The plan would create roughly 200,000 new rental homes this year.

Though still in the works, the US government has indicated it plans to carry out the operation in “early 2012″. That’s a relatively specific guideline, all things considered.

In September, the Obama administration asked for proposals on how to sell the government’s inventory of foreclosed homes. Big financial firms that included Deutsche Bank, UBS, and Cerberus Capital Management all submitted responses to the federal request.

The opportunity for investment has attracted many companies to the “distressed housing market”.

Real estate investment firm GTIS Partners plans to invest $1 billion over the next 4 years in acquiring single-family homes to manage, according to the fund’s founder Thomas Shapiro.

The return on their investment comes from a few factors. Buying homes in bulk directly from Fannie and Freddie will give GTIS a better-than-market price. And focusing on the most distressed markets, like Nevada, Arizona, and California will ensure they have a sure and steady stream of renters.

There’s a lot of inventory being unloaded this year, and GTIS won’t be the last firm committed to distressed housing.

The most opportune part of the operation is that demand for rental units is already there. So these investments have a mitigated risk for return.

One caveat, however. While big finance firms like GTIS may be able to buy in bulk directly from other banks, or Fannie and Freddie, individual investors may have a harder time getting those deals. There are literally billions of private equity dollars being funneled into this, and small-time investors will probably get pushed out.

What would 200,000 new rent units do for the market?

For starters, the increase in rental units will satisfy the growing demand. Given the preference shift in the real estate industry from home-buying to renting, there is a large and ever-growing number of future tenants.

And they’re all currently battling for a piece of a stagnant rent market. While demand for rent units has increased, supply has been slow to follow. It’s resulted in high rent prices at a time when the unemployment rate is still near 9%.

An influx of 200,000 rental units would do much to placate that demand. The rising price of rent would be curbed as more rental properties compete with each other. And in areas where high rents have scared people off, the reduction in prices could be enough to attract more renters again.

Renters benefit from having more leverage in choosing location and negotiating rents. And local businesses benefit from the increased foot traffic.

But the biggest winners might be the investment firms that buy foreclosed properties to rent them. With the rental market still a landlord’s game, it’ll be a while before the competition is fierce enough to lower rents everywhere.

In the hardest-hit places especially, that could take a long time. It’s the reason why GTIS is choosing to focus on those markets. There is an untapped source of tenants there that have limited options for housing.

However, investment firms aren’t the only ones that stand to gain. More rental properties means there’s a demand for property management firms, realtors, attorneys, and the usual personnel that accompany a real estate deal.

But the real goal of this operation – for the Federal Government at least – is to restore the housing market. Ben Bernanke, the Federal Reserve Chairman, cites the health of the housing market as “a necessary part of a broader strategy for economic recovery”.

And while the Fed has done all it could with monetary policy – like keeping interest rates low and buying bonds – housing still has not recovered. That’s probably the biggest reason why the government has turned to fiscal policy instead.

Getting the foreclosed homes out of housing and into rent will help home prices increase again, driving more home sales. And the increased equity for existing homeowners should boost consumer confidence and spending.

It’s a good strategy in theory. All that’s left is to put it in practice.

Either way, the opportunity for property management firms and finance companies to make high returns is ready and waiting. For those with the cash, it’s a good time to consider the future rent market.

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General info about US Gov’t plan, GTIS, equity firms
http://www.bloomberg.com/news/2012-01-31/foreclosures-draw-private-equity-as-u-s-selling-200-000-homes-mortgages.html

US Unemployment Rate
http://federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf

Ben Bernanke quote
http://money.cnn.com/2012/01/09/news/economy/foreclosures_rental/index.htm

Rental properties are providing huge returns for those able to make the investment.

The price of rent has been increasing rapidly in cities all over the country. But the cities where demand has increased significantly are those with strong job markets. Cities on the coasts like Washington D.C., Boston, Los Angeles, and Seattle are seeing rent demand push prices up as they add more jobs.

And there’s no healthier job market in the United States than the tech industry.

