Economics of 2009 – Part I

I have been pondering this question for… well 2 and a half months now, wondering if the decisions made by the current congress and president Obama are going to help us get out of a recession or kick us while we are down. If you are looking for a quick answer: I don’t know. If you are looking for my train of thought, what do I think about the decisions being made and what do I think they should do, and then make a decision for your self, read on, but be aware that I will probably provide more questions than answers.

First I would like to present two very basic ideas behind economics, ideas that have been debated ever since they came into practice, with die-hard fans on both sides. Trickle down and trickle up economics. Trickle down means that we give businesses tax incentives and in a lack of a better term “money” and let them provide jobs and salaries, thus trickling the wealth down to the common man. Trickle up thinks that we should give money to the common man, let them spend it in businesses this creating wealth for both. Which one do I like? In a short answer: both. In a longer version I think that there is a need for both to work simultaneously in order to provide the greatest impact on the broadest amount of people. The problem is that we do not make decisions base solely on economics, we have developed a need for being fair and ethical, and that is where most of the arguments happen. 

Please be aware that I am about to give you my opinion, meaning that in todays politically correct world it will probably offend someone, so if you are easily offended please stop reading now.

If you are still moving your eyes over this sentence, I am glad that you can read some ones opinion and take from it what you will and make your own decisions. So here is the basic dilemma: do we save all of the poor and unfortunate people or do we let the economic course achieve the separation naturally? In my opinion there will always be poor people. There will always be poor people because there will always be people who work harder than others, who are smarter than others, who have better social skills than others and who are luckier than others, and we should not try to fix that, because we can’t. I think that we have made people too soft and too reliant on entitlements. If any of those people are still reading: nobody owes you anything. I know that this might be a unpopular point of view and might seem that I am unwilling to help others, but that is not the case at all. I am willing to help. I am, however, unwilling to be forced to help.

I do not think that if you decide that you need to have 14 children that I should be forced to provide you healthcare, a house and any sort of standard of living. I do not think that if you dropped out of school that I should be forced to use my reward for my hours spent studying to help you out. I do not think that if you were negligent in your personal finances that I, as a financially responsible person, should be forced to solve your problems for you. Any of these can be used in real life examples.We have come up with a generation of people who believe that they have no real responsibilities, and that if they screw up that someone will come in and rescue them. I do believe that there should be a safety net provided, but it should not be a way of life, as it is for oh so many. 

Now taking the ethics out of it, meaning nobody is obligated to do any kind of favors to anyone else, what is the path that we should take? The economy needs a circulating mean of exchange that is readily available to be swapped for goods and services, to  be invest and to be accepted by everyone. The economy needs money. Now how we push that money into the economy is the real debate. We can let the government do it, which is surprisingly the quickest method, by creating government jobs and projects. The problem is that, to me, those jobs and projects are temporary and while they provide goods and services, those goods and services are not exactly what the people might need or want. For example, we could set up 100,000 new hair salons then hire workers to design and build them, and then hire and train people to work there. This would cause a massive infusion of cash into the system, the problem is in that, well it’s not needed or wanted, and it’s temporary. What happens to all of the construction workers who worked on those projects after they are done? Do they go back to being unemployed or does the government decide that we then need 100,000 new car service places. Also, we can continue to pay all of those hair stylists, thus infusing cash into the economy, but we do not need that many hair salons, meaning most of them will stay empty and loose money. 

Now those are of course extreme cases, what they will usually do is create projects such as road building, trail building homeless shelters, or as they like to call it “investing”. Since “investing” sounds a whole lot better than “blowing money” we will go along with the idea. Sure it is a good thing to have light railways from LA to Las Vegas, and sure it is a good idea to have a new major highway go through downtown Atlanta. Well maybe not the later, but you get the point. The question that nobody seems to want to answer is: who exactly is paying for all of this? Are we doing this on borrowed money? Because that means that we will have to pay it back, with interest, and will these projects create enough cash generation to provide that. Are we just printing money? Because due to supply and demand that would cause inflation, thus making the wages earned actually a lot smaller than they really are. Are we taxing people to get that money? Because that seems a little redundant, get a paycheck for building a road, from which government takes out money to pay more workers to build more roads. The scary part is that we are doing all three, with complete disregard as to how this might affect future generations. Government spending is necessary, but at whose expense, and at what point do you draw the line?

