July 17, 2009 by Chris.

I realize this is a real estate blog, but I can’t help but post links to articles that analyze over-arching world issues that affect everything, including real estate.

The author to the article that I link to below, Jon Markman, suggests that the financial activities of US and China have become so commingled that neither have any way, even if they would want, to divorce this dysfunctional financial marriage.

On one hand, you have the US that is drunk off of China’s cheap exports but has no means to settle up the tab. All the US does is issue IOU’s (Treasury bonds) for these cheap products - IOU’s which may not even be worth the paper they’re written on.

On the other hand, you have China that owns $2 trillion (yes with a  ‘T’) of these IOU’s but can’t cash them in. China’s options?

1. If they were to sell these bonds, the increase in supply of Treasuries would send the price into a nose-dive; this would cause China’s remaining Treasuries to be worth much less.
2. China could stop buying future Treasuries so that the US’s tab doesn’t get larger - this would cause the US to have to pay higher interest rates on the Treasuries to attract other investors to buy future Treasuries (i.e. debt) instead of China. This would cause the Treasuries that China holds to become worth much less as well because China’s IOU’s are at a much lower interest rate than what these new investors would be getting. The only way to compensate would be for China to sell their IOU’s at a discount.
3. Or, China could hold their existing IOU’s to maturity to receive full payment (to avoid the problem in #2). Unfortunately, the full payment will also be worth much less at that time because of higher inflation in the US - the US dollars that China would receive later would be worth less than today’s US dollars.

Of course, the US could slowly start climbing out from under this mountain of debt and solve the problem for everyone. But let’s be honest, the spending in the past six months doesn’t look too promising.
The US-China Ponzi scheme - MSN Money

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July 15, 2009 by Chris.

See the link below for an interesting (and long) article regarding how banks could essentially control the real estate market and manufacture a quicker, albeit fake, real estate recovery.

The author discusses a program that is being currently considered by the government that keeps jobless homeowners in their house. They would do this by allowing homeowners not capable of paying their mortgage on a house that is underwater, to give up control of their house to the bank, but be able to remain in the house afterward. The old homeowner would now be a renter, paying a rent to the bank much lower than what the old mortgage payments were.

Of course this causes all sorts of problems, which the author highlights (read article Housing Bubble, The Sequel — Seeking Alpha)

I am especially impressed with the author’s comment regarding the deflationary effect on CPI. He says that the CPI would be artificially low as it would be affected by these below market rents being charged to the new renters. The government would continue to provide easy money to counter-act this “deflation” that appears from the reduced CPI number.

Of course, the government loves to report that inflation is much lower than actual so that they can keep interest rates on Treasuries low.  This way they can pay back everyone’s debts later on using dollars that are worth less (because inflation really is present) and still keep borrowing costs low because of the artificially low CPI!

Housing Bubble, The Sequel — Seeking Alpha

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July 8, 2009 by Chris.

Below is a link to an online database provided by HUD that lists the official 2009 Fair Market Rent (FMR) for Chicago; other cities are also available from this database. This is good information to know as Section 8 rents are based off of these numbers.

Final FY 2009 Fair Market Rent Documentation System — Summary for Chicago-Naperville-Joliet, IL HUD Metro FMR Area

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July 6, 2009 by Chris.

Below is a link to see if a property is in a CRA zone. If so, it may be eligible for lower property taxes.

FFIEC Geocoding System

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July 6, 2009 by Chris.

The link at the bottom can help you start gathering info on the Section 8 process in Chicago. We plan on writing a bunch of articles related to this topic as there is much opportunity in buying cheap SFH’s, fixing them on the cheap, and renting out to Section 8 tenants. The best part - you have your rent direct-deposited to your account on the first of each month straight from the government.

This strategy involves:

1. buying the property quickly with cash
2. fixing all required Section 8 items quickly with cash
3. passing the Section 8 inspection and getting the unit rented
4. get the property financed and pull out your initial investment (maybe even more) and still maintain a positive rental unit
5. do the same process over again

Property Owners | Chicago Housing Authority

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July 1, 2009 by Chris.

The government is now extending this program to homeowners who’s mortgage is 125% of the value of their home! Are we trying to start this mess all over again?

Just because someone made timely payments on their mortgage for the past 12 months doesn’t mean they won’t run into financial hardship tomorrow. If that happens, the first thing they do is walk away from a home where they have negative 25% equity!

No bank would ever lend in this situation normally, so I’m guessing that the government (i.e. you and me as taxpayers) is at least partially backing these loans in case of default.

On an optimistic note, this will probably help increase the pool of cheap, foreclosed properties that CNA Capital can scoop up on the cheap - let us know if you want in on this action!

Obama extends mortgage refinancing program - Jul. 1, 2009

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