Will Wall Street help Canal Street?

Tweet You have to go back 20 yrs, 1988, and look closely at the S&L crisis and how that affected the economy, both good and bad. There are many differences between now and then, but the net result is the same,....Prices have to hit bottom and foreclosures re-enter the market before it rebounds. And the sad reality is that someone has to lose.

In the current state of the secondary markets, the problem actually flows up hill. The buyer somehow gets qualified by an underwriter, the mortgage broker then resells to a secondary lender, who then packages thousands of these loans, securitizes them and sells to a larger investor. Its a hot potato, but no one knows it until the foreclosures start to happen. Now these packaged securities are tainted and no one knows if 10%, 40% 90% are bad loans. So who does the last person holding the bag turn to? Their rich uncle, Uncle Sam.


Keep in mind, someone has to lose. The home owner has already lost, the loan has already gone into default or already foreclosed on. So here we are again. Rich uncle now owns these houses and needs to get rid of them. Is this good or bad? Bad if you lost your house, job, equity if any. Good if you believe that housing sales create economic "churn".



Lets get the moral issue out on the table now. Yes, it sucks that people lost their houses. You would be surprised how many people are very close to losing their homes right now. Add a couple of hurricanes to the mix and its like, why even try to keep it? But as the saying goes, this too shall pass. People are resilient. Many people in good and bad economies lose houses, jobs, and experience other tragedies that causes life to be put on hold. You hear success stories everyday how someone lost it all and came back stronger. Gee, there may be a few of those stories right here in good ole' Louisiana.



So, for the upside, these foreclosed houses will be put back on the market at steep discounts. Investors are not capitalizing on someones loss, they are actually doing something good. They are "investing" and injecting money in the economy. The spin off of a home purchase is very extensive and is a stimulus that is desperately needed here in New Orleans. And if someone is placing cash in a home on your street, I'm sure you will see the benefit from it. This is the stimulus we needed. And we need a lot of it. One advantage we have is that if a flooded and gutted home was given back to the lender, it becomes such a cheap investment that the pool of investors or buyers is much larger and will create more interest in renovating these homes. If the amount of the investment is smaller, more people will invest. And we are talking in the 10-30k price range.



We are still waiting for the commercial real estate market to experience some of these effects, but it will come. Maybe not as dramatic as the last bottom or the residential side, but, this too will stimulate more economic development giving small businesses a more affordable option for space and sites.



All we need now is a great deal on Canal Street, or some other high profile property. Hopefully we can see a major building get a new face, preferably City Hall. Which major building would you like to see change hands or transform?