The Banks Have Stopped Lending
By Tom Dyson
August 16, 2007
SCOURCE / FULL REPORT:
The phone rang yesterday. It was Iowa Hal, my
agriculture contact...
"I'm hearing about all the cheap properties for sale
in Florida," he says. "I've always wanted a Florida
vacation home. Do you know any good brokers?"
Hal must have seen the news. It came out yesterday
morning. Every month, the National Association of
Home Builders reports on sentiment in the
homebuilding industry. It surveys 352 homebuilders,
adjusts for the season, and then presents its
results in an index from 0-100. If the index is
greater than 50, then builders who see "good" sales
outnumber builders who forecast "bad" sales.
This month, the number hit 22 from 24 in July. The
reading of 22 marks the lowest point in the index
since January 1991. Here's how it looks in a chart:

SCOURCE / FULL REPORT:
According to the NAHB statistics released yesterday,
these states suffered the biggest drop in sales in
the second quarter, compared to the same period a
year ago:
Florida, down 41.3%
Nevada, down 37.5%
Arizona, down 23.4%
Tennessee, down 21.5%
Maryland, down 21.1%
California, down 19.8%
"Adjustable rate mortgages in Florida are already
resetting like crazy," says Hal. "But the bulge
comes in 2008. So I don't think we've seen the worst
yet. Besides, I hear it's impossible to get a
mortgage anywhere in the northeast. The banks up
there have totally shut down. That can't be good for
house prices."
he banks won't lend money in Florida, either. I live
in Florida...
A neighbor applied for a mortgage last week at Bank
of America. My neighbor has great credit, he'd pay a
high interest rate, and the collateral – the house –
was worth far more than the loan. For the Bank of
America, this should have been a slam-dunk deal...
It refused his business. "Bank of America has told
everyone to stop lending," he said. "No exceptions."
When the banks stop lending, you've got real
trouble. No one has access to money. Money is like
oxygen. When it's cut off, everything dies, no
matter how valuable it was to begin with. That's the
case in the property market right now... especially
in places where easy credit played a big part in the
property boom... places like Florida.
The pain could be considerable. Cutting off credit
while house prices are falling and homeowners are
defaulting can only end in disaster. I expect more
downside in property prices. I also expect more
institutions to go bankrupt.
On the upside, you're close to the end of the crisis
when the banks stop lending... and those with cash
are kings. It's like the final battering in a boxing
match: The consequences are serious, but at least
they unfold quickly. Cash goes far in these
situations. The guy with cash has no competition. He
can have any asset he wants... at a big discount.
In sum, the news and statistics may seem dire, but
we're in a cash crunch. Florida is a great place to
live, the place is on sale, and there's no
competition for houses. That's why Iowa Hal's
interested in Florida property. It's also why four
other people have asked me to refer them a realtor
in Florida in the last few weeks. It's also why so
many British and European investors are starting to
consider Florida for vacation and retirement homes.
Act fast and you could end up with a beachfront
property and a large profit, too...
Good investing,
Tom
P.S. Florida has the weakest housing market in the
nation. Next week I'm going to Fort Myers and Miami
to find cheap property. Are you in the construction,
development, or sales business in the Fort Myers or
Miami areas? Do you have any real estate contacts in
Fort Myers or Miami that might help me? I'll buy you
dinner if you can help. Please contact
editorialfeedback@dailywealth.com.