In the hub of the high-technology market, the San Francisco Bay Area, rents are up 12% year-over-year in November. That 12% increase is “the best in the country” according to UC Berkeley economist Kenneth Rosen.

The average rent in San Francisco is as high as $2,572.

Why have rents increased so much?

The demand for rental units has risen over the last decade. Part of it is due to the increase in foreclosures, but there are other factors that also contribute.

San Francisco saw a population increase of almost 300,000 residents since 2000. And much of those new residents are affluent tech workers able and willing to rent.

According to Rosen, 19,000 jobs were added in San Francisco, and over 40,000 in Silicon Valley. Most of these jobs are in technology, bio-tech, and social media. This led to the influx of affluent professionals to the Bay area.

Add to this a slow-growing housing infrastructure, and the result is upward pressure on rent prices.

Many of the coastal cities are seeing a supply that’s slow to respond. Until more rental units are constructed, applicants will keep driving the price of rent up.

In fact, there are so many applicants for each rental property that some realtors have spotted unique business opportunities. In San Francisco, many realtors are now charging a fee just to look at a property.

With hundreds of applicants per property, this is not an insignificant revenue stream.

But with home prices so low and interest rates at historic lows, why don’t people consider buying?

Many consumers are frozen out of the housing market because of foreclosures. Before they can be homeowners again, they need to rebuild their credit.

Some consumers are willing to buy, but banks aren’t lending as freely as they used to. Until confidence in the economy picks up, loans will be hard to come by.

But more than finance, emotions are a big factor.

Many people don’t want to own a home. The housing bubble showed how quickly a booming market can turn sour, and this lesson is still imprinted in the minds of many. There is still insecurity about housing prices, and some aren’t prepared to take that risk so soon.

There is now an entire generation of first-time homebuyers who are opting to rent instead.

With a weak economy, student-debt that has outgrown credit card debt, and having watched their parents struggle through the housing crash, many young workers are not enthusiastic about owning a home. Renting is becoming the new norm among a recuperating labor force.

The numbers reflect that change in attitude. Despite rents being so high, San Francisco has a vacancy rate of just 3.7%.

In New York, the vacancy rate dropped to levels not seen since mid-2008, even though rents have increased over 5 consecutive quarters.

Those high rent prices mean one thing: landlords are making money again.

After a couple years of stagnation, the real-estate market is starting to correct itself. The trend of high rent prices and low vacancies will continue until renters decide it makes more sense to buy. Once that happens, the market will level out. But we are still years from that.

Being a landlord is no longer bad business. And if these trends continue, the rental market has just started growing. Business is only getting better.

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Info about new generation choosing to rent
http://articles.orlandosentinel.com/2011-09-27/business/os-kassab-rental-market-frenzy-20110927_1_housing-market-property-management-rental-market

San Francisco rent market
http://www.baycitizen.org/columns/scott-james/sfs-tight-rental-market-paying-just-look/

San Francisco, Silicon Valley, Kenneth Rosen quote
http://abclocal.go.com/kgo/story?section=news/business&id=8440772

New York rent market info
http://www.msnbc.msn.com/id/42557802/ns/business-real_estate/t/rental-market-swings-back-favor-landlords/#.Tyd5DuOXTpg

Make waves and the voters will take notice?

Don’t be so sure this time, Senator – the public is surprisingly well read on the matter, and offering no plan to build a fantasy world, characterized by a “completely privatized secondary mortgage market” bodes poorly on the proposal. Senator Isakson can’t seriously mean to implode the very institution that made his realty career possible. Additionally, this new secondary market will be subject to the regulations of the Dodd-Frank legislation. Yes, that is correct – Isakson proposes to encourage private business to enter a secondary mortgage market, just after adding new restrictions on the market, making profit more difficult to come by (limited short-term profit opportunity). The private sector became an active participant in subprime mortgages only after the SEC and HUD loosened regulations in 2004, apparently to drive the subprime mortgage market.

