Entrepreneurship: Making The Most of Any Situation

In reading an article about the latest spate of foreclosures hitting the state of New York, I came across a very interesting business - foreclosure bus tours. I realize that this isn't likely a new business, but it's new to me so I thought I'd mention it. What I find fantastic about this concept is the entrepreneurial spirit that seems to rise-up from any situation - no matter how bad it may appear to be.

The tours, that charge $75 per seat, take prospective buyers around the latest foreclosure filings. It's simply ingenious; they're fulfilling a growing need or interest and making money on it. Beyond just providing the transportation, they're also facilitating the buying process by bringing along mortgage brokers, home inspectors and even contractors to help those buyers make qualified decisions.

I can visualize the business model already. I can imagine that the bus company has brokers, independent home inspectors and contracts lining-up to come along on these rides as the resident experts on-board; moreover, I would hope, that they're paying a pretty penny for an exclusivity option. 

It really is that simple. Spot the need and figure out how to satisfy it.

Housing Market Outlook

I'm still sitting on the fence, waiting for the right opportunity to buy my first home-sweet-home. With all the trouble in the housing market, I'm sure that my opportunity is not far away, but the question now becomes how low can the prices really go. As with any declining market, an investor wants the most bang for their buck and seeks to time their purchase for the absolute lowest low. With foreclosures being reported up by 65% this month compared with the same month last year, however, the supply of homes on the market is still very much on the rise. Consequently, prices are still very much on the decline.

Watching Jim Cramer's Mad Money on CNBC last night I heard the mention that the first real estate markets hit by the slow down in Florida are beginning to show signs of life. As with the recent bull runs in the stock markets, it's likely just a head-fake. The underlying problems in the economy haven't gone away. Business bankruptcies are still mounting. Unemployment is still rising. Foreclosures are, well, you get the picture. Before these underlying factors are addressed, there isn't going to be any rush to buy any homes. People certainly aren't going to be bidding against each other in this market and that's a necessary condition for prices to rise.

We will continue to hear about some homes being sold and some real estate markets around the country rebounding. I would tend to suggest that this represents localized feelings of a trough; this is unlikely to be representative of a more broad-based recovery. Too many things are just ugly right now and people are stuffing those bills into the mattresses to insure against more rainy days. I, for one, am still waiting for when I can un-tuck some of those bills.

Democratic foreclosure-prevention package - OK'd

With all the talk about the hundreds, yes hundreds, of billions of dollars made available each month by the Federal Reserve to help financial institutions survive the worst of the continuing credit crunch, it seems that the little guy may finally get something too. The U.S. House of Representatives approved a Democrat-sponsored foreclosure-prevention package that will essentially guarantee mortgages if banks cut principals so as to lower the payments on those loans. With foreclosures consider to be one of the key catalysts for the slowing economy and financial woes on Wall Street, this should certainly help everyone involved.

No one benefits in a foreclosure.

For the little guy, that's you and me, this means that banks should be just a little more willing to work with us to avoid foreclosure. The banks don't want to foreclose; besides all the transaction costs involved, it's just a hassle. They need to come-up with the paper work (both financial and legal) and ultimately boot some family out of their home. With their expectation to see only part of their loan returned to them given the current state of the real estate market, it's a lose-lose proposition for everyone involved. This new program gives them an out.

Assuming that banks are willing to do their part and cut the principal amounts on the loans, then those loans will be guaranteed - essentially eliminating their risk of holding-on to the mortgage and giving the borrowers (i.e. homeowners) a little more slack with which to retain ownership and make their monthly payments. The key here is that everyone needs to still do their part. The banks aren't getting something for nothing; they'll first need to make their own judgements as to who's mortgages should be cut and kept vs. those that they'll foreclose regardless.

Similarly, homeowners can't run away from their responsibilities. With news of people choosing to burn their homes or drive their cars into lakes and rivers so as to collect on insurance policies and avoid further payments, there doesn't seem to be a better time than the present to offer something to us little guys. The economic slowdown will continue for some time. More businesses will close and more people will lose their jobs. At least its nice to know that it's not only Wall Street that has the attention of our government.

Vallejo, California's Bankruptcy 'Unrelated' to Sub-Prime Lending?

Yesterday's big economic news, as far as I'm concerned, was that a town in California would be filing for bankruptcy. As the announcers were saying it, they adamantly followed-up each and every statement clarifying that this was not the result of the wide-spread sub-prime lending problems plaguing the rest of the country. ...how is this not related? Who are they kidding?