To be continued…

First-Time Homebuyer Credit Explained

There Is a First Time For Everything

As every news station in the nation told you already, the “American Recovery and Reinvestment Act of 2009″ passed the House and the Senate on February 13th, 2009 and was signed into law by the President on February 17th, 2009. The $787 billion dollar (before interest) package among other things includes a revision of the 2008 stimulus package first-time home buyer credit. There have been a lot of proposals and changes while shaping the bill, so here is my interpretation as to what the final word on that is. Please note, that I am not a tax advisor, nor a CPA, so you should consult yours instead of going by what I say, this is just a reference. Also, as always, these opinions are that of my own and do not reflect any institution, organization or affiliation that I am a part of.

So out of the 1,071 pages of the stimulus package I found the excerpt about what changes were made to the original First-Time Homebuyer Credit, so here is the final verdict:

Sum It Up

Maximum Credit Amount: 10% of sale price or $8,000, which ever is less.

Definition of “First-time Homebuyer”: An individual (or if married, such individual’s spouse) had no ownership interest in a principal residence in the past 3 years. In laymen’s terms, someone, or a couple, in which neither partner have owned a primary residence home in the past 3 years.

Limitations:

1) Your adjusted gross income needs to be under $75,000 ($150,000 for couples filing jointly) in order to get the full credit. If you go over that limit, the amount of credit you get begins to decrease.

2) The property can not be acquired from a person related to the person buying the property.

3) You have to be a taxpaying resident.

4) You can not dispose of such residence, or have that residence seize being your primary residence, before the close of the taxable year. 

Dates: All revisions are effective as of January 1st, 2009 and end December 31st, 2009.

Recapture: If the home is sold within 3 years of purchase the entire credit amount is recaptured.

Eligible Properties: Include Single Family Homes, Condos, Co-Ops, and Townhomes. 

 

Extra Credit

Also a interesting note is that it is not a tax deduction but a tax credit. Meaning, for example if your total credit ends up being the whole $8,000 and your tax liability is $2,000 you will actually receive a $6,000 check from the government. It is also my understand that in order to receive the credit one would have to fill out a tax form or two, but you will have to talk to your tax advisor or CPA in order to find out exactly which one.

 

Will It Help?

I hope this helps to push the “one the fence” home buyers into purchasing a home, but in all honesty I do not see this alone turning the housing market around. It seems to me that we do need to make sure that every eligible person takes advantage of this, this way they can spend their credit or refund on purchasing things for that home, thus stimulating the economy some.

What do I think?

I was recently asked to state my opinion of the current administration and leaders in congress. This should sum it up nicely. Feel free to disagree. Please note, all of the people involved are still currently holding their positions in office, and as always, these views are that of my own, and do not represent the views of any institution, group and affiliation that I am a part of.

Stock Market Crash of 2008

Show Me The Money

$34,000: the amount of federal taxes that Secretary of the Treasury Timothy Geithner (D) failed to pay during his employment at the International Monetary Fund despite receiving extra compensation and explanatory brochures that described his tax liabilities.

$75,000: the amount of money that the head of the powerful tax-writing committee, Rep. Charlie Rangel (D-NY), was forced to report on his taxes after the discovery that he had not reported income from a Costa Rican rental property. His excuses for the failure started with blaming his wife, then his accountant and finally the fact that he didn’t speak Spanish.

$93,000: the amount of petty cash each Congressional representative voted to give themselves in January 2009 during the height of an economic meltdown.

$133,900: the amount Fannie Mae “invested” in Chris Dodd (D-CT), head of the powerful Senate Banking Committee, presumably to repel oversight of the GSE prior to its meltdown. Said meltdown helped touch off the current economic crisis. In only a few years time, Fannie also “invested” over $105,000 in then-Senator Barack Obama.

$140,000: the amount of back taxes and interest that Cabinet nominee Tom Daschle (D) was forced to cough up after the vetting process revealed significant, unexplained tax liabilities.

