S&P is downgrading US credit rating. What will this do to the real estate market?
Downgrade Fallout
The action may still hurt the U.S. economy over time by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries. JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year.
S&P said it may lower the long-term rating to AA within the next two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” during the period result in higher general government debt.
“It’s a reflection of the fact that we haven’t done enough to get our fiscal house in the order,” Anthony Valeri, market strategist in San Diego at LPL Financial, which oversees $340 billion, said in an interview before the downgrade. “Sovereign credit quality is going to remain under pressure for years to come.”
Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day President Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the Treasury to the edge of default. Moody’s and Fitch also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.
S&P’s Assumptions
The measure raised the nation’s debt ceiling until 2013 and threatens automatic spending cuts to enforce $2.4 trillion in spending reductions over the next 10 years.
Even with the agreement, S&P said the nation’s debt may rise to 74 percent of gross domestic product by the end of this year, to 79 percent in 2015 and 85 percent by 2021.
The rating may be lowered further if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt.
S&P also changed its assumption that the 2001 and 2003 tax cuts would expire by the end of 2012 “because the majority of Republicans in Congress continue to resist any measure that would raise revenues.”
“More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating,” S&P said.
‘Grand Bargain’
S&P put the U.S. government on notice on April 18 that it risks losing its AAA rating unless lawmakers agree on a plan by 2013 to reduce budget deficits and the national debt. S&P indicated last month that anything less than $4 trillion in cuts would jeopardize the rating.
“A grand bargain of that nature would signal the seriousness of policy makers to address the fiscal situation in the U.S.,” John Chambers, chairman of S&P’s sovereign rating committee, said in a video interview distributed by the ratings firm on July 28.
Earlier today the Treasury Department found fundamental flaws in S&P’s analysis, according to a person familiar with the situation who declined to be identified because the talks were private. S&P miscalculated future deficit projections by $2 trillion, said a Treasury spokesman who commented on condition of anonymity
We dont have a debt problem. :beer
You are right but sometimes i think that this will effect the buyers of the properties
We have a spending problem. Slash spending 25%+ and our “debt problem” will start to resolve itself.
I was being sarcastic. Yes, we have a debt problem. lol. Come on guys… Trillions…
Yes, we have a debt problem; fueled by chronic overspending. In 2011 the US government borrowed around $1.6T and spent around $3.8T. We would need a 42% across the board cut in spending just to stop borrowing. Proposing a 42% cut in spending would be considered INSANE in today’s congress, but that is what we need just to balance the budget. There really is no other way to stop the US from going bankrupt other than VERY serious cuts to nearly ALL governement programs.
1000000% agreed then. Yes, that is EXACTLY why I support Ron Paul. Ron Paul would balance the budget his 1st year.
“If elected President, I pledge to veto any unbalanced budget and to balance the federal budget in the first year of my term. I will fight to reduce taxes and remove unconstitutional regulations so that businesses can hire, Americans can get back to work, and our economy can truly recover.” — Ron Paul
Ron Paul unlike most people, doesnt say things that he doesnt back up. Hes voted constistantly against spending and regulation the last 20 years.
To be total honest with you guys i dont trust any of the bastards(politicians). To me i think that we are heading for a reset, its going to get a helluva lot worse b4 it gets better. In life everything has cycles and the good ole usa has been living high on the hog for so long the bad times have to come to reset things.
Even the massive “conservative” freshmen class in congress hasn’t made much of a difference… I’m sick of seeing wasted gov’t money… They’re getting ready to completely renovate our hangar at work…like knocking down walls and changing the layout. Can’t imagine how much that’s going to cost. Our base also recently got a new archway covered entrance at the gate. It’s basically a big metal structure w/ canvas covering like an awning. That alone was 400k…completely unnecessary.
So now we’re to the point where I think they’re going to successfully trash the military retirement.
Stupid “shovel ready” projects funded w/ magic money we don’t have are not the answer. If we’d cut our spending and get this crap under control, businesses would start to have some confidence in the situation and maybe things would improve.
IMHO there is no way out of this…Too many Americans are accustomed to being taken care of…Im not going to offend anyone and get started but too many Americans need to stop living off the system…The problem is that a high % of Americans are reliant on the government,in one form or another…And that is something that will never change…
I agree…Too many dead beats out there with BULLSH-T social security disability claims.
Ever notice WHEN most LONG TERM unemployed find work???
