WHY THERE IS ROOM FOR OPTIMISM

Optimism is one of my favorite words but it is hard to find these days. I had to curtail my news consumption to avoid losing mine. Yet there is room for optimism and rays of hope are beginning to emerge.

First, so we are all on the same page, let’s define the word. According to the Webster dictionary, optimism is defined as: “A doctrine that this world is the best possible world, an inclination to anticipate the best possible outcome of actions or events.”

According to Harvey Mackay in “Swim with the Sharks”, Optimism involves “self-delusion, a belief that our own abilities are superior to the obstacles that should logically overcome us.”
Anyone in the sales profession knows that “self-delusion” is the only way to steam forward in this market mess. Yet there are clear signs that being optimistic is not just “self-delusion”.

GOVERNMENT AS THE MARKET MAKER: Last week the Federal government announced its plans to buy up to $300 billion in mortgage backed securities. The immediate effect was lower mortgage rates across the board. Mortgage rates are now at an all time low making home buying possible for a greater number of would be buyers.

AFFORDABILTY INDEX: Adding to this is the affordability index for housing which is at a 17 year high. The affordability index measures how easily someone can qualify for a home. The housing correction has made it affordable for many who were shut out in the boom years.

GOVERNMENT INTERVENTION: Within a week of announcing the purchase of Mortgage Backed Securities, Treasury Secretary, Timothy Geithner announced details of his plan to marry government intervention with the private sector to help bail out banks by getting toxic waste off their balance sheets. The immediate reaction was a nearly 500 point spike in the stock market. The fifth largest point increase in history.

IRRATIONAL FEAR: It is important to point out that perception has outstripped reality when it relates to Mortgage Backed Securities. Over 70% of mortgagors that make up the collateral are paying on time. Why then are some trading at 20 cents on the dollar? Short answer: Fear. Instead of “irrational exuberance” to coin Chairman Greenspan’s now famous comment, we have “Irrational Fear” which is why Secretary Geithner’s plan makes so much sense.

FIRST TIME HOMEBUYER CREDIT: Other rays of hope include the Government’s plan to give first time homebuyers an $8,000.00 tax credit. If I were a Realtor I would be asking everyone I came in contact with, “Do you own your own home?” I find that many first time homebuyers believe they do not qualify. Like me, they have been watching too much CNN.

LENGTH OF THE RECESSION: According to economist the recession officially started in December 2007. If you look back at the past five decades the average length of a U.S. recessions was 11 months. The current recession is 15 months old. Although this one promises to be longer than average we must be approaching the end.

THE PURGE: A market correction although painful has many positive consequences. Corrections are a necessary evil in a market economy. Much like a terrific hangover, poisons must be purged from the system: market distorting speculators, unfair lending practices and unethical lenders. The “get rich quick” crowd has left our industry and only seasoned professionals remain. Moreover, consumers have learned their lesson about overspending financed with too much debt. One’s home will no longer be used as a cash register. It is fashionable once again to save money and curtail spending which in the short run hurts the economy but in the long run ensures a higher standard of living for our citizens.

When we emerge on the other side of this mess the markets will be more efficient, consumers will be smarter, lenders more prudent and owning one’s own home will once again be the American dream. So if you are a Loan Officer or Realtor, turn off your TV and get out there and create some demand for what you are selling and shake off the pessimism. There is life after the crash.