Yesterday’s inauguration of Barack Obama brought joy and tears to many and the start of a new era in America. But Obama also reminded us during his speech that we face extreme challenges. Perhaps Warren Buffett, the billionaire investor, said it best when he told Dateline NBC Sunday that the US is in “economic Pearl Harbor”. Buffett pointed out that it is really fear that is our main enemy. (Isn’t that always the case?) When the interviewer turned the questioning toward Obama Buffett said, “You couldn’t have anybody better in charge.”
Meanwhile, the stock market plunged lower yesterday as the inauguration took place, with the DOW index finally settling below 8000 at close. As I write this today, Timothy Geithner, Obama’s pick for Treasury Secretary, is appearing before Congress as part of his nomination process. Geithner intends to refocus the existing TARP funds and to expand the program to ensure that relief is felt directly by homeowners and small businesses. This will most likely take the form of additional conditions placed on lenders who received these funds. Seems fair to me… sort of like the way your credit cards suddenly have new conditions (and higher interest rates!) placed on them after you’ve been a card holder for years.
New regulations to watch for…The $7500 tax credit for first time home buyers who buy now will become permanent, instead of having to be paid back eventually. Bankruptcy judges may be given the legal right to modify mortgages on principle residences too, and even to reduce the amount owed. Banking and finance regulations, and SEC regulations will also be a focus, especially as more evidence of investment schemes like Madoff’s grows. One thing is sure. The current market has destroyed investor confidence, and this must be changed.
What’s in store for you and your clients? I expect there will be additional stimulus measures passed in the near future designed to stop foreclosures and help homeowners afford their monthly payments. This, together with measures to restore investor confidence, should allow the secondary mortgage market to begin functioning again. Once this occurs, the $7500 tax break for first time home buyers, together with low interest rates, should increase home sales volume and return the real estate market to stability.