$356,000: the approximate amount of income and deductions that Daschle (D) was forced to report on his amended 2005 and 2007 tax returns after being caught cheating on his taxes. This includes $255,256 for the use of a car service, $83,333 in unreported income, and $14,963 in charitable contributions.

$800,000: the amount of “sweetheart” mortgages Senate Banking Chairman Chris Dodd (D-CT) received from Countrywide Financial, the details for which he has refused to release details despite months of promises to do so. Countrywide was once the nation’s largest mortgage lender and linked to Government-Sponsored Entities like Fannie Mae and Freddie Mac. Their meltdown precipitated the current financial crisis. Countrywide was forced to pay $150,000,000 in mortgage assistance following “a state investigation that concluded that Countrywide relaxed its underwriting standards to sell risky loans to consumers who did not understand them and could not afford them.”

$1,000,000: the estimated amount of donations by Denise Rich, wife of fugitive Marc Rich, to Democrat interests and the William J. Clinton Foundation in an apparent quid pro quo deal that resulted in a pardon for Mr. Rich. The pardon was reviewed and blessed by Obamas Attorney General and then Deputy AG Eric Holder, despite numerous requests by government officials to turn it down.

$12,000,000: the amount of TARP money provided to community bank One United despite the fact that it did not qualify for funds, and was “under attack from its regulators for allegations of poor lending practices and executive-pay abuses.” It turns out that Rep. Maxine Waters (D-CA), a key contributor to the Fannie Mae meltdown, just happens to be married to one of the bank’s ex-directors.

$23,500,000: The upper range of net worth Rep. Allan Mollohan (D-WV) accumulated in four years time according to The Washington Post through earmarks of “tens of millions of dollars to groups associated with his own business partners.”

$2,000,000,000: ($2 billion) the approximate amount of money that House Appropriations Chairman David Obey (D-WI) is earmarking related to his son’s lobbying efforts. Craig Obey is “a top lobbyist for the nonprofit group” that would receive a roughly $2 billion component of the “Stimulus” package.

$3,700,000,000: ($3.7 billion) not to be outdone, this is the estimated value of various defense contracts awarded to a company controlled by the husband of Rep. Diane Feinstein (D-CA). Despite an obvious conflict-of-interest as “a member of the Military Construction Appropriations subcommittee, Sen. Feinstein voted for appropriations worth billions to her husband’s firms.”

$4,190,000,000: ($4.19 billion) the amount of money in the so-called “Stimulus” package devoted to fraudulent voter registration ACORN group under the auspices of “Community Stabilization Activities”. ACORN is currently the subject of a RICO suit in Ohio.

$1,646,000,000,000 ($1.646 trillion): the approximate amount of annual United States exports endangered by the “Stimulus” package, which provides a “Buy American” stricture. According to international trade experts, a “US-EU trade war looms”, which could result in a worldwide economic depression reminiscent of that touched off by the protectionist Smoot-Hawley Act.

Georgia On My Mind

But Why?

This might not be the most popular position, but I think the main problem with todays economy is that politicians, not economist run this country, and of course those people will do, and say, anything to get re-elected. As soon as they get chosen to be a representative, 2 weeks later they are running a re-election campaign. These people do not care what we really want, they know what people want to hear and how to play the numbers to get the majority of the vote. We have forgotten what was originally the idea of our government. It was supposed to be a group of people going up to Washington to represent the views of their respective communities and fight for their interest. It has become a group of elite lawyers trying to figure out how to stay in the office the longest and who to mingle with to get a promotion.
Now you decide, tell me what you think by leaving a comment or sending me a message via the contact pages, I would to hear more opinions.

Sales Soar at Chick-fil-A

Winner Winner Chicken Dinner

The privately held Atlanta corporation recorded a 12.17% increase in sales from 2007, making their total sales for the 2008 year $2.96 billion dollars. Dan T. Cathy, President and Chief Operating Officer, said that the company is by no means immune to the economic downturn, but that he believes that if they stay true to the principles that have guided the company for the past 6 decades: “providing exceptional customer service and unmatched product quality to every customer on every visit.”, they will continue to grow strong even in the toughest of times.

