by Jack Lee
( Six month prediction on gold shown above – this is not a good sign for economy )
Hang on to your wallet, a lot of financial wizards are predicting that we’re not out of the woods on housing and the economy a whole is set for a big aftershock. For example between 2010-14, about $1.4 trillion in commercial real estate loans will reach the end of their terms and about 50% are “underwater” – that is, the borrower owes more than the property is worth.
Commercial property values have plummeted more than 40 percent since the beginning of 07 and vacancy rates are at a whopping 18%, this is bad, very bad! Housing vacancies are about 8% and rents for office space and houses are both falling. Office space rents are down 40% and retail is off 33%. Nevada, California, Arizona, and Florida, in that order, have the highest rate of foreclosures. Nevada is particularly hard hit and it could take 10-15 years for home prices to stabilize and recover. If you speculated on real estate in Nevada…need I say it, you’re in deep, deep trouble. As awful as this sounds, you might consider cutting your losses and salvage what you can.
A pending disaster: The largest commercial real estate loan losses are projected to hit in 2011 and beyond and this could represent bank losses in the area of $200-$300 billion. The banks capital reserves are only tested till the end of 2010 and beyond that who knows. Which probably means the real estate bargains of today will be even better bargains in a year or two. One more factor for this continued housing implosion is the declining values have made it very difficult for home owners to refinance, even if they have decent equity. Try getting a loan as a first time home buyer today, you’ll likely have to rely on an FHA loan and because of the fraud that caused the housing bubble; it will be extremely difficult to qualify. Banks have gone from those easy liar loans that caused the bubble to overly strict lending that makes it tough for anyone, even with a high credit score and otherwise well qualified, to get a loan. This is really putting the brakes on recovery.
My best guess now is we will see real estate dragging the bottom for at least another 6-8 years before the supply demand factor starts taking effect. Currently, we have too much unemployment and the full impact of underwater mortgages has yet to hit. More layoffs and more downward pressure on real estate is to be expected.
An L.A. Times story says, “One in seven U.S. home loans was past due or in foreclosure as of Sept. 30, putting that quarterly delinquency measure at its highest level since 1972, when the Mortgage Bankers Assn. began reporting it. At the beginning of this year, 1 in 10 loans was past due or in foreclosure.” Expect home prices to continue to fall and home buyers to be few.
We’ve had another 16 banks fail in 2010 and the year is still young, but the good part of this is the FDIC has upped your insured deposit to $250,000. The bad part is they are paying out billions because you are insured. “The Street” predicts bank foreclosures to accelerate in 2010.
Commodities such as gold, oil and gas continue to be the best bets for asset preservation in the stock market. Gold is predicted to hit $1500 an ounce this year and $25 an ounce for silver. Gold is trading around $1130 at the present. Reference: Commodity Online.com and Forecasts.com.