Isakson’s next mistake: the private mortgage industry,  once muddied with investment banking, was at the root of the previous financial collapse, forcing out Fannie Mae’s careful approach to the subprime market. First, the Securities and Exchange Commission relaxed its rules on investment bank borrowing, allowing  Lehman Bros, Bear Stearns, and Merrill Lynch to over-leverage, borrowing cash to compete in the secondary mortgage market. Subprime opportunity was ripe, as the Federal Reserve had slashed interest rates. These investment banks lured in borrowers with seemingly low-cost financing, approving low-rate mortgages without concern for borrower credit worthiness. However, these mortgages were designed off floating rate platforms, with a number of additional quirks, bringing inevitable doom to borrowers, as interest rates were sure to climb. The banks appeared to limit the risk of borrower default by purchasing (CDSs) Credit Default Swaps (mortgage “insurance”) from the likes of A.I.G. As a result, the mortgages could be repackaged and sold as Mortgage Backed Securities to investors who focused on the future returns of floating rates, without the typical subprime risk of default (made possible by the credit default swaps).

The investment banks were selling fools gold, bringing inevitable doom to borrowers, blinded by the lure of home “ownership,” and investors who ignorantly found comfort in the pseudo insurance provided by the CDSwaps. This reckless behavior successfully stripped away Fannie Mae’s oversight of the subprime market, as the mortgage giant was unable to compete with Investment Banking gimmicks; Fannie was forced to abandon its subprime conservatism, in an effort to reacquire market share. Clearly, Mr. Isakson has forgotten which sector brought on the business of risky lending. Maybe because the three investment banks mentioned all when bankrupt, and nobody can point fingers at ghosts.

Yet another mistake: Isakson has not considered the amount resources necessary, to repurchase mortgages in mass, repackage them along appropriate risk profiles, and sell the mortgage backed securities. It took over $4trillion in debt just to bring investment banks into the subprime picture. Is the hope that all these “private businesses” (whatever that means) will come together, willingly combine mortgage notes with one another and seamlessly work together to market the resulting securities? Not likely. Companies must carry billions of dollars to even consider maintaining meaningful portfolio. No business could now put forth enough cash to acquire a large enough portfolio of mortgages to diversify risk and maximize projected return well enough to produce marketable Mortgage Backed Securities. Furthermore, the personnel and systems necessary to streamline the process would take years to establish (not to mention the marketing required to sell off these securities in a competitive environment).

Is there a company out there with access to enough cash, personnel, and resources to even consider moving forward on such an ENORMOUS undertaking?

I can think of two.

Fannie Mae and Freddie Mac… Sure, there are some mega companies out there who, theoretically, could make business out of the secondary mortgage market, but it would take a huge re-allocation of resources, and the opportunity cost is too high in this day of economic reconstruction. The futility of “private” enterprise entering the marketplace is evidence by the catastrophic results of the five largest investment banks (who entered the market in 2004), three of which disappeared.

It would take generations to build a secondary mortgage market out of thin air, at least to the scale the American public requires. So what do legislative proposals do for progress, other than needlessly occupy congress’ attention. In terms of reform and progress, this bill is, graciously put, counterproductive. It is a shame that our elected officials would place politics over government, using proposed legislation to collect votes from an angry, finger-pointing constituency.

Not according to the census data, which has been continuing a trend towards renting since around 2004, and FannieMae’s recent research.  Nearly all data points to the growing rental market and the declining home ownership market, which if you are a property manager is really nothing new.  What I think IS new and not often seen here are some underlying factors that will keep this trend in a continual movement for quite some time, which is also represented in the FannieMae statistics.

Across the industry people will attribute this rise in rental demand to a number of factors… declining wages and higher unemployment, tight lending market, and even stagflation.  These factors are, no doubt, the leading cause of the shift to the rental market and will continue to be the reason the market stays on the up and up.  However, there is a deeper darker side to this story which, I think, will reveal itself over time.

Since the housing bust, and honestly for quite some time prior just less realized, the US markets and psyche of the American people have been shifting.  But, aren’t they always shifting, you might ask.  Yes, but, this shift, if you will, has been the tipping point that has taken us to the other side.  And, by the other side, I mean, the optimizations we’ve been able to achieve within companies and business, as a whole, has exceeded the demand for human labor.  What this means is, we don’t need everyone working in this country in order for the general population to maintain the same quality of life and supply everyone with the things they need.  The US and world markets, as we know it, have hit that magical tipping point.