From SEC to M.B.A

This is wonderful news. This company does so much for the Metro Atlanta area, not only providing great food along with great service, but sponsoring everything from the SEC and the Chick-fil-A Bowl to local high school bands and programs. They are also really big on helping young people with education, which is arguably, the fundamental stone to economic development and stability in a community.

Will Work For Chicken

Another reason this is good to hear, is that because maybe the fact that Chick-fil-A plans on opening 76 new locations in 2009 and remodeling 65 others will help the struggling Georgia economy and unemployment. At the time of this post Georgia was tied for 10th place with Florida for the worst unemployment percentage at 8.1%. The unenvied number one spot is held by Michigan at 10.6% while the least amount of unemployed people reside in Wyoming, giving it an unemployment rate of 3.4%.

I have been a big Chick-fil-A supported for as long as I can remember, and this just goes to show that people value when a company does business the right way.

Cincinnati Reds go for Coke

Coke is Seeing Red

No, I am not talking about the financial stability of the beverage giant, but the new five year deal that the company has signed with the Cincinnati Reds to have the exclusive beverage rights at the Great American Ball Park. This entitlement, which was previously held by Pepsi Co., will give Coke the exclusive rights to sell soft drinks, juices, water and energy drinks at the ballpark.

Coca-Cola Sign in Downtown Atlanta

Red Strings Attached

Along with being able to serve those drinks Coca-Cola also receives pass-through rights for restaurants and retail partners to give away vouchers to Reds games, is planning on starting a recycling campaign at the Great American Ball Park as well as having a signature Coke ribbon on top of the new scoreboard and a full suite at the stadium.
While no price-points were released, rumors have it that it was a low seven-figure per year deal.

Marketing Opportunities Galore

I think this is another great opportunity for the Atlanta based Coca-Cola Company to market itself, especially in the Northern part of the United States, which historically preferred Pepsi. Also, I think that “Reds” and the red Coke bottle put together will bring some obvious marketing potential for print, radio and T.V. ads. As far as economics go, this is first and foremost a double win for Coke against its biggest rival. First, Coke gained a stadium. Second, Pepsi lost one. Having exclusive rights at any arena creates brand presence, and widely televised events, such as Major League Baseball games, will give Coke a ton of “free” and subliminal advertising, not to mention the marketing and sale increase possibilities that accompany such commitments. Will this significantly increase the value of Coke’s stock (NYSE: KO)? Will it bring in billions of revenue? Probably not, but it will most likely look positive for the investors and hopefully bring in enough revenue to break even, but even if no economic changes take place, it gets more people drinking Coke, and what company would complain about that?

Atlanta – All in!

Press Your Luck in Underground Atlanta

There may be some major changes coming to downtown Atlanta. Developer Dean O’Leary brought a proposal to the Georgia Lottery Board for a casino to be built in Underground Atlanta. Mr. O’Leary, who holds a 50 year lease on Underground Atlanta, and his partner John Aderhold brought an idea to completely overhaul Underground Atlanta and bring in upscale shoppes, restaurants and 5,000 video lottery terminals. Half of the proceeds, which are planned to be around $600 million, would go to the lottery, which sponsors the popular Georgia HOPE scholarship.

Underground Atlanta

We Are All Winners

The idea of having a casino in the Metro Atlanta area has been long coming, and many are excited about having another “tourist magnet” in the city. I think that if the motion passes, Atlanta will see a quite noticeable increase in revenue. Tourism is a major, major part of the state economy bringing in billions for the state, and with the recently opened Georgia Aquarium, as well as historic tourist attractions such as important Civil rights locations, the Coca-Cola museum, High museum of Art, Stone Mountain Park, Zoo Atlanta, and numerous others, I say bring it on! My major sway is that this will bring money from surrounding states to Georgia, money that will stay here helping our economy. Obvious to benefit include the hospitality and the restaurant businesses, but the impact does not stop there. The Georgia Lottery sponsors, among other educational grants and scholarships, the Georgia HOPE scholarship,  appropriating more than $4.6 billion dollars to over 1.1 million recipients since its inception.

