Thursday, June 30, 2022

It was a call I received late one night that is unfortunately not too uncommon these days. Someone doing extensive renovations on his house was scrambling to come up with additional cash to pay off their contractor to complete the job. The work was already taking a lot longer than expected, and of course, the cost was much more than initially budgeted and anticipated.

He was now stuck, because the house could not be appraised as-is, and he simply ran out of cash. Mind you, the scenario doesn’t necessarily need to be someone who is doing renovations on their house - as I have received numerous calls from people who have maxed out their credit cards or from those who desperately needed money to make a wedding or bar mitzvah.

Perhaps there are those of you reading this thinking, “shame on them” for not adequately preparing or saving in advance. What if I were to tell you that there are people who did plan ahead and had plenty of reserves but still ran out of cash? Unfortunately, this situation is currently happening in China, where all banking activities have been frozen at four banks in the central Chinese province of Henan since mid-April. “The cash crisis emerging at four rural banks in the central Chinese province of Henan is every saver’s worst nightmare,” South China Morning Post said. Pictures and videos have been circulating of protesters with banners demanding “return our money.”

It is no secret that the Chinese economy has significantly weakened, and they are facing many challenges as it now attempts to jump-start its financial system. According to a rent Bloomberg article, loan growth in China weakened in April to the worst level in almost five years; Housing sales have continued to slump, indicating a lack of appetite for mortgages and subdued credit demand among real estate firms. Struggling to find enough clients, banks have been swapping bills with each other just so they can meet regulatory requirements for corporate lending.

Is the U.S. soon to follow? As we know, the Federal Reserve is steadfast in its mission to raise the cost of borrowing to curb inflation. But at what expense? They have acknowledged that a slow-down in housing and sell-off in the stock market could very well be a “casualty of war” in this battle. Unfortunately, this is often how history has played itself out when there has been a significant shift in economic policy.

Treasury Secretary Janet Yellen recently admitted that she was “wrong” last year when she initially labeled inflation as a “transitory” problem that would soon resolve itself. Note that Yellen was the former Federal Reserve Chair before the current Chair, Jerome Powell. Their hesitation to act sooner causes them to be more aggressive now, paying for their actions later – once again.

What will likely happen is that the Federal Reserves’ action will hamper spending, restrain borrowing and suppress economic growth, sending us into a considerable recession. By the time the Fed is able to improve conditions, home values will be down, and unemployment will be up, preventing many people from borrowing when the easy-money lending policies return.

Escalating home prices have rewarded current homeowners with an unprecedented $11 trillion in “tappable equity.” According to a recent report, over $200K of available’ home borrowing’ per household is the highest on record. For those that are thinking ahead, now is the time to act! Why would you wait for economic conditions to weaken, home values to drop, and income conditions to deteriorate?

Special shout out and birthday wishes to Daniel Altaras, Etai Barach, Moshe David, Sara Diament, Stacy Esser, Sara Finkelstein, Malka Flamholz, Adam Hertzberg, Isaac Hyman, Boris Kogan, Adam Leffel, Leah Lightstone, Rachel Nadel, Sheldon Neal, Mindy Neiss, Yaakov Oldak, Jake Rosenberg, Sara Schreier, Aaron Stiefel, Tamar Teller, and Yoni Zahler

Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected]

Sign up now!