The Velocity of Money and What it means to the Economy

This is a big topic for an Austin investment real estate agent to take on. So…… I won’t. But I do find the topic fascinating. Most of us get our economic news from Cable News.

During the build up to the Iraq war– I lost all faith in our “cheer leading” media. I believe that with economic news — the media has their “talking points”.

I found this article By John Mauldin — it is a cohesive argument that is written in terms we can all understand. John put this article together with input from Dr. Lacy Hunt of Hoisington Investment Management in Austin, Texas. It is an overview of the risks that we face in the US Economy. I am covering it here because investors always want to be able to predict how their investments will fare with the upcoming economic woes.

What does this article mean to the Austin Real Estate Investor:

1. Sellers– if you really want to sell a property, be reasonable now. You don’t need to sell good properties but if you are trying to dump a “dog” -- dump it now or prepare to hold it for another 2 or 3 years.

2. Buyers: — Austin is one of the best real estate markets in the country. There will be plenty of bargains out there. Spend your investment dollars here.  The following photo shows the areas of the country with the highest loan default rate.  As you can see, Texas is faring well compared to most of the country.  The Texas market is stronger than the markets making headlines.

http://www.tradingurus.com/the-velocity-of-money-john-mauldins-weekly-e-letter.html

It’s something to ponder.

 

What does an impending Recession mean to the Austin Real Estate Investor?

On Friday – the jobs numbers came out.  The country lost over 67,000 jobs.  If it walks like a duck, and talks like a duck it’s a duck.  These economic numbers are definitely talking like a recession.  The jobs are walking out of the US to countries like India and China.  US companies are tightening their belt.

What is an Austin real estate investor to do?  Dump you dogs.

The Austin real estate market is still a good market.  We are moving into our best season– summer buying season.  Well located property will still fetch a premium.  If you have a property that you don’t want to own long term– sell it now.

I am not saying dump your Austin portfolio.  No — Austin real estate market is one of the safest markets in the country.  We don’t have the same kind of sub-prime mortgage issues that a lot of other markets face.  Only 8.3% of our mortgages were subprime.  But a recession could quell the demand for property.  Liquidity remains an ongoing concern. 

Those in strong cash positions will be positioned to take advantage of deals in the near future.  Banks are going to require that investor borrowers have larger cash reserves than they did a year ago.  So it’s not only a question of the source and seasoning (where it came from and how long you have had it on deposit) of your down payment – its a question of your financial stability.   A credit score of 680 or more won’t be enough — it will take 20% down plus greater cash reserves on hand.  It’s going to get tighter and tighter. 

 This is why you want to dump your dogs.  It will take a well positioned, seasoned investor to be able to go through bank underwriting in the future.  Those seasoned investors are going to be attracted to prime properties.  If you have a dog– dump it now. If you want to be poised to take advantage of reasonably priced prime property opportunities in the near future– you had better get your house in order now.