Underground, We Have A Problem

The proposed casino does face some challenges, as any $600 million dollar project would, first and foremost being that, quite simply, nothing like this has been built in Georgia before. State law prohibits Las Vegas style gambling, so you won’t find card blackjack or poker tables at the new casino, but you will be able to try your luck at the allowed gambling, video lottery terminals. Another dilemma is in getting people on board with the idea. Some mention that this might bring crime to the area, as well as people playing irresponsibly and possibly into a personal bankruptcy. I don’t think that neither of those will take place, as I am sure that Dover Downs, the company that will manage the casino is going to implement state of the art security, and the extra security guards will quite possibly make the area safer and deter crime, not the other way around. Also, there are policing methods, just like in any casino, that prevent people from loosing too much. Simple microeconomics will tell us that this is something the developers and organizers have thought about, and they know that people will have those concerns and they will have to go above and beyond to prove that this is a completely safe facility.

 
Overall I think this is a great opportunity for Georgia to add to its tourism industry, and will bring in a much needed economic boost to Atlanta.

2008 – Vinings Condos and Townhomes

Vinings at a Glance

The Smyrna Vinings area is one of the most desired addresses in the Metro Atlanta area. New upscale restaurants and shopping as well as immediate access to I-75 and I-285 make this a preferred area for families as well as first time homebuyers. Since buying land in the Vinings area might not be as affordable as compared to some of the lots further West of town many people decide to move into condos and townhomes. In fact, one is able to purchase a condo for about $100,000, while the most expensive condo on the market at the time of this post is listed at 2.5 million.

2008 Vinings Listings

Now how did the sales of condos in the Vinings area stack up in 2008? Well in order to figure out this information I pulled the statistics for FMLS area 71, which includes the Vinings area. There were 610 Residential-Attached homes listed for the year of 2008, with the average price of $330,502. The highest amount of listings came in the month of January with 76. Now I don’t know if that is due to a lot of people deciding to start of the year by selling their house or because a lot of people had their listing contracts expire in January and just decided to re-list. The total value of all condos listed in 2008 is just over $200,000,000.

Going Once, Going Twice, Sold!

After talking about how many condos and townhomes were listed the next natural step is to see what happened in the sales department. The average sales price was $270,791, which is almost $60,000 less than the average listing price. I think that this can be partially explained if we compare the total amount of homes listed and total amount of homes sold, which are 610 and 153 respectively, or just about 25%. Not many sales means that the sellers are willing to take a loss in order to move their property, having to compete not only with condos and townhomes in the Vinings area but also properties in the Atlanta area. This is however great news for buyers, more choices and a bigger chance to get the deal of a lifetime. Another reason this area might be appealing to buyers is the fact that you can be in Cobb County – meaning Cobb County taxes, while having an Atlanta address.

 

2008 Vinings Average List and Sales Price

 

 

Take a Number and Have a Seat

If you do have your condo or townhome listed in FMLS area 71 how long should you expect to wait until you get it sold? Introductory, let me explain how the statistics works. What we do is look at every house that closed during that time and then look at how many days that house was on the market. So for example if in the month of May the average Days on market (DOM) was 91, this means that the most homes sold in may were listed in February. Back to how long it would take you to sell your home, if you end up falling right into the mean of the average days on the market you would have to wait 101.2 days to close on the contract. The shortest sales time came in November, just 40 days, but I do not take this information to be “accurate” since only 2 homes sold during the month. A more reasonable answer would be 73 during the month of October while the longest was 191 days in September .

 

Average Days on the Market for Vinings in 2008

 

 

As I have stated in the “Who is Writing This?” section and in my previous post lease note that these figures come from FMLS, meaning they were calculated and entered in my humans and hence are prone to mistakes and errors, just like my calculations.

Cobb County 2008 Year End Review

 

And They’re Off!

     What better way to kick off the site than to see where the market has gone during the year? Now there are a lot of news out there about how the real estate market has done nothing but gone South, and how every day it is getting worse and worse with no end in sight. This might sell newspapers and make great TV headlines, but let us look at the actual data and see what we come up with. I am not saying that everything is rosy and great, a lot of people are really suffering, but there might be numbers that come as a surprise and a glimpse of hope for some, and push to action for others.

     I will start of by comparing the sales in Cobb County, GA for the years of 2007 and 2008. Now these numbers include ONLY single family detached homes, meaning the sales of condos, townhouses, commercial and land are not included. I will however post those figures at a later date. Also please note, all of my figures come from the First Multiple Listing Service (FMLS) and although they are believed to be accurate, just like everything done by humans (including calculations I make) they are subject to errors.

