Washington Programs That Are Destroying The Real Estate Market
In another sign that all business is being run through Washington with make believe money, New York City is accessing 200 million dollars to reinvigorate building projects in the city. The new tool is Recovery Zone Facility Bonds.
To put this in perspective, the commercial lending markets have determined that there is too much inventory available and that creating more is not a smart move. So they stop lending money that is sure to be lost. Let’s face it, there is too much commercial inventory for a strong market, much less a recession.
So the politicians decide that they will restart the market by borrowing more money to lend to the builders the marketplace is telling not to build. Remember, the more inventory out there the lower the rents will be, hurting everyone. Rents only rise when inventory is scarce.
What makes things even worse is the government which is borrowing this money is finding it harder and harder to find buyers for their debt. So interest rates are rising.
Rising interest rates then hurt everyone, homeowners and commercial borrowers, in real estate. Higher interest rates means higher costs.
So the end result is that these government programs that sound so good and give the politicians a chance to get in front of the camera to show they are helping are poison to the rest of us. Well, all of us who are not connected and getting the windfall of a cheap federal loan.
New York City plans to use more than $200 million of federal stimulus funds for Recovery Zone Facility Bonds to spur stalled industrial and commercial projects, Mayor Michael Bloomberg said on Wednesday.
New York City’s real estate developers have shut or delayed many projects in all five boroughs, and those with development costs ranging from $20 million to $100 million would qualify for the new tax-exempt bonds allowed under the stimulus bill, he said in a statement. Reuters.
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Comment by William Campbell on 4 March 2010:
Sounds more like a political diatribe than an analysis of the market.
Interest rates will stay low until we come out of recession. Deflation not inflation is our biggest risk. If it were not for the govt programs, FHA, FNMA, and Freddie, there would not be a real estate loan market, or home market, because the banks have no other place to sell the paper. Unfortunatly, because of 9/11, Iraq and all the cultural crap we turned the govt over to a party that over heated the economy and blew up the deficit so we have no reserves to counter the situation we are in now. They did not mean to do it, they simply followed their policitical mantra and thought they were doing the right thing.