Red Lines and the End Times!

As Anna and I were visiting our sick friend in Dallas this last week, presently going through chemo and other not so great therapies….the word came: All property in Orange County California has been determined to be Red Lined by every bank in America and then presumably….the world. Redlining, for those that know; “It describes the practice of marking a red line on a map to delineate the area where banks would not invest.” Originally targeting areas with large Black populations during the 60’s…..what they found was a never ending unsustainable foreclosure rate!

The USA Today on March 7-9th, Weekend Edition…features a front page right column
“Home equity below 50% level”….Falling prices sap owners ‘wealth’..by Sandra Block. Block states that: “Home Equity for the average American has dropped below
50% for the first time since World War II, reflecting loose mortgage practices during much of this decade.” This just tells part of the story, however! What is
happening is a “free fall” in home and commercial property prices. This across the
board nightmare for lenders and borrowers, reminds us of FDR closing the banks so
no ne could take their money out.

So, where does that leave the Real Estate market in Orange County? Bad, real bad!
What it means is that “Cash is King!”. In God we Trust….all others pay cash or
forget it! The little wiggle room left in the housing market….would include, those
people wanting to take partial payment and take out a 2nd for what the buyer doesn’t
give out in cash. The 2nd Mortgage however, probably won’t pass muster for Title
purposes, because who is going to give Insurance? No, if the new buyer recants and
stops paying on the second…..it will take a long legal battle by the original owner
to get the property back…maybe!

What happens when the bank forecloses on property, or people just walk away and
say forget it! That leaves only one option: Sell for cash…..or…..give it away
to relatives you don’t like for debt service! Good Grief, how did the “So-Called
Greatest County in California” suffer this staggering fate? What ramifications are
going to be met….because of our Redlining Classification? What other counties are
going to meet the same fate? San Diego, Riverside, San Bernardino…maybe even Los
Angeles? If it happens here…..where will it not happen? We cautioned several months ago…that property values were going to drop to about half of the highs of
early 2007! Seemed pretty far fetched then! The $4 million dollar house of 2007 may
sink even lower than our $2 million dollar number, before things get better. Saying
that the bottom has dropped out of the market is a gross understatement.

The Government……what’s next? Well, we received our IRS notice about the proposed “Stimulus Package” and the fact that we may be getting our $1200 dollars sometime in the month of May. Although we doubt that the $1200 dollars will stop people from “Property Foreclosures”….it could dull the pain of higher food costs,
energy prices and inflated taxes…such as Toll Road Rates, Licensing, Moving Violations and the like! These have little chance of regressing soon…..based on our observations. Did anyone notice that Elected Officials and Bureaucrats seem to have no problem voting themselves pay raises and pension spikes? Who pays for such things? Probably, us poor taxpayers who are getting their $1200 dollars from the Stimulus Package that our beleaguered President has offered….as chum for the Bureaucrat Sharks, Consultants, Lobbyists, Elected Over spenders and Political Operatives! Did you know that the price of a letter is going up to 42 cents in May? No doubt, we will be reminded by the above group….many times….as we see the
“net worth and property values” of the average American plummet like the original Challenger Space Shuttle!

Is there a silver lining to this historic fall from grace that has recently targeted our normally hip and trendy “The OC” property? Not much…..as my dear friend and
Accountant; Orrin Wright told me in 1980……sell that Gold….at $640 dollars an
ounce! I protested: “Orrin, it was up to $848…and I know it is going to go back
and maybe beyond!” Orrin looked me right in the eye and said……”Yeah, but it will
probably be in 20 years!” For those that study history; Orrin was wrong …. he was
eight years too soon….well, seven then! So, for all those people out there that
think the OC Real Estate market is going to make a come back in the next couple of years…”forget about it” ..in the words of Tony Soprano!

What we can do is this: (1) Sell your property to a foreigner! (2) Pay off your
property and stay there forever…without debt service. (3) Ask the Assessor to reassess the value of your property and that of all the properties around you. This
is especially true…if you have several foreclosed properties around you. And,
(4) Pray! The power of prayer never hurt. Maybe, you have luck on your side…
maybe your neighborhood will be in a protected bubble! Also, you can buy property
cheap “like a fire sale”…and then give it to relatives! You will always be then
remembered as ……the one that “had it all together – when everyone else was on
their backsides!”