Saturday, February 19, 2011


I just read, THE BIG SHORT by Michael Lewis. In it he mentioned that a Mexican strawberry picker making $14,000 per year was able to secure a loan for $724,000 to buy a "McMansion." Of course, his moment-in-the-sun has set. He is not alone. McMansions are available throughout the country under foreclosure and now, you can get one for $350,000 or less. They usually come with 5-bedrooms and 5-baths, family room, living room, dining room, extra large kitchen and swimming pool among its features. Back to that in a minute.
A housing report released this past week stated that there is an uptick in building permits which provided a spark for the present stock market rally. A closer look reveals that 80% of the new dwellings are multi-family. Builders are not building new single family homes. They know no one is buying. They also know that there is going to be a big spike in foreclousures as the banks clean up their robo-signing mess and other mistakes. We are talking about five million homes and that is a lot of people going from ownership to rental status. This is the second part of the equation.
At present, rental occupancy is low due to the recession, but rents are still high in relationship to the cost of financing a mortgage because rents were rising during the housing bubble. With mortgage rates under 5% you can control a $100,000 for less than $500. per month. I live in Orlando,Fl. and a studio here rents for over $500. per month. Yes, I know real estate is local in nature and renting costs are different, but the insight provides a reference point. This is the third block in the equation.
Our Federal Government is not responsible and a crisis is coming with our dollar because of politics, self-interest like the banking industry, insurance companies, the military, et al. They all go to bed saying,"I want..." and wake up saying, "Give me..." Our dollar is the reserve currency of the world and Americans do not understand the value of this aspect. By 2015, our budget will eat all the government revenues with just the entitlements(Social Security, Medicare and Medicaid) and the interest on our present deficits. We are in BIG, BIG TROUBLE! Another block under the equation.
Finally, there are many people like the One World Order, nations like China and others who aren't our friends. They will seek to change the dollar from its reserve status for a new world reserve currency. The best we can hope for at that time is a basket of currencies, of which the dollar is one. When this comes to pass, inflation will soar to more like hypa-inflation. Gasoline will hit $10. per gallon and food, forget-about-it. Crime will be off the charts and if you are renting in one of these communities, you will feel like a prisoner in your home. Unemployment or what the government reveals to be unemployment, will be in excess of 15%. Welcome to Future Shock...or you can prepare now with my solution.
Buy an McMansion with your extended family. I'm talking your cousins, aunts, grandparents, best friend. The payments will be lower than renting and because of the large lots associated with these homes, the back yard can grow food by the unemployed in this household. You will live in a relatively safe environment and when things stabilize(possibly five years)the household unit can share in whatever gains will come from the sale of the home. There are limited choices. The other choice? Buy gold!