I'm the first to support the notion that the government, via the media, should do what it can to keep confidence levels up and maintain positive future prospects among the citizenry. That said, there's a point at which doing so can be more harmful than good. This is one of those moments.

People are funny. They watch the news in segments - disconnected segments. In one segment, an economist will be warning people of rising unemployment, growing concerns over inflation and work diligently to avoid saying the R-word (recession). In the very next segment, albeit after a regularly scheduled commercial break, the well-dressed financiers will excite everyone while quoting statistics from the latest rally sparked by news of higher sales volumes. How is it that no one connects the two segments to provide people with a more complete picture of what's going on in America?

Rising sales - sure, it's possible. Of course, the question is how are those sales being financed? With interest rates at 2%, I bet that you could guess! With the decline of home values to record lows, the average person's wealth has diminished dramatically. All the while, these same people are taking-on more and more debt, forgetting that unemployment is rising and their job security may not be there a month or week later. Then, ask yourself what happens when those individuals and families with all that debt lose their jobs and have zero (or negative) home equity. What happens to those individuals and families when interest rates begin to rise again and the cost of all that debt increases on them? I bet you could guess that too...

Credit lines in the sand

It's tempting to believe that the credit crisis is nearing an end. I hear it too; many of you know that I'm an avid CNBC watcher and their stance, more often then not, is that the worst is behind us. I'm afraid that I disagree. The worst is yet to come. The reason? The tighter belts at the banks and slowing credit hasn't had enough time to really impact businesses ...yet.

I wrote a post a few days ago quoting an article wherein they stated that bankruptcies were up 49% year-over-year. I'm afraid that even that is only the beginning, but it is an indication of what is yet to come.  Businesses, especially growing businesses, rely on their credit lines to get them through the tough times. We're in one of those times now, but the credit lines won't be there to provide the businesses with the cushions that they need.

In stead, businesses will begin to see their cash reserves dwindle as their sales and revenues decline. Of course, no business, especially new businesses, can react instantly to changing market conditions. As a result, fixed costs will remain at their original levels for some time and those fixed costs will need to be covered - if not by revenues, then by what? The credit lines won't be there... Put one and one together and you begin to see the picture that's developing nationwide.

The credit crises, or at least what started it initially, may be nearing an end. Unfortunately, the effects of that crisis are only now beginning to be felt and it will take time for their full impact to reach the bottom line.

Bankruptcies up 49%! Yes, 49%!

Some days, when you listen to the latest equity market numbers, you wonder can't help but wonder where all the fuss about recession comes from. Sure, the markets decline some days, but for the most part we only hear about the rallies and bulls. The bears are sparse and far between. Then you come upon an article that shocks you with some numbers that bring your feet back on the ground... bankruptcies up 49% years-over-year.

We already heard about the foreclosures, but that's because of the sub-prime hoopla, right? If there was any doubt as to whether the economy was slowing, the rising number of businesses forced to closedown should shed some light on the matter.

1.1 million bankruptcy filings! Yes, that's 'm' for million. As in... if you had one dollar for each business that failed, you would be a millionaire with some change to spare. Sobering, isn't it?

The wait continues for future home buyers

It's been about two years since I first thought about buying my first home and subsequently decided to wait ...wait for the market to fall-apart. Well, it finally has (in the U.S. at least - we're still waiting here in Canada). In reading about all the foreclosures and other empty houses sitting on the market, I can't help but think how many other people there are out there like me - waiting for the market to bottom-out to get the best possible deal.

Yes, market timing is difficult, if not impossible, but everyone believes that what they're strategy can outsmart the market and I'm no different. I don't know when the bottom will come, but I'm pretty sure that we're not there yet. The fact that the Fed cut another quarter-point yesterday points to the fact that a lot of people (smarter than me) tend to agree. 

A cut in the interest rate, although there's no doubt that the cut was primarily motivated by the credit crunch, it's also clear that the Fed and all those economists aren't convinced that the current recessionary trends are significant enough to halt (or even hike) the rates. The time will come, however, when those rates will have to rise. Inflation, by all reasonable accounts is nearing double-digit levels ...regardless of what you hear in the news. To bring that sort of inflation under control and help boost the dollar, the rates will have to soar. When they do, so too will mortgage rates and that will most certainly take its toll on the housing market.

...that's when the market will bottom and when a lot of people sitting on their down payments will finally be able to buy their home-sweet-home.