So, how does this tie into the rental market?  Well, it’s quite simple really.  The rental market isn’t really immune to this tipping point.  Everyone is affected from the top down.  These optimizations hit nearly every industry, until everyone is operating at a similar level of optimization.  If you aren’t, you can’t compete, you don’t really have a choice.  It’s the nature of business and progress really, and is the reason why people will continue to rent.  Allow me to explain…

Every industry has it’s tipping point.  There was a time where people grew their own food, built their own house, and were even their own source of entertainment.  But, progress happens.  Over time, where there is an opportunity, people and businesses learn how to make things more affordable, better optimized, and higher quality.  It’s the nature of competition.  So, we got restaurants, lots of them.  And, over time, the quality, accessibility and affordability continued to increase, such that it became a better choice from an optimization standpoint, to eat at restaurants, as opposed to doing it all yourself.  The same happened to building a home and entertaining yourself, etc.  We live in a highly optimized society, where it’s second nature to choose the more optimized approach where all other constraints are held equal.

The rental market is in the process of hitting that point, and, in the next couple years, will hit it.  Rental rates are projected to climb steadily the next two years as the vacant rental market begins to reach saturation, and demand continues.  But, the issue is that, the rest of the markets aren’t seeing this type of boom, they’ve already hit this tipping point.  So, as rental rates begin to rise, renters are going to be shouting back with their demands for cheaper rent.  Remember, they can’t turn to buy houses as an alternative to higher rental rates, as has been the case in the past, nor do they want to do this.

As this is happening, property managers and landlords are going to be faced with some difficult problems.  The demands for rental properties will be great, but only the affordable ones, so the battle begins to be able to offer affordable, high quality rentals.  And it will be highly competitive!  So, in order to compete, PMs and landlords have to become optimized.  That means they have to cut their overhead and be able to handle more with less, all while maintaining the same or higher level of service and rental quality.  There will be winners and losers.  Those who win will have a lot to gain!  Welcome to the tipping point.

But, all this means is that we have higher quality rentals available at a slightly higher rental rate, without the ability for many to purchase a home.  It’s clear how it’s a win for property managers and landlords, the market is booming.  But, how is it a win for tenants?

Well, there are a number of things that come into play here, but the key word here is optimization.  Tenants are finally faced with the decision of whether to rent or to buy (if they even can) with a much more level playing field.  Previously, the decision to buy a home was seen as a wise long term investment.  However, the current first-time home buying generation, having seen the current housing situation unfold before their eyes, looks at it with much more skepticism.  The promise of a home as an investment isn’t seen in the same light.

But, that’s not it, that’s only one piece.  With the job market in the situation it is in, people don’t have the same job security that was once thought to be the norm.  So, the idea of buying a home with a 30 yr mortgage, when you don’t know if you’ll have a job in 5 years, will keep many away.  Especially since everyone is highly optimized in their profession and there are a limited number of available jobs within any given city; having to move cities for work is increasingly more common.

And, while there are a number of other factors that come into play here, I’d like to point out one more.  Upkeep and repair costs of owning a home vs renting.  Remember earlier when we talked about property managers and landlords having to become more optimized, cutting overhead and reducing costs.  Well, one place where they really focused here, was repair costs, and with the imminent mergers and acquisitions of the winners and losers within the market, this one is huge.  Property managers and landlords will be able to maintain and repair issues with rentals at a fraction of the cost of homeowners.  They will have access to economies of scale and reduced labor costs.  For this reason alone, owning a home, due to the costs and headache of maintenance will become much much less appealing.

Now, there are certainly exceptions to all of these predictions.  We’re assuming these are city dwelling tenants.  But, with the number of people living within cities having increased drastically over the last decade and continuing along this pattern, this is very valid.  In cities, access to supplies and resources to perform repairs decreases drastically, and the cost of hired contract services, along with time coordination, makes owning much less appealing.

