The bright side of the dark side:
The humanitarian tragedy, and economic apocalypse, unfolding in Puerto Rico is nothing short of tragic. However, caeteris paribus (all else being equal), it is important to note that unlike the developing municipal bond defaults of Detroit and many other cities. Puerto Rico is a U.S. possession. It is governed by the constitution, and federal law. The federal gov’t of the United States shall never default on a debt, neither public, nor private. The 14th amendment assures the solvency of the U.S. treasury (georgetownlawjournal.org). Unlike the municipal bonds which are in default Puerto Rico, as a possession of the federal gov’t, represents a new type of debt problem. The federal authorities in this are not allowed, according to constitutional amendment #14, to simply default on their debts. Puerto Rico will, at some point, be bailed out. At that time the bottomed out real-estate market will start to rebound as federal funding begins to flow in to the territory. What can be picked up for pennies on the dollar now, will be either a wonderful retirement housing option, or a great real-estate investment. Values will increase as the island seeks to establish a new citizenry capable of rebuilding its solvency and of financing its bond debt through taxes. Did I mention since it is a U.S. possession you can qualify for the standard FHA financing! If you had the opportunity to buy property at the 2008 prices, would you?
After the 2008 housing collapse, would you have been wise to buy in cheap?:
Caribbean retirement is well within your reach, and well
before you ever reach “retirement” age.
On average housing prices in the USA are hovering in the low $300,000 in
many areas, according to the US census bureau. There has been over a 400% increase in home
prices in the last 15 years. This begs
the question of course, has the value of homes increased 400%? Most people who are home owners, paying
increased property taxes, would say no.
Housing has been marketed as an investment, and certainly it could be if
managed properly. Many people have made
their fortune as land lords, though it would appear that far more people have
gone bankrupt chasing this dream than have been made wealthy, as evidenced by
the 2008 financial melt down. Many people fell victim to predatory lending practices, adjustable interest rates,
and a precipitous economic pull back.
Why are their housing prices dropping?:
A quick glance at the real-estate market in Puerto Rico
shows a tremendous down turn in the prices of standard three bedroom two bath,
or often one bath, homes. This value
decrease is commensurate with the efflux of population to the U.S. mainland. Since Puerto Rico is a possession of the U.S.
there is no immigration and customs paper work.
The 2% of people per year migrating to the mainland from the Caribbean
island are already U.S. Citizens, and entitled to all of the rights pertaining
thereto (http://www.cnn.com/2016/05/02/americas/puerto-rico-exodus/index.html). Many of them have been vastly under employed
since the economic crisis of 2008.
Over the last 8 years they have expended their retirement money, and any
savings they may have had. Many have
simply walked away from their homes, cars, and businesses in search of a better
life on the mainland of their country.
Matters only continued to deteriorate as the exodus of the
island territory continued over the last 8 years. The revenues of the gov’t agencies, many of
which relied on tourism and luxury homes, continued to watch their revenues evaporate as people fled
the island. The wealthy elites could no
longer be held in Puerto Rico by the generous Capital gains tax loop holes
afforded them. The exodus sped up as the
refugees of Puerto Rico’s economic apocalypse streamed out at a rate of over 5% for the last 8 years! (libertystreeteconomics.newyorkfed.org). Imagine
5 in 100 people you know picking up, and leaving town, because they have
no hope, and think there may be work somewhere in Europe. The default which just occurred is a look at
a concept, seldom discussed, “Trickle up economics”. The gov’t of the tiny island territory has
experienced it full blast. There are no
taxes to pay the interest municipal bond debt, nor the principal. The 400 million dollar payment missed on a 2
billion dollar municipal bond is evidence of that.
References
No comments:
Post a Comment