About 2 weeks after their last unemployment check arrives! :banghead
Social security benefits should be based on NEED…There are LOTS of Americans out there like me that don’t need that check every month. Sure I paid into it for DECADES…But I’d rather see that money go to some poor bastard that worked his entire life in some crap job with no pension. the KEY word there was WORKED…Not COLLECTED!
it’s time to trim the fat…STARTING with congress…Cut their pay to $25K per year and make it TRUELY a PART TIME JOB with 2 terms TOPS. SOLDIERS don’t receive the financial windfall our politicians get, and THEY risk their LIVES. You don’t see soldiers spending $3 million dollars to get their jobs…THEY VOLUNTEER!!!
AMEN!!!
I’ve interviewed literally dozens of potential tenants on disability or some other handout here in RI. There were only 2 that I could tell had some type of disability that would prevent them getting a job. Most of the legitimate ones explain their situation. Yes, I’m sure that a few of the others had legitimate reasons that I could not detect, but not the majority.
I’m sympathetic to the working poor. They really feel the consequences of the declining economy while watching other perfectly healthy people milk the system.
I have a friend who is married with 4 kids, one of which has cerebral palsy. He works his @$$ off to provide for his family and is always just keeping his head above water. He knows that the easy way out would be to get a divorce, have her collect whatever benefits she can get from the government and then move back in after the paperwork is processed. That’s how the game is played in this state. He won’t do it because he has pride and is not a freeloader. He has character and I have a great amount of respect for him.
My brother just lost a good friend in a helicopter crash in Afghanistan today. He was a Navy Seal. I can only dream that his family will be taken care of in a better way than our countries deadbeats.
JP
JP,
That friend of yours that works his @ss off to keep his head above water???
THAT is EXACTLY the type of person I LOOK FOR when teaching other’s about Real Estate Investing.
A person like that will do whatever it takes to climb the ladder.
If that was my friend, I would sit him down, lay out how the game is played and OFFER to fund his first deal…IF…IF…He FINDS ONE!! I tell my newbie’s the same thing…Don’t waste your time with LISTED PROPERTIES…You want that guy who’s bitching at lunch about the crap he has to clean out from his Aunts house, about the bad roof it has, the busted windows…You teach your friend that THOSE STORIES can change his LIFE if he knows what to do when he HEARS ONE…You TRAIN him to get a PHONE NUMBER for that guy and explain to him, that he knows someone who will buy that house CASH and he won’t have to clean a single thing out of that home.
Remember: The PRICE of entry keeps a LOT of people out of Real Estate investing. In my experience SOME of these people just need a TOE HOLD…You provide that, and they’ll make YOU and THEMSELVES a TON of money.
I’ve done this numerous times with a bunch of hard working people…It can literally CHANGE THEIR LIVES, and it has put HUNDREDS OF THOUSANDS in my bank account.
Here’s how I set it up…THEY, not YOU…Must find “the deal” I explain to them that in Real Estate Investing, the DEAL is the only thing that has value…Because without the deal, there is NOTHING to invest in. They bring a deal to you…You fund it 100%…You cut them in on the profits, the better the deal, the more they get…You bring your MONEY, experience, lawyers, accountants, and knowledge to guarantee a successful investment. I set up an LLC just for that deal with myself as manager. Once the property is sold, the profits are split according to a signed agreement between the parties. The GOAL here is to put a PILE of money into their hands and THEN…The light goes off in their head…You can literally WATCH IT happen.
The goal here is simple…People like your friend never had anyone EXPLAIN to them “how it works.” So JP explains it to his buddy… He already knows this guy has character to spare, works his ass off, and has a child with a disability…THAT equals ONE MOTIVATED BIRD DOG!!!
You make money by providing something NO ONE is gonna give this guy, it’s called…A SHOT!!!
His profit get rolled into the next deal he finds. On this one he comes in with MONEY and your end of the deal gets sweeter because you lay out less $$$$ for the same return. At some point this guy won’t need you, but I guarantee he’ll be back to see you when he has more deals than he can finance. The best part is…You had MULTIPLE deals brought to you that you would have NEVER known about!!! And…You made MONEY on all of them…WHILE you helped your friend more than anyone has ever helped him in his LIFE!!!
In the end the REAL pay off for you is this…
YOU…JP…REICLUB MEMBER…YOU…Not some GOVERNMENT AGENCY, Not some PROGRAM…YOU…Literally changed someones LIFE!!! But it’s MORE than that…You changed THEIR life and also their KIDS lives…It’s generational.
And if THAT wasn’t a big enough payoff???
You made MONEY while doing it!!!
Where’s the downside???
Here’s a recent example…
I have a friend with a 3 kids, he works 2 jobs so his wife can stay home with the little ones (all under 4 years old) Anyway, This guy is a great person, hard worker, HONEST, just wants a break, currently lives pay check to pay check. I ask to meet him for lunch one day and there, I lay out his POSSIBLE future. I explain that the people I’ve done this with NEVER GAVE UP…Some of them spent a YEAR looking for that first deal…But they ALL eventually found what they were looking for. After lunch he thanks me 100 times for the opportunity and tells me he WILL find a deal.
