I had a meeting recently with a local bank president to discuss a strategy for marketing their REO. In the history of this particular bank, this is the first time they have acquired a property as a result of a foreclosure. The value of the property is in the range of $120,000-$130,000. Much different than what we read about every day in the media among the large banks in America. He explained his bank didn’t invest one cent in any derivatives or any of the other exotic investments, though the salesmen came to their board meeting and made their pitch.

At the end of the meeting, after the salesman packed up his Power Point Presentation, he remarked to his directors that the returns the guy was projecting sure looked attractive and then he asked whether any of them understood what the guy was selling. Not a one of them were able to clearly grasp what was being offered. They decided that if they couldn’t understand what it was, it didn’t matter what is was projected to return, and they concluded they had no business investing in it. Pretty easy analysis-too bad the big banks didn’t keep it simple!

Here in Pagosa Springs we are awaiting the ripple effect of the spending stimulus approved by the President and Congress. So far we have not seen any positive impact. From a review of the sales data for the first two months of 2009, it is evident that buyers are largely staying on the sidelines, with waiting to find out more inofrmation about how the Stimulus Package will affect them, or waiting to determine whether the real estate market in Pagosa Springs has hit bottom yet.

The year to date total number of residential closings is off by 36% as compared to the same period last year while the dollar volume is down 60%. There is no definitive evidence that prices are declining like those in areas that have been in the news constantly-Las Vegas and Phoenix. Instead, here in Pagosa Springs, some sellers decide to pull their properties off the real estate market, and others opt to keep their homes on the real estate market, but refuse to adjust the price in order to attract more buyer attention.

What we are hearing from our discussions with Pagosa Springs property owners, as well as prospective buyers is that many are concerned about whether there will be changes in the tax code involving the deduction of mortgage interest expenses. Others are concerned about information on increasing capital gains tax rates and overall hikes in the tax rates for those the government defines as “wealthy”.

Understandably, most of those concerned with these issues are in the upper income brackets, in many cases small business owners or retirees that have seen a large percentage of their stock portfolio values deteriorate in the last six months. Many of the second home buyers tend to fit within this group and one can’t blame them for being reluctant to invest when there is much uncertainty in the economy. There are some reasons to be hopeful that many of these concerns may not turn out as badly as some think.

The mortgage interest deduction has been somewhat of a sacred cow. The banking industry lobby, as well as the Realtor lobby has worked hard to protect this provision of the tax code. During a struggling economy it would seem to be political suicide to take this benefit away from the American homeowner. We know the Realtor lobby, one of the strongest in Washington, would go to battle on that issue.

We are also hopeful that none of the increases in tax rates that are being proposed would actually take effect until the entire economy is on much stronger footing. Again, it would seem like very bad timing to burden small business owners, the single greatest contributors to job growth, with more taxes while many are fighting for their survival. One thing is certain, Washington is full of surprises and some may be welcomed, and other may be feared. Stay in touch with your local, state and national political leaders. They need to hear from us, now especially.