There will always be exceptions for people that need or want a custom home, or features not often offered by the rental market (accommodations will improve further).  There is also piece of mind for many owning their own home, and this will never change to a certain degree.  But, there are larger factors at play here, and I see this as a trend that will continue inevitably.

Welcome to the new US rental market.

Printing receipts is very simple too, and can be done a couple ways…

You can go back and print any receipt in the system at any time by going to your “Receivables > receipts” page, selecting the receipt you’d like to print, then clicking the print action. This will open a print dialog where you can send the receipt to the printer.

Alternatively, and probably more conveniently, you can print a receipt by clicking “Save & Print Receipt” when recording a payment. This will record the payment, then give you a link to open and print the receipt instantly. It’s very quick and efficient. Please note that if you use the receivables system for recording payments, you’ll want to click the detail icon inside of the input to launch the record payment window.

We’d love any feedback you might have regarding the new printable receipts, good or bad! Just let us know.

This release also comes with quite a few other bug fixes and improvements that are a bit more behind the scenes, but resolve some possible issues anyone may have been having.

As always, keep the feature requests flowing in! You can add and vote on other feature requests by viewing the feature requests section of the forums.

See the USPS press release here.

For managers and landlords who are currently getting many of their rent checks via snail mail, this is terrible news. On average, it is said that standard first class mail will be delayed by 1-2 days, depending on the proximity of the delivery and time of receipt. However, the delay is likely to be much worse than this since Saturday deliveries are being cut as well.

So, a letter mailed out on Friday, in a close proximity location, will be slated for a 2 day delivery. It’s most probable that the first day counted in this piece would be Monday. This would put the delivery of a local piece on Tuesday or even possibly Wednesday. All in all, that counts for a 5-6 day local delivery.

Now, this is the worst of scenarios for a local delivery, but it will happen, and probably quite often. Managers are likely to see tenants take advantage of this delay, particularly since many receive their wage checks on Fridays. Some managers require that rent checks be received by the due date and this works well currently. However, with these new delays, the predictability of delivery will be much more difficult, the common 5-day grace period won’t be as sufficient, and the affects are likely to be pretty obvious.

So, since RentPost is in the business of online rent collection, we can’t help but do some shameless self-promotion here. With online rent collection, tenants are able to submit payments instantly online, allowing for managers to have instant notifications of receipt of payment. And, with the ACH processing times, the receipt of the funds many times will be faster than checks received via snail mail. Not to mention, online processing saves mangers a trip to the bank as well as check recording efforts; tenants, the cost of a stamp, envelope, check, and a trip to the mailbox or post office.

The benefits are pretty obvious really. If your company isn’t currently accepting, or even requiring, online rental payments, we suggest giving it another hard look. The cost and time savings are much greater than many estimate. Get started collecting rent online with your company for as little as $29/mo, including many other management features!

Word of a new wave of fee hikes for checking accounts seems to be the last straw for many already dissatisfied customers. Despite being recanted by many bank reps as only “talk,”  this seems to be the “straw” that broke the consumer’s back, but more importantly…this seems to be serving as the impetus for action.  And my guess is that banks may have underestimated the power of customer perception and the reality that a paradigm shift (even if shifted identically across competing banks and done so for good reason) might be met with more than grumbles and hateful letters from bank patrons.

For decades, the question has not been whether or not consumers will choose to employ the services of conventional banks…instead, the only question has been which bank to choose.  But today we are panicking, and all that’s necessary for a very different kind of paradigm shift is present– but this shift is made up of consumers; and all this could take is for a few members of the herd to break away…and BOOM – Mass Exodus!

Although there are probably a lot of people keeping money under their mattresses, in shoe boxes, or buried in the backyard…the Mass Exodus that I’m referring to (and that I saw in the news a few days ago) is the reallocation of many of America’s Working/Middle Class personal funds to credit unions and other, similar nonprofit financial institutions.