1 year later: His mother is at her Dentist and he tells her about an old house he has that the City has condemned and he just WISHES he could GIVE IT AWAY to stop the notices they keep sending him.
My friends mother stops by his house on the way home from the dentist to see the kids and casually mentions this dentists situation…Her son GOES CRAZY!!!
He gets the Doctors phone number…CALLS him right then and there…and tells him he knows someone that will BUY the house from him…The Dentist tells him for legal reasons he’d rather just GIVE IT AWAY…So…I get the call…I call the Dentist and tell him that within 10 days, that house will be MY problem, NOT HIS…We do the deal for FIVE HUNDRED DOLLARS after my lawyer explains the legal reasoning for SOME money changing hands!!! (the $500 was what he just paid in property taxes so that’s what we settled on)
While waiting for the closing and AFTER the sales agreement was signed, My attorney calls the Town and informs them of the upcoming POTENTIAL SALE…He explains that he has an investor that MAY buy the property IF the Town is willing to work with him and not against him…They inform my lawyer that they will do ANYTHING to get this property cleaned up…They WAIVED all previous fines for an agreement that EVERYTHING would be cleaned up, lawn cut, home boarded, within 2 weeks of the closing. DONE DEAL, we had it all cleaned up and finished ONE DAY after the closing!!!
After the clean out and cleanup, I listed the property for $39K (way below market value) and within 4 DAYS had it sold to a rehab contractor for $79,000…We received 17 offers on the property in 4 days.
My “partner” received $30,000 at the closing…and I made over $35K on a $500 investment.
My “partner” could not believe his eyes when he was handed that check…He calculated that it would have taken him about 12 YEARS to save that amount of money at his current savings rate.
This property was located in an area I have NEVER purchased a home in…There is NO WAY on EARTH I would have EVER found this property or the $35,000 I made on it without my “student.”
My “partner” and NOW his WIFE, are currently looking for their next “deal” which they will call me with as soon as they find it!!! They are REALLY MOTIVATED now!!! They know that I’ll DO exactly what I tell them. They know there’s MONEY LAYING out there…AND…They are now looking at LIFE in a different way. They can SEE the potential!!!
GREAT STORY!!! Its stories like that and people like you guys that keeps me going. I love to see stories like that it illuminates the human condition & a happy ending. I treasure every bit of knowledge from every1 from this site.
After the clean out and cleanup, I listed the property for $39K (way below market value) and within 4 DAYS had it sold to a rehab contractor for $79,000.....We received 17 offers on the property in 4 days.
Jake,
what type of smokin’ MLS verbage do you use…to get these properties sold in record time…and to get them bid UP…like this…
Thanks,
-Mike
To be honest…The PRICE does most of the heavy lifting…I ALWAYS put these properties on the market for super low numbers…I also add…NOT A FORECLOSURE or SHORT SALE…NO BANKS INVOLVED…Property will be sold.
That does it…Investors are TIRED of dealing with MORONS at banks. They wait MONTHS just to hear the property they’ve been bidding on is being RE LISTED. :banghead. THEN they WATCH as the re listed property sells for LESS than their original offer 6 months later.
With my properties they are told on DAY ONE…Bring your best offer because this property is being sold in exactly 7 days. I reserve the right to end the sale at anytime and that usually happens when someone steps up with a BIG number and a fast close.
Buyers LOVE knowing they can not only BUY the property in 7 days or less, but they can start working on it in as little as 10 days later because I make SURE my properties have good, clean titles with NO PROBLEMS…
AND…More importantly…I leave MONEY on the table for these guys…I could put a BIGGER number on these properties and WAIT for a HOMEOWNER that will pay more than an investor…BUT WHY??? I’m in and OUT of these properties before I ever get a UTILITY BILL!!!
thanks buddy…as usual…
worthy of a printout.
-Mike
btw…have you ever been to this event:
http://www.mainelobsterfestival.com/
Never been there but I hit this place every summer.
Beautiful, NOT CHEAP, but worth every penny! If you go…Be sure and stay in the Historic Hotel (Big white building in picture)…They have cheaper rooms, but you have to take a shuttle to the Historic Hotel for water access, the marina, and restaurants…Figure about $500- $700/night for the Historic Hotel…But it’s worth every penny!
Boat rentals right at the Hotel marina, the chiefs at the restaurants will pack you a lunch for your boat. We always get a party boat with a tube…We anchor in one of the small coves on Lake George…Fish, swim, go tubing, and just enjoy crystal clear, cool water with 30 feet of visibility.