Alberto Trejos, the former trade minister of Costa Rica, says that the current global economy situation will never be the same as in the past. You may not be able to afford the class of property in the same financial state that you would have been able to do before without exposing you to the possibility of having your property repossessed by the bank. Credit will remain hard to come by, and in some cases will be harder to pay back.
The world has changed and adapted to process this crisis and get out of it, but this change and difference to the world from the past will not be as great as many would think. “As tempting as it is for many people to think that this crisis confirms that markets don’t work and that the market economy is wrong, that is not the right lesson to take from here,” says Trejos. He says that the lesson is rather that excessive liquidity in the financial markets and excessively accommodating macro-economic policy carry a huge price to pay. He mentions that he doesn’t see any evidence in this crisis that we should cut rates loose or close economies or re-regulate goods markets or opt for excessively state-owned or state-controlled economies. The sins that were committed here - and there were sins committed - were committed in the banking and financial sectors and the monetary policy but not necessarily in those other tracks. “Fix what’s wrong. Don’t fix what’s right, it’s going to make what’s wrong worse.”
As evident from past recessions, and as we all are aware - history does repeat, the markets and economy of the world will make a recovery after a situation as the one at hand. According to Trejos a recovery may be expected as soon as the end of this year or early in 2010. Recovery here defined by Trejos as positive growth in the US economy compared to the quarter before. If the US is able to manage this recovery then other fast-growing developing countries will follow shortly after. It will take a few years for the US wealth levels to return to normal, but a longer period can be expected for countries like South Africa which are faced with bigger issues to tackle. Here the term normal isn’t defined the same as the normal we were use to before. According to Trejos this will never happen because of the economic methods being altered.
The economy of the future is described by Trejos as “One in which the American saving rate is not going to be negative; one in which the big driver (real estate phenomenon) in the US - and after a while it was permeating into Latin America, Ireland and Spain - is not coming back even when we recover. US house prices, which were at the root of the crisis, will eventually recover to their pre-crisis levels. But the US will not return to the point where Americans put all their savings into property.”
In the future it can be expected that rules for issuing mortgages will be much stricter, and very risky or other “funny” investment instruments will not be available or only to people who understands and can afford the risk.
Although this seems harsh, it will be necessary. Learn from one’s mistakes so to prevent it from repeating itself. Less Bank Repossessed Properties, bankrupt estates, Property In Possession lists, retrenchments, insolvencies etc will be the result of his reformation… or so it will be hoped for by banks and all who makes use of credit. It is hoped that bank repossessed properties only from this previous economic crisis will remain, or to keep the number of bank repossessed property occurrences low enough so to rather help the client than to repossess.
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First you should get a price from your contractor and have plans drawn up for the house you want. You will be paying a lot more interest for a construction loan. You will make payments out of escrow while your house is being built. You put money down and then make payments until the construction is finished. It would be best not to start building until spring. It will have to be above freezing if you plan to use concrete. You also don’t want major problems such as mold which is caused due to wet weather. Make sure your contractor uses reputable workers that have some skills. Much construction is done on the cheap and the homebuyer ultimately ends up paying a higher price. Also, get a deal. Since the market is soft it would be a good time to get a lot of upgrades and landscaping as well. Good luck.
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