The choice to move from banks to credit unions will yield even lower interest rates on savings and deposit accounts, and the services offered by these institutions will be greatly reduced.  Honestly, I think the trend will continue, but the reason seems to be less in anticipation of accruing (or maintaining) greater wealth, than it is just a means to “stick it” to Big Finance that we feel so betrayed by.  I have no clue what is the overall best decision, but I just hope that we employ more reason than emotion in our future financial decisions.

I can’t help but think of the National Geographic video of the wildebeest crossing that crocodile infested river in their seasonal migration.  They line the river banks (irony…), sensing eminent danger, but pressed by starvation they wait for one member of the herd to jump in the muddy water, and then GREEN LIGHT.  Crossing means risking a grisly death, but by staying on the side that they’ve already pillaged, they are ensured death. So they take the plunge.  The Water’s Warm…

I’m not advising that you immediately withdraw all of your funds from the bank(s) you’ve long trusted, nor do I plan to do so.  My purpose is to relate to you that some folks have already taken the leap of faith, and many more will likely continue to do so in what looks to be a major change in the way we approach the management and storage of personal income/assets.  Only time will tell if the grass is actually any greener over there…

p.s. Thanks for reading this far considering the impracticality or just improper word usage in the title…but anyone that knows me – knows that a play on words temps me beyond reason (ex bank patrons are moving to credit unions…thus the latter half of the title, “…Patrons “Unionize…”); regardless, I was going to change the title until I realized that it rhymed… DEAL SEALER!

Interested in buying a home? Starting a business? Great, now is the time, but remember, financing structure means everything, and no matter the appeal of financial opportunity, don’t be dollar shy of tedious attention to the origin of money. Don’t be fooled by the money supply’s patchwork facelift.

To ye eager borrowers, fix your interest rate for the life of the loan, even if it means settling for higher-than-advertised rates.

To the do-it-yourself, asset managers: fixed-income debt securities (and preferred stock!) will quickly corrupt portfolio value, and if liquidity is a must, fixed income is a must-go.

Skeptics could dismiss these words as an attempt at virtual attention, as no economic prediction justifies proactive portfolio re-assessment (sigh). To this I say: comfort yourself in the warmth of explanatory blog posts and news feeds, but do not justify apathy by paralyzing over analysis. Without a doubt, U.S. economic forthcomings are riddled with macro-mystery. Nevertheless, SOARING interest rates are a certainty in the coming years. I do not write for the sake of exploring a prediction; my purpose is to warn and advise against potential catastrophe.

Your orders are simple: Buy now, and lock it up. The curious real estate predicament occupying economic brainwaves has an upside. Historically low prices and mortgage interest rates flood the market with opportunity for both bargain-scavengers and property virgins (who can buy). The shortage of qualified buyers makes for a pressure free environment those elite consumers, still able to purchase real assets; however, prices only tell half the story. For too long, housing prices were the standard measure of affordability. Funny, even in the wild post-Clinton years of the 0% down payment, buyers focused on the home price, rather than the mortgage terms. The structure of a loan dictates affordability, not the price, especially, when down payments are inconsequential.  Enough already! Interest rates direct real estate traffic; how about this example:

Two friends, Tip and Bop each buy a home, Tip for $500,000 and Bop for$300,000. Tip has an excellent credit score and initially puts 10% down, but immediately borrows back the down payment in the form of a home equity loan, resulting in an effective loan rate of 4.1% on the full $500,000. Bop waits a few months later than Tip, and because of climbing interest rates, little collateral, and a mediocre credit score, Bop winds up with a 8% fixed interest rate on a $300,000 loan. Despite a significant price difference in the homes, Tip pays $2,415 monthly (for a $500k home), and Bop pays $2,201 monthly (for a $300k home). Both effectively spent $0 day 1, but Tip buys (nearly) twice the home for a mere $200 more per month. If Tip purchased Bop’s home, his monthly payment would have been $1,449/mo – a 35% discount. Think of it another way: In order for Bop to lower his monthly payment to $1,449 with the same financing structure, he would need to negotiate the sales price from $300,000 down to $200,000.

So, I must ask: why do declining prices appeal to buyers more than declining interest rates? Obviously, this does not apply to those purchasing with cash, but you get the point.

