Park City may weather the storm
Financial experts agree the government bail-out of bad debt is big, perhaps the biggest event the financial markets since the Great Depression, perhaps ever.
All Americans, and many the world over, are wondering, "How will it affect me?"
Luckily, local experts believe Summit County is OK for now, and will only see minor impacts in the short term. What will happen long term seems to be anybody’s guess.
"Park City will rebound and do great because we’re still the best ski resort town in the States," said Brady Hartzog, loan originator for First Western Mortgage in Park City.
The most significant change prospective homeowners will see is a return to traditional mortgage lending the way it used to be before companies began offering "creative" lending programs, he said.
No one will be able to buy investment property with no money down, and the 1 or 2 percent interest rates for new mortgages are a thing of the past, he said.
"Now we’re going back to normal lending, which is a good thing. We shouldn’t have been where we were," Hartzog said.
No one has experience in what is happening right now to the financial markets, Hartzog said. He has 20 years of experience in the mortgage business in Park City and said "the territory we’re in is unprecedented."
That said, knowing the local scene the way he does, he doesn’t believe anybody who purchased a home here in the last few years to use as a residence will be in any trouble.
The people in trouble are those who purchased a home as an investment on an adjustable rate. This was a strategy used by home speculators that backfired when housing prices quit rising.
People with solid income and good credit history will still be able to get loans for primary and secondary homes, but, "the process is a little different now," he said.
Some things never change, and one is that real estate in a good location will always have value, Hartzog said. Park City is a good location. Supply and demand cause local home prices to fluctuate, but he’s optimistic about the future of the area.
One area of concern is that Fannie May and Freddie Mac used to buy mortgages on condominiums and condo hotels. With the current troubles, they’ve stopped and now buyers are "scrambling" to get financing on those products, he said.
Another area of pessimism is the municipal bond market.
Glen Thompson, Summit County treasurer, said he doesn’t believe the current financial crisis will have any effect on existing bonds, but he is a little worried about the future.
"No one knows where the bottom is; no one knows when the blood will stop flowing," he said.
Some of the investors who used to purchase the bonds, thereby funding local projects like public-works improvements, may now shy away from them. Those entities still looking to buy will be fewer, and therefore their money will be in higher demand.
"People who buy bonds from municipal entities are nervous people anyway," Thompson said. "All we can do is follow the rule and hope the companies we deal with don’t have a lot of problems."
Thompson said that, even though he understands why the government is doing what it’s doing, what makes him most nervous is that capitalism as we knew it appears to be over.
"This is going to affect all of us because this is a new concept, something we’ve never seen before," he said.
In the past, our system was about competition in the market. There were winners and losers. Now, if the government makes it so that there are no real losers, it may "forever change the way we look at bonds," he said.
Peter Philips, chair of the department of economics at the University of Utah, agreed that the current situation will result in the end of "a particular flavor of market fundamentalism."
The type of capitalism that promoted the belief that "the government that regulates least regulates best" is over. In other words, the era of deregulation is ending, he said.
"The financial markets are about as deregulated as they’ve been since 1933," he said.
While deregulation is responsible for how large the house of cards that was our financial system got, he said, the root of the problem lies in how the American economy became integrated into the global one.
Like two drunks leaning on each other, Philips said, Asian markets and the United States are supporting one another in a disastrous way.
Desperate to download as many products into America as possible, and then invest that profit back into the states, Asian markets have been eager to meet the demand for cheap goods. Americans’ ever-increasing habit of purchasing goods they can’t afford on credit and maintaining an inflated lifestyle by paying minimum payments has contributed to a substantial trade imbalance.
The result of this relationship is that all of the floating money available for investment in this country for the last decade or more actually belonged to oversees entities.
When the regulators in charge of keeping the two drunks upright appears to have been tipsy as well, he said, the result was investments backed by companies on unsteady ground themselves, he said.
"This house of cards began to crumble," Philips said.
While Philips did not disagree with Hartzog’s optimism, he said he’d guess that loans at all levels will be frozen until a bail-out plan is decided upon.
"They are holding onto their money and are less willing to loan to each other, and even less willing to loan to a real-estate company in Park City," he said.
Different plans are on the table, and any of them could unfreeze the financial machinery and get loans flowing again. Their pros and cons are in their long-term implications, he explained.
Philips said he believes the Park City market to be "solvent," but said he worries about what impacts this crisis could have on other markets.
If unemployment rises as a result, and people become unable to repay credit-card debt, those industries could be next. If fewer student loans become available because of the crisis, university enrollment will drop, jeopardizing jobs in the education industry as well as causing long-term damage to the future work force, he said.
"If the bail-outs don’t work, the contagion that struck the mortgage market has a reasonable chance of striking municipal bonds and anywhere else where the economy operates on a ‘go before you pay’ instead of a ‘pay as you go’ system," he said.
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