The Business Are Us

The Real Estate Doom: Who Built The House of Cards?

The Real Estate market in this country is in the dumps. President Obama is struggling on Capital Hill to do what he thinks is best for the Nation. His mortgage bill is before the House and his decision whether or not to bail out the auto makers again and other large corporations who are desperately in need of financial aid are on his desk. Common sense shows President Obama can't fix everything that ails us.

Govt Can't Fix Everything

The real estate market has no quick fix and no matter what the President decides he is meet head on with the naysayers and the critic's ready to pounce on him and tell him why his plan is bad. History has proven Government can't fix all that ails our country. John F. Kennedy said it best: Don't ask what your country can do for you but ask what you can do for your country.

Sure, there is no one citizen who brought on this recession. And there is no one citizen who can fix the recession or the real estate market all by themselves. But as a citizen you can do your part to make sure you don't need your government to bail you out in the event of a down turn in the economy.

All Small Communities Are Suffering

I travel around the small communities of Southern Virginia, from South Hill to Farmville Va. From South Boston to Clarksville Virgina and all the small communities throughout the country, I have meet lots of wonderful God Fearing, hardworking people who love their neighbors and family. As a seasoned auctioneer I see these same people make some financial decisions that are not in the best interest of their financial growth.

Auctions And The Economy

For instance, I notice that most people who attend an auction are riding in fairly new vehicles less than 5 years old. Our research shows the majority of auction attendee's come to the auction for the following reasons in this order:

1. There are a couple of items at the auction they are interested in
2. They are looking to get those items at a bargain price
3. They come for the entertainment and something to do to occupy time
4. They come to an auction to buy things they need in the future
5. They come to the auction to buy things they can make money with.

The primary thing that I find interesting about people in general, who attend auctions are they will let the auctioneer go all the way down to a dollar for a hundred dollar antique before they will start bidding, if possible. They do this to get the item as cheap as possible. We call that being frugal and that is part of the game. I have no problem with that.

Joe The Consumer: Beginning Of Construction

After the sale, while helping our customer, Joe the Consumer load his new treasures we engage in conversation about the vehicle we are loading the treasures on. Joe tells me how he refinanced their house at some low interest rate and how good of a deal they got the truck for at some dealer. I shake my head and wonder how this same person can change gears so quickly.

They work me to death as the auctioneer waiting for me to "Cry" (ask) for a one dollar bid, while selling a hundred dollar item. Yet they turn around and finance a vehicle for 20 years and pay full retail from a dealer. Who is beginning to building their own house of cards? A house of cards is one where if one card falls the whole house falls.

The Sky Is Falling, The Sky Is Falling

In the news today, there is no shortage of war stories about some hardworking, God fearing neighbor who is loosing their home and everything they worked for because they got laid off. But, if you read a little deeper into the story you will find the decisions our neighbor made is what caused their house of cards to come crumbling down and the decisions they made put them in that situation. The majority of the people like Joe who find themselves in this trouble are up to their neck in debt. They have refinanced their home to buy a truck. They finance a depreciating asset (the truck) for 20 years and don't understand the trouble they actually borrowed.

You will find that most people who get themselves into trouble like this have accumulated lots of debt. Oh, I get the argument that they used an appreciating asset (the house) to finance the depreciating asset so it is a wash. Not true! The house will never appreciate as fast as the truck depreciates. Our neighbor who is in trouble because the economy changed or something unexpected happened will find that the truck was not the only bad decision they made. They have other decisions similar to the truck that have added to their woe's.

The Gamble; Betting The House

As long as nothing unexpected happens for example an illness or job loss they are okay. But if the economy takes a turn for the worse or anything unexpected happens, the house of cards that Joe built will come tumbling down and these stories make for great headlines. The media as a whole blow these stories out of proportion and make it appear as if Joe was a victim of something the Government did. Their goal is to get the American people all sturred up in a frenzy to pass some law that is unnecessary. No law in the world is going to correct Joe's problem at hand.

On the flip side of the coin we see people who attend our auctions that you will never read about in the newspaper because they have fallen on bad times, meet Jack. Jack is hard working, God fearing family man like his neighbor Joe. The difference is Jack has little to no debt. Jack picks up his treasures typically in a 10 - 15 year old truck. Jack paid cash for the truck. Jack paid cash for his treasures and half the items he purchased were some of the best deals at the auction. This person will buy items they can resell and make a profit on them. And the kicker is, Jack knows that if he buys three items and sells two he has a good chance to get the item he wanted at no cost.

While talking to Jack you find his house is paid for or he has very little debt on it and half the items he purchased were some of the best deals at the auction. This person will buy items that they can resell and make a profit on. And the kicker is, Jack knows if he buys three items and sells two he has a good chance to get the item he wanted at no cost. Moreover, Jack has money in the bank to get him through tough times.

No Govt Bailout Needed

No govt bail out will ever be needed for people like Jack. If you asked Jack if he wants to bail out Joe, he would say HELL NO! Because to bail out Joe, comes with a price; Jack would have to pay higher taxes.

If you look at the situation clearly, you will see that Joe is a terrible gambler. No different than someone going to Las Vegas or Atlantic City. Joe is betting that nothing bad is going to happen to him. He believes the economy is going to stay the same when he purchased his truck and remain the same for the next 20 years.

Joe is a rookie at gambling and doesn't realize that his bet is a long shot. And if Joe lives in Michigan where the economy is dependent on the failing auto industry, his odds of success are even less. Jack on the other hand,has nothing to lose no matter where he lives or what the economy does.

So, before you go running to your representative to get them to pass more laws to bail out Joe look at who built the house of cards that Joe lives in first. Then if you still think a new law needs to be passed make sure you ask your representative to pass another bill to bail out all those poor misguided losers in Las Vegas and Atlantic City as well. At least the odds are better for the poor misguided gambler in the casino than Joe's.

About the Author

Jim Francis is a seasoned auctioneer, liquidator and editor of the Southern Va Classifieds Blog. For more articles similar to this and on other related topic's Visit Southern Virginia Classifieds and click on the Blog link.

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Mar/07/2009 Comments Comments