The average price of U.S. homes has dropped 20% since its 2006 peak.  While the 30-year fixed rate dropped from a 2006 climax of 6.88% down to 3.95%. So now, look at the $500,000 home in 2006, with a 6.88% interest rate, the monthly payment was $3,286. Let’s Factor in the effect of a 20% decrease in price to $400,000; that takes the monthly payment down to $2,629 ($2,293/mo if interest only) . Instead let’s look at the effect of a 3.95% interest rate on a $500,000 home. With the new interest rate, the monthly payment is $2,372 ($1,645/mo if interest only). Now, we can observe the impact of a decreasing interest rate compared to decreasing prices. I give this example only to show the impact of interest rates, and how delicate your financing structure is to the affordability of your purchase. So, now you might be able to anticipate the effects of increasing interest rates in your financing agreement. Just take a look at the charts below, summarizing this paragraph.

As you can see, the change in interest rate has a much higher effect on the monthly cost than the change in price.

The same $500,000 home in 2006 may be purchased now at $400,000 with interest rates down to 3.95%, taking the monthly payment down to $1,898.15

Now, why does this matter? Even though prices may continue to drop, interest rates have already bottomed out. The Federal Reserve has already exhausted its ability to create liquidity in this economy, and the Federal Reserve’s target Federal Funds rate essentially dictates what the 30 year fixed mortgage rate will amount to. The current Fed. Funds target rate is 0-0.25% – nothing! Since we know the Fed. Open Market Committee has almost no more room to force rates down; we may readily acknowledge the bottom of Mortgage Interest Rates. Why is this true? Well here is the extremely abridged version: Fed. Funds rate is driven down when the Fed. Reserve puts money into the economy by purchasing Fed. Agency Securities in exchange for cash. The additional cash creates a surplus over member bank reserves, which the member banks then loan out in the short term to lock in some profit from the otherwise stagnant funds. The Federal Funds Rate is the rate banks may borrow overnight from one another to meet reserve requirements, so banks borrow money from others, issue loans with the added $$ (while not dipping below reserve requirements), resell those loans in the secondary loan market at a profit (in this case, usually Fannie Mae and Freddie Mac), and repay the loan the next day.

So what do we know? The rate at which banks access the funds used to supply mortgages cannot go any lower, so you cannot expect your mortgage rates to go any lower. Now, combine that with the added knowledge that interest rates have a greater effect on the cost of owning a home than do the prices of the home. What do you get? In all likelihood, the effective cost to homebuyers will never be lower than right now, even if prices continue to drop. Waiting for prices to bottom out will cost you money every month for the next thirty years, in the form of higher interest rates. Buyers must strike with low rates; forget the fear of price fluctuation. Take the time to understand how mortgage rates come to be, and learn the variables of influence.

You may have realized inflation persists, despite the fact Americans are less able to make purchases. Doesn’t make sense, huh. Normally, if there are fewer buyers, prices drop (deflation). However, we’re much too unique to conform so easily. The average American spends 12% of her disposable income on energy (oil…), and the oil market is dictated by OPEC, since American’s have a relatively inelastic demand for oil (meaning the price can increase without demand going down very much). American’s also spend 12% of disposable income on food. For a while, oil prices stayed high because of increased foreign demand (Japan, India for example), but even after that demand decreased, the prices stayed up because the decrease in value in real estate, turned investor speculation toward commodities, and the strongest commodity at the time: oil and oil futures. So, commodity speculation kept oil prices high, and American trade (food for oil) kept food prices high, as well as speculation in agro-commodities.  So what we have are two products American’s cannot part with, food and oil, both maintaining high prices, despite a shortage in American buying power. Americans are paying more money for the same products, while earning less.

The federal reserve sought to combat the disastrous conflict by cutting the Federal Funds Target Rate as low as possible, attempting to increase the purchasing power of a dollar (by making it cheaper to acquire), and thereby encouraging spending and money circulation. Nevertheless, inflation still outpaced Federal Reserve efforts, and interest rates are still low. It is only a matter of time before America can start taking advantage of the low cost of borrowed money, and borrow we will! Because our cost of living is still increasing, America will rely on borrowed money to regain the purchasing power it once had, meaning the demand for borrowed money will be enormous, and once banks manage to make the surplus of cash available to the public, borrowing activities will take off like a slingshot.

