estate activity locally. Some are catching the wave and trying to add others. New contracts are being written and agreed to. I have witnessed strong oaths of optimism for the near term future of the Santa Fe real estate market. Talking about pending sales that have not yet closed is dangerous; some think it could ‘jinx’ a transaction. I am certain that one shouldn’t count a property as sold until it has closed. Yet people are making noises that things are getting better lately. We can all use the good news. Need I document the effect a healthy real estate market has on our fair city? For those that will be involved in the success stories of the next few months, we just want the effects to trickle down. For now, two beliefs; Santa Fe remains one of the most wonderful places on earth to live and work (and visit); and that we have probably been through the worst of our real estate market problems.

Yet even that last point is subject to revision, since the experts tell us the second wave of foreclosures might begin soon. Many loans of questionable quality were made less than three years ago and have not yet come to their repricing deadline. That’s when specific homeowners have to come to grips with their home’s value as it might compare to their mortgage balance. Also it is when a homeowner might learn their monthly payment may change by a substantial amount. While many point to early September 2008 as the low point in depressing economic news (Lehman Brothers, Bear Stearns, et.al.), many residential mortgage loans were made between the beginning of the slowdown (mid 2006) and the now famously bad news of September 2008. Those are the loans that might still haunt us, that have yet to be examined.

Something is still nagging about the lack of accountability by those who got us into this mess. Will we someday learn whom to blame and might we see the bad guys get their just desserts? Or was it just everyman wanting better returns on investments? The money handlers found ways to get record high returns, which involved creative packaging, credit default swaps and traunches. I’m not even sure what that is. And then they sold it to us in a watered down version. Did we create this problem ourselves, by our hunger to get rich? If a consistently high return is available to you at a low risk cost, are you suspicious? There’s that old phrase “too good to be true” which seems to apply here. Based on news stories, people clamored to give money to financial experts (snake oil salesmen) without asking hard questions that might have revealed the scam. Aren’t we all a little bit of the problem here? From another perspective, if we have already spent all of the equity in our homes (vacations, cars, college, investments, credit card debt, high living), who can we blame when the mortgage balance equals the value of the home? Why would we blame anyone else?

In the “old” days, borrowers typically paid back loans whether or not the collateral they pledged had any value. They did not walk away from their personal responsibility. Now it’s common to see borrowers turn over keys to houses when they might have zero equity, or worse. Don’t they have to live somewhere? Why not stay and work out terms with the lender of record? Well, apparently many are trying to negotiate with lenders and are being ignored. I guess the target of my whining is with those that are able to make the payments but choose not to. It’s the mulligan of bankruptcy; a free do-over. “Oops, I spent too much. Please forgive my debts.” That costs all of us in the long run, as you know. The next time a loan is made, there are new charges to recover some of the loss from previous deals.

Have you ever wondered about all the vigorous denials from those accused of wrongdoing? Without judging (who of us is qualified?), it seems every person accused or blamed initially denies guilt. Is that because we are all innocent (and perfect) until proven otherwise? Surely you remember Watergate. The lesson was “the cover-up was worse than the crime”. Or better said, the scrambling to deny caused substantially more damage and pain than the original crime. And that seems to be a constant these days. The blustery proclamations of innocence and blaming of others always amazes me. Almost no one admits mistakes. Instead we hear denials and excuses.

Is the word “sorry” used less often these days? If you are upset, you may find it comforting when someone says “I am sorry”. Sorry does not always mean taking responsibility. So who has the responsibility to step forward and speak up about a mistake that has occurred? Possibly anyone that recognizes it should speak up. What good is done to remain silent? Do you know of any self-correcting errors? No, because someone has to do something to fix it. Someone has to clean up the mess. And that can’t start until the problem is discovered. What’s unfortunate is those that look the other way or deny any knowledge or responsibility for a mistake. What kind of society will that lead us into? And what about the latest drunk driver searching for technical (and legal) ways to avoid prosecution and incarceration? Is that an acceptable result for our legal system? Or for our society? How about each of us taking full responsibility for our every action and every word from now on? I am sorry for the loss you had and sorry for your suffering. Repeat daily. It’s a start.

One might want to keep an open mind to be part of the solution to whatever ails us. Be ready to zig or zag as new information indicates. Without all the facts, how could one know the answer to the question? And what, again, is the question? I can’t help but mention the current health care debate. This is serious stuff. We read that the majority of Americans want “public option” yet far less than a majority can define what that means. If you accept that the current system is broken, does that influence the argument about what to do next? Is the option of doing nothing truly a valid option? Is there something similar between taking the position of not changing the way health care is currently delivered and paid for, and to covering up the break-in at Watergate? Let me know what you think.


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