Amount of Homes Listed

     Just like most markets around the country Cobb County was not immune to the real estate economic downturn, but exactly what was the damage this year? The amount of new listings for the year of 2008 was 18,733, compare that to the amount of new listings for last year and we see that there was a 15% drop. In my opinion this is due to three reasons: first, the overall slowdown in the economy effects every type of business, including real estate, hence the market becomes stagnant as people are unwilling to make deals. This led me into my second point, a lot of people hear the news and want to just wait out on the sidelines while others are unwilling to take a loss on the home they bought at the peak of the market and are holding on to it hoping to capitalize when the market turns around. Now the third, and in my opinion the biggest reason we see this drop is due to the dramatic slowdown in the new homes built. Builders were popping up new communities like mushrooms after a rainstorm, at unsustainable levels, and now that the demand has fallen some went out of business and the new home market has cooled down. Fewer new communities equals fewer amount of new homes on the market.

My House Is Worth What?

     Now the next statistic is going to receive mixed feelings, depending on if you are a buyer or a seller. The average listing price of a home in Cobb County in 2007 was $329,480, and dropped to  $322,485 in 2008. Now the nearly $7,000 drop means that the home sellers are adjusting what they think the market value, what a interested and able buyer is willing to pay for that property, for their home is, but compare that to the average selling price, which dropped nearly $23,000, and we see that the sellers expectations are still not on the level of the buyers. This simply means that the buyers are looking for the best possible deal, and are being successful in finding them. In my opinion, that is a very smart move on the buyers part. The housing market is down, the rates are low, and with a good credit history and a decent down payment one can lock in a 30 year fixed rate mortgage at 4.5%! Some are still waiting to see if they can get an even better deal, but to me the trick is not to get too “greedy” and miss out. Is 2008 the absolute best time to buy a house in Cobb County? I don’t know, it is a possibility, but the questions I would ask is “Is 2008 a good time to buy?”, and the answer to that is undeniably yes!

Here is the graph comparing average sales prices. X-Axis is the month and Y-Axis is the price.

To Buy or Not to Buy

     Now onto some other figures for the year. The total amount of houses sold fell from 8,243 to 5,857, with the total value of houses sold for the year falling a little over $800,000,000 to $1,505,485,923. I think this is due to the same reasons as to why the amount of houses listed dropped: the overall economic slowdown and the amount of people riding out the storm. Also, a lot of people are scared of the uncertainty and are unwilling to make such a drastic change as moving into a new house, plus they think that they would loose money if they sold their house right now. To answer that dilemma I would quote the great investor Warren Buffet: “Be fearful when others are greedy, be greedy when others are fearful.”. The truth is that yes, one might sell their house for less than they hoped, or even less than what they paid for it, but you will gain it back on the buying end. The sellers are receiving $23,000 less for their house, but the buyers are getting a $23,000 discount. 

Days On The Market

     The last statistic I will look at is the total days on the market (DOM), which rose on average by 10 days. The shortest selling time for Cobb County in 2008 was during the month of July, with the average home being sold in 77 days. The sales for the month of July were also the highest for the year with 638 homes sold. I think the reason for July being high selling month has to do with school and summer vacations. A lot of people try to close and be moved into the new home before the new school year starts back up in August. 

 

Here are the total figures for the year-end comparisons:

Key:

• New – New homes listed 
• Avg LP – Average Listing Price
• Total LP – Total monetary value of all houses
• Pending – Total amount of homes that went under contract
• Sold – Total amount of houses that sold during the year
• Avg SP – Average Sales Price
• Total SP – Total monetary value of all houses sold
• AVG DOM – Average Days on the Market

As stated above, these are the figures just for Single Family Detached Homes; condos, townhomes, commercial, land, or any other type of real estate is not included. Also, all the figures are from FMLS and a subject to errors, as well as any errors I could have possibly made while making my calculations. And as always: the opinions here are that of my own and do not represent those of any of my affiliations. Also, this is just for “entertainment” purposes only as I do not hold any official certifications besides that of a REALTOR.