How the real estate mess affects the economy

According the Beige Book reports, all sectors of the economy are seeing the effects of the housing slump. In fact, the "R" word is now being tossed about. And, in the housing market, it's the "d" word. (If you don't know to what I'm referring, here's the answers: Recession and Depression.)

We have builders going under. Yesterday's Chicago Tribune reported that Kimball Hill's auditor said that they didn't have enough funds to continue operation. And, who would lend them money in this environment?

We have announcements from banks and lenders that they're "releasing" hundreds of employees. We have title companies consolidating. We have private mortgage insurers with NO money to back worthless or foreclosed loans. We have real estate agents and companies, attorneys, inspectors, surveyors and appraisers who are doing a lot less real estate related business. Our Northern Illinois Multiple Listing Service is now down to 47,200 agents compared to the end of December's stats which were over 48,000. And, remember back in the summer of 2007 we had 53,000 agents. So, that's a loss of about 6,000 agents. And, expect more losses as the Broker renewal deadline of April 30, 2008 approaches.

And based upon this morning's new house starts stats, one of the lowest numbers in over seven years, we have a 15 month supply of homes glutting the market.

The auto industry is also feeling the effects. The credit card industry, both Visa and MasterCard are reporting higher numbers of non-paying accounts.

But, if you have money stashed away...now is the time to invest in the housing market. I just saw a home go on the market (probably a foreclosure, didn't say) for $50,000 less than its value. And, there are a lot of people out there who want to rent a home. So, as a long term investment...at least five years, you'll do fine.

I have a friend in Cleveland who started buying homes about 15 years ago. He fixed them up and rented them out. Paid off the first mortgage with income from the second, third and fourth. This was his retirement "IRA." Today, he smiles on the first of the month when all those rent checks come rolling in. Here's to you, Jim.

C 2007 Move UP to Naperville Blog, Eileen Landau