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State of the Union

January 27, 2011

Well, it ain’t pretty folks.  Have we fixed the root causes of the huge problems here in America?  Methinks the answer to this is NO.  There are many things that still need to change or get fixed before we can say we have a stable economic underpinning and can start to feel “safe” again.  Some people say “look at the DOW, it is doing great!” and that is true as of late.  It is back up around 12,000.  And why is that?  We know the economy is still stagnant, people don’t have jobs, the housing market is still losing value, manufacturing keeps leaking out of the US, trade deficits remain way too high, etc.  Why is it that the stock market seems strong again?  Could it be because interest rates are still so ridiculously (and artificially) low?  I say YES.  This seems like a whole lot of smoke and mirrors to me, while in my eyes the threat of a “double dip recession” is still a possibility.  I hate to be an alarmist, but again, we haven’t fixed the root causes yet. 

When talking about real estate, healthy housing markets depend on a strong job base.  President Obama focused heavily on that theme in his address.  One of the keys to this would be fixing our infrastructure, which in turn would provide potentially millions of jobs to our economy.  I can’t stress enough that JOBS are the KEY!  I think we all know that.  Some of Obama’s focuses will definitely help this situation out, provided that he gets bi-partisan support for his initiatives.  My personal favorites are green energy and high-speed rail.  Another thing we should really be targeting is bringing manufacturing back to the US.  Far too much of our goods are produced overseas, reducing our job base, increasing our trade deficit, making other countries rich and us poor.  These are simple points but not enough people understand this. 

One last point here.  President Obama talked about tax reform.  One thing he did not mention was the Mortgage Interest Tax Deduction.  But you can bet this deduction is on the chopping block.  There is a chance that this deduction (which is most American homeowners’ largest tax break) is in danger of going away or being altered significantly.  The National Association of Realtors has determined that if this deduction goes away, home values will drop fully 15%.  I do not doubt that.  In a non-appreciating market, one of the main benefits of homeownership is this deduction.  Keep your eyes on this, and so will I.

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