Commercial Loans Blog

The Death of Real Estate Investing

Posted by George Blackburne on Sun, Jul 13, 2008

Some Follow-Up Comments to a Brilliant Blog Post By Susan Lassiter-Lyons

Attention Ben Bernanke and the U.S. Treasury: In a recent blog post called The Death of Real Estate Investing, Susan Lassiter-Lyons has brought up a very important issue.

Free List of 3,159 Commercial Lenders Sort By Your Own Criteria

Unless the Fed and the Treasury develops some sort of financing mechanism to help investors and speculators buy real estate using high-leverage mortgage financing at favorable rates, this meltdown in real estate values is going to continue. And its not inflation that keeps Ben Bernanke up at night ... its crushing deflation.

In my recent book, The Reverse Multiplier Effect - When Crushing Deflation Destroys America, our banks get scared and stop lending. Over a trillion dollars in annual payments on existing loans kept flowing back to the banks, but the banks stopped rolling over their interest receipts into new loans.

Since the multiplier effect today is around 20, and since the multiplier effect works in reverse, the money supply of the United States started to disappear. Homes fell over 70% in value, and the banks started foreclosing on most of the homes in the United States.

Well, folks, I fear the scenario that I described in my book may be coming true. The book was written in early 2007, when gas prices were $2 per gallon. I predicted $6 gas and a complete real estate estate meltdown, even more dire than that of today, by the year 2010.

Fortunately Ben Bernanke and the Fed are very aware of the dangers of deflation. By propping up Citibank, Countrywide, Bear Stearns, and now Fannie Mae and Freddie Mac, Ben Bernanke has done a masterful job of preserving our institutions. We are probably in a great depression right now, and Americans will probably have to endure a precipitous decline in their standard of living over the next 15 years. Ben Bernanke can only do so much.

But Mr. Bernanke, if you're out there, please pay attention to Susan Lassiter-Lyons brilliant blog post.If you want to save your banks by stopping the decline in real estate values, the country will need non-owner and commercial financing. It's wealthy investors who have the incentive and the courage to buy foreclosed properties in a declining market. It is these wealthy investors who have the dough to make timely payments on these new mortgages. They just need some leverage and a reasonable interest rate.

Topics: Death of Real Estate Investing, George Blackburne, Susan Lassiter-Lyons