Bill Neill

Today, after watching Congress question Kashkari (from Treasury), I am amazed that we continue to elect the quality of people we do to Congress. They either failed all their finance and economic courses in school (or did not take them) or maybe they are so eaten up with partisan politics that they do not care.

For several weeks now, I have listened to people talk about how lowering the discount rate or capital injection or ????? has not worked. Of course it has not worked. If you read my 9/29 blog on how we got in this mess, you know that those things don't fix millions of people's horrible financial decisions over the last 8ish years. When people buy homes they cannot afford, cars that they cannot pay for, make credit card charges that they cannot pay off at the end of the month and then take out home equity loans to do more of the same, why do we think Congress can fix the leveraged problem. If you watch the financial shows and read the financial papers, you continually hear that we have to deleverage (what did I say on the 9/29 blog). Congress cannot get consumers who made ridiculous decisions deleveraged. But, of course, Congress has to act like they are doing something and all they really do is make themselves look ridiculous or confirm that they failed their finance courses.

Everyone, including Congress, is looking for someone to blame and we (the consumers) made all those bad decisions on our own. No one put a gun to our head and said you must make all these stupid decisions. Over and over again you can hear that for a number of years we lived beyond our means and have been in a false economy. Until we pay off the debt and save money and learn to make good financial decisions, nothing will change.

I am sitting here now listening to analysts talk about the housing problem being the root and say that has not been fixed. You cannot enact some program and fix those decisions. Do you know that since Spring the redefault rate on mortgages that have been helped is between 40-45%? If people are not accountable for their actions, they never learn to make the right decisions.

I am sorry for all the negative comments above, but for several weeks I have listened to one ridiculous argument after another and I had to say something.

SO WHAT DID THIS WEEK'S FINANCIAL SITUATION DO TO THE REAL ESTATE MARKET

If you have been reading, watching, listening and asking this week about the present financial situation, you heard over and over again what I said in the 9/29 blog and again on 10/07. We cannot get out of this situation until we deleverage, get the debt down and make better spending decisions. Today I heard it phrased as..... loans were extended that should not have been, people took loans that they should not have and the rating agencies said it was OK. I also heard that the root cause of all this mess is the housing melt down (as I said in the 9/29 blog).

It was also said that with the excess number of homes on the market, people scared to buy and/or not being able to quaify for a loan that it will be several years before we see the real estate market turn. Most agree that prices will continue to drop for a year or more. Most people don't have to move or buy a home and as scared as most are they are not going to. Recently, in a very nice Williamson County gated neighborhood, I saw a very nice home that sold new in the summer of 2007 for $638,000 sell for $507,000 and give $8,000 for closing. I tracked this home because I did an estimate on it for someone and I said it would sell for $499,000. That was not received well, but turned out to be right.

Late today it looked like next week might bring some upticks in the market and some people might feel better. However, in Paulson's 6:45 PM speech he said nothing of importance. I say that being a Paulson fan. He is the man for the problem at hand. Now I think Monday and Tuesday will see another heavy down turn......again. This also is negative for the housing situation.

Monday and Tuesday will be the time to put in some buys in the stock market with stop losses under the buys.

MAKE SOUND REAL ESTATE DECISIONS

UPDATE TO BLOG POSTED ON 9/29/08 ON

THE PRESENT FINANCIAL SITUATION

If you have been reading or listening to the news concerning the present financial situation, you probably have heard the comment that we must "deleverage" before we can fix the situation. If you read the 9/29 blog, you probably have some understanding of what is being said.

I must apologize now for some of the upcoming comments. I have mentioned in some conversations with people that by the first of the year we would be reading about the significant rise in credit card default and car loan default. At present nearly $25 billion in auto loans are past due. In the second quarter of this year, that amount went up by 11%. We can only hope that the rate of increase does not continue. Credit card debt is experiencing the same issues. Neither car loans nor credit card problems have reached the level of home foreclosures-----------yet.

Living beyond our means has been popular-too popular. Now approximately one in five middle aged people have quit contributing to their retirement plans. Over 80% who stopped said they did not have enough money left over after expenses. You may have read about many people who are putting off retirement for financial reasons (not because they just want to work).

I would like to tell the story of a young couple that I know that is part of the solution rather than part of the problem. They met in college and upon graduating got married. Not an unusual situation, but then their decisions did start separating them from most. They decided to live on just one income and save and invest the other income. Rather than buy or rent a home like they wanted and buy new expensive cars and then say both incomes were necessary to pay the bills, they only rented and bought what one income would allow them to do. For a few years, they rented a very inexpensive place and saved the other income. Then they used those several years of savings to put a large down payment on a small, older home that needed work. They spent about 4 years doing all the remodeling themselves. They learned how to lay ceramic tile, wood floors, hang new kitchen cabinets, put up crown molding, paint, etc. themselves. They still continued to live on one income. At the end of about 4 years (and all the remodeling), they sold the house. With the money they made on the house and the 4 years of saved income from one of their jobs, they paid 50% down on a fairly new, very nice 4,000 sq ft home in a nice neighborhood. I forgot to tell you that they do not finance their cars-they save for them. They continued to live on one income and save the other income. How can they do that-they paid 50% down and have no car payments. After about 3 years in the new house and saving and investing one income, they came to me and said, "we have enough money in the stock market and we want to now invest in real estate....can you help". We talked, looked, etc. and I said let's wait because prices are going down and will continue to go down through this year and probably through 2009. So, we look and watch and keep track of what is happening.

I wonder what their reward will be for their discipline, living within their means and sacrifice. Probably starting in 2010, they will have to pay increased federal income taxes because someone will want to raise taxes for people for people who have money.

Did I mention that this couple just turned 31 and 32 years old this year? What an example of making sound financial and sound real estate decisions they are.