Market fears that recovery is very short term

By Ken Go

Almost all the economists and think tanks are all fearing the same worse scenario for the US economy. I know we probably might think that the economy seems to be picking up steam. But based on factual data that shows otherwise, we have something to fear that is very real. I hate to be the bearer of bad news, but it is news that you have to know and plan for.

Here are some facts that our government has to battle that are very serious:

• US GDP grew only about 1.7% compared to China which grew about 9.2%
• US debt totaling to $145 trillion dollars
• US almost has no cash reserves and has to borrow almost half of what we spend elsewhere.
• US tax revenues are dramatically down due to sluggish economy.
• US unemployment still has not recovered.

INFLATION IS FOR US TO FEAR. Increasing money supply (meaning printing money) faster than the growth rate of GDP is going to cause more inflation. The banks are strong, true, and that is why our inflation is kept at a minimum. Banks are holding out money from circulation by accumulation of reserves and stringent lending practices. But those are temporary and will not stop the money supply increasing. A good delay tactic by Sec. Tim Geithner, don’t you think?

We have to start to produce more for export and lessen our dependency on imports. We need to dominate the manufacturing sector.

In terms of Real Estate in the US, China has emerged as one of the fastest-growing sources of international buyers for US Real Estate although it only represents a tiny fraction of the overall US market, which recorded $928.2 billion in sales in the year to March. Most activities are on the top end or price ranges of the market, meaning high end homes and commercial real estates primarily.

Former Fed Chairman Alan Greenspan said “If you want to learn what the degree of uncertainty is, the level I’ve been using for quite a long period of time is to watch what corporate executives do, what proportion of their cash flow they choose to invest in long term assets. That number in the early part of 2010 was at the lowest ratio since 1935. Massive debts continue to stoke fears, and corporate executives know that markets can punish countries facing fiscal imbalances.”

Why am I telling you all these? I want to remind you again that most homeowners that I speak with always seems to forget how much they owe instead of how much they can pay on a monthly basis. We will always consider homeownership but please see the big picture and know how much you need to borrow.

My fear is that we will have a second downturn in the RE market and your expectation that the REAL ESTATE market will shoot up in value fast and furiously will not come together. Your Real Estate agent might be showing you signs that there are multiple offers on every property, there is no more RE inventory, no more properties available for sale, they might be telling you that the RE market is for sure going only one way and that is UP!
It may be true for very low properties on the market, and true in some areas tthat here are multiple offers to one listing. But what is the real reason behind that? I still see a lot of homeowners trying to modify their mortgages, I still know a lot of homeowners who are holding on to their upside down properties.

I know that the government and banks still have not come up with a solution to help all these distressed homeowners. I still see homeowners losing their jobs. I still see the jobs market not meeting expectations.

Therefore, I am waking you up with what is behind all these smoke screen we might call a “RECOVERY.” I hope I am completely wrong and that we are headed to a great big pot of gold. Someone has to lead us there this November, so make sure you practice your right to vote.

When you are buying a house, make sure you have reserves after closing, make sure you shop your rates to the lowest possible, make sure you negotiate your best to get the best deals, don’t chase after a price and keep a limit and learn to let go. Houses can turn into homes, there are a lot of houses out there; never fear that you will run out. In the 245 years America has grown, nobody has ever said that they ran out of houses to sell.

Keep your total mortgage payment to an average of about 38-43% of your gross income per household. Try to always prioritize your child’s education, pay more for their education/funds for education than your car loan, because your children growing up in the next 10-15 years will be very hard. Imagine how much they have to make to afford a home if 10 years from now home prices averages $500K? Therefore, if they don’t have good jobs, you will have to support them and you will not be able to retire early.

Lets all see what is around us and see a future for us and who we need to support.

Thanks for the inquiries and support. Please call Ken Go at 1st Innovative Finance Group at 562-508-7048 or write to kennethgo@verizon.net.

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