Banking Crisis

[TheNiche]

My job is dependent on the ability of relatively small firms to make big transactions happen. In the context of Houston real estate, we're running into a bit of a paradox. Houston is the nation's fastest growing city, having added about 100,000 jobs each year for two consecutive years. In any economy, that is a stupendous rate of growth. Dallas is doing well at #2, and up to now New York City was #3. Yet getting new deals done is increasingly difficult, even in the nation's top growth market. And forget about trying to make something happen outside of Texas and just a few other places! Asset prices and associated expenses are still just too inflated, and capital lenders are seeking deals of such quality as no longer exist.

We watch the drama unfold on Wall Street--and I think that NYC just got a taste of what Enron was like for us--but there's no discussion of how that affects folks that aren't involved directly with high finance. I've done a bit of research on banking crises in historical contexts within this and other nations, but it is sometimes difficult to pick out exactly how circumstances change for people in industries or in cities that are otherwise healthy. What I actually do end up reading about is an abstraction of macroeconomic statistics, typically averages, that tell me that the average person is x% worse off, but that don't tell me who the winners were, who the losers were, where they were, how they won (although there is usually quite a bit of explanation as to how losers lost). But here's what I'm getting at: How does it affect you, Houston? And how do you respond?

[crunchtastic]

The ripple effect is everywhere even in "healthy" local economies. I've been in an ongoing discussion to add 2 people to staff, and the final word this week is hiring freeze for AG. American General/VALIC has been, since the AIG buyout, one of the healthier divisions (HQ'd here). Bad paper is everywhere. Defensive moves are starting to happen even though balance sheets still look relatively ok, at least in my corner of the world, which is retail life insurance and retirement plans.

[TheNiche]

The ripple effect is everywhere even in "healthy" local economies. I've been in an ongoing discussion to add 2 people to staff, and the final word this week is hiring freeze for AG. American General/VALIC has been, since the AIG buyout, one of the healthier divisions (HQ'd here). Bad paper is everywhere. Defensive moves are starting to happen even though balance sheets still look relatively ok, at least in my corner of the world, which is retail life insurance and retirement plans.

What about retirement plans structured around reverse mortgages? Any exposure there?

[texas911]

We're still one country. Eventually everyone gets hit. Just brace for it.

[TheNiche]

We're still one country. Eventually everyone gets hit. Just brace for it.

Political boundaries don't mean much. Banking crises are usually preceeded by a surge in foreign investment...and that's exactly what happened here. The Europeans came in late, but China's investments are truely mammoth. I wouldn't be surprised if their write-downs put tremendous stress on their own financial systems...and over there, they're dealing with already-high inflation. I'd dare say that we may have outsourced a depression their way (although its unlikely that they'd acknowledge it if that were the case).

And to the extent that the devaluation of our dollar drives commodity prices higher still, Houston stands to benefit...or at least have the negative effects mitigated.

[crunchtastic]

What about retirement plans structured around reverse mortgages? Any exposure there?

Yes. Don't go there, and don't try to talk your parents or grandparents into going there. Don't listen to a financial advisor who tries to convince you otherwise. They're (reverse mortgages) the expired meat of finance.

[dbigtex56]

We're still one country. Eventually everyone gets hit. Just brace for it.

Everyone, of course, except for those who caused the crisis in the first place.

[TheNiche]

Everyone, of course, except for those who caused the crisis in the first place.

How do you mean?

[memebag]

How do you mean?

I bet he means those who get bailed out, like the big banks that failed to manage their risk.

[TheNiche]

I bet he means those who get bailed out, like the big banks that failed to manage their risk.

Based upon the JPMorgan/U.S. Government bailout offer of $2, and based upon the $150 price as of about this time last year, I'm not convinced that a bailout is really all that beneficial to those that caused it, especially considering that so much of Bear was employee held. I'd certainly say that moral hazard has been averted here.

...but I didn't start this thread to discuss politics or Wall Street. That's already getting plenty of discussion. How is this banking crisis affecting Houston?

[memebag]

...but I didn't start this thread to discuss politics or Wall Street. That's already getting plenty of discussion. How is this banking crisis affecting Houston?

It hasn't affected me. I just financed a new car and I've still got my job and my house. I forgot my credit card at Hollywood Vietnamese restaurant last night, but the waitress kept it and I picked it up today.

[Subdude]

I'm no insider, but I'm a little (pleasantly) surprised that the credit problem doesn't seem to have much hurt Houston real estate projects. There still several major projects and some towers under development. Houston's economy is doing very well of course, but I was concerned that banks would start pulling back from risky real estate projects even in strong markets.

[TheNiche]

I was concerned that banks would start pulling back from risky real estate projects even in strong markets.

They are. I can't publcily comment on my work-related stuff, but on the personal side, I lost a construction loan recently that was supposed to have been in the bag. The foremost reason cited was that capital markets are crazy right now and that this bank was pulling back to a less aggressive position. It's set me back quite a bit.

As a general impression, it seems from my vantage point as though the big established firms are still getting projects done but that the smaller firms and new entrants to the market are getting squeezed out.

[spiderman]

My job is dependent on the ability of relatively small firms to make big transactions happen. In the context of Houston real estate, we're running into a bit of a paradox. Houston is the nation's fastest growing city, having added about 100,000 jobs each year for two consecutive years. In any economy, that is a stupendous rate of growth. Dallas is doing well at #2, and up to now New York City was #3. Yet getting new deals done is increasingly difficult, even in the nation's top growth market. And forget about trying to make something happen outside of Texas and just a few other places! Asset prices and associated expenses are still just too inflated, and capital lenders are seeking deals of such quality as no longer exist.

We watch the drama unfold on Wall Street--and I think that NYC just got a taste of what Enron was like for us--but there's no discussion of how that affects folks that aren't involved directly with high finance. I've done a bit of research on banking crises in historical contexts within this and other nations, but it is sometimes difficult to pick out exactly how circumstances change for people in industries or in cities that are otherwise healthy. What I actually do end up reading about is an abstraction of macroeconomic statistics, typically averages, that tell me that the average person is x% worse off, but that don't tell me who the winners were, who the losers were, where they were, how they won (although there is usually quite a bit of explanation as to how losers lost). But here's what I'm getting at: How does it affect you, Houston? And how do you respond?

The potential of a credit seizure certainly has me concerned. I just completed a cash out refi on an investment property this past week, the money hit my account on Thursday, with everything hitting the news the past couple of weeks it had me wondering whether it would go through.

I have recently gotten involved in a program of buying and rehabbing entry level homes for long term hold/landlording using a 2 step process - short term high interest rate hard money loan followed by conventional financing, depending on how tight credit is I could see pulling back and not doing deals for fear I will not be able to refi.

[TheNiche]

Bank of America is no longer doing small business loans on investment property. It is an across-the-board measure that was only put into place recently.

[TAK]

The potential of a credit seizure certainly has me concerned. I just completed a cash out refi on an investment property this past week, the money hit my account on Thursday, with everything hitting the news the past couple of weeks it had me wondering whether it would go through.

I have recently gotten involved in a program of buying and rehabbing entry level homes for long term hold/landlording using a 2 step process - short term high interest rate hard money loan followed by conventional financing, depending on how tight credit is I could see pulling back and not doing deals for fear I will not be able to refi.

I had considered the HML / Refi method to do the same thing, but decided I'd go conventional with 10% down and pay the fixups out of pocket for now. I didn't want to get stuck with a big HML that I couldn't refi, and i don't have a problem putting in my own equity for cash flow a couple times while i wait for the credit markets to figure themselves out... i need to get into an infinite return program, but more importantly, i need to get in, period.