So what does this mean to you? Well, when lending goes crazy. First, the heightened demand for borrowed money will cause the price of borrowed money to increase (the interest rates), and because America must also compensate for a devalued dollar, the demand for borrowed funds will, by necessity, be exaggerated. Normally, the Federal Reserve would be able to limit dramatic jumps in market interest rates; HOWEVER, the Federal reserve will not be able to taper off this great liquidity surge because it has already purchased Federal Funds to its max extent. This means the U.S. government is, for all intensive purposes, the only player in the Fed. Funds market, and the interest on Agency securities will not be attractive when investment money will be able to achieve much higher interest rates and return in other market sectors. Agency securities just wont have enough bang for the buck, so the Federal Reserve will not be likely to sell the securities back in an effort to take money out of the money supply.  Interest rates will be free to soar without limitation, and the effects will be catastrophic. Fixed income securities of today will become worthless, as the interest rates will not be attractive. Variable rate loans will bankrupt the borrowers, as loan interest payments will become prohibitively expensive. But don’t be fooled by the apparent paradise of spending and money circulation that will proceed the time of despair; American’s will spend their way into crises, as everything will be based off of debt. And demand, when unchecked, will rise until the world’s greatest ponzi scheme self-implodes. You don’t have to be a part of it! Secure yourself from now, lock in your rates, and don’t worry so much about the potential of lower prices. (yes, I know this doesn’t apply to all cash purchases).

If you’re interested in and capable of buying a home, do it now, but protect yourself from the inflationary storm on the horizon. Protect your dollar (I could get into how, but I’ve already said enough), and position yourself for success, no matter what we name our economic turmoil. In America’s history, never have the evil stars been so aligned. Interestingly enough, America’s only hope is to stay in a recessed, stagnant economy until the dollar sufficiently deflates, so the proceeding borrowing frenzy will not be overly exaggerated, in an effort to compensate for a de-valued dollar.

Remember the theme of this message – interest rates have bottomed out, and the inevitable climb will come fast, meaning… NO FLOATING RATES! Forget they exist; I understand them from lender and re-purchaser perspective, but don’t let the short-term appeal make you a prisoner in your own home.  Thirty-year loans are better than fifteens, especially for those with extra cash to purchase fixed-income investment securities after interest rates climb. You might find AAA preferred stock paying 7-9% annual interest later on, which will net out a positive portfolio cash flow, accommodating for the mortgage payment.

As a final note –you may wonder why this threat, if present, would not be recognized by those in charge of the country’s economic well-being – those far more qualified than I. Simple: politics baby! Remember, political motivations are always in the short term; Presidents need to gain re-election, so when America wants economic recovery, and elected officials are expected to deliver. Congress oversees the Federal Reserve, and congress lusts over the time when spending increases, and money seemingly surrounds us all. Most elected officials will be out of office by the time the easy money makes life hard on America. Just keep that in mind. Now, to conclude. Remember….

Be careful!!! The Federal Reserve has exhausted its open market tools of money-control. Do not underestimate the dangers of a money supply in anarchy. Today’s opportunists could become the prey of tomorrows housing market. In short, market interest rates can hardly avoid an upward blast.

So, as our tribute to Steve and everything he’s brought the tech industry, we’re releasing our latest update at RentPost!

A lot has changed since the last time we spoke update business. We’ve been building out a lot of internal systems to better accommodate your support requests and build up our knowledge base. This includes a full new support portal, as well as some behind the scenes stuff that will allow us to better facilitate requests. In addition to our support portal, we’ve begun work on our upcoming marketing module, which has introduced some UI updates within the software. You’ll notice a new “personal menu” on the left side of your screen. This menu includes, contacts, tasks, messages, and a link to support. We’ve included a ton of bug fixes and improvements in this release as well.

This one is to you Steve, RIP comrade!