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Francine Hardaway Headshot

Both Health Care and Real Estate Face Further Reforms in 2011

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Health care and real estate, two important areas of interest to me and to the US economy, are due for some changes in 2011. I have no better crystal ball than anyone else, but here are some of the things I expect:

Health care reform will have to be re-reformed. No, I don't think the Republicans will actually repeal it all. If they do, they're dumber than I thought, because they would then get caught in the same quicksand the Democrats have been in for the past two years. There will, however, be some necessary changes.

The first thing to go will be an unrelated part of the law that forces people to 1099 anyone to whom they pay more than $600. That's a ridiculous burden on small business, and of course it doesn't belong in health care reform in the first place. It will vanish quickly.

Next will come a revision in the way physicians get paid. In a recent survey by The Physicians Foundation, a majority of physicians (60%) said health reform will compel them to close or significantly restrict their practices to certain categories of patients. Of these, 93% said they will close or significantly restrict their practices to Medicaid patients, while 87% said they would close or significantly restrict their practices to Medicare patients.

Because Medicare guidelines are a guarantee of access to care, if physicians cease to see Medicare patients it will impact both their incomes and Medicare's entire structure. Congress can't let that happen, because seniors vote and starting next year Boomers turn 65 at a rate of 10,000 a day.

Instead, we will have -- and welcome -- death panels: caps on what can be spent on treatment of the elderly at the end of life unless it is life-extending with high quality of life as the outcome. No more chemo that extends life by three weeks during which the patient is suffering.

And the ability for seniors to have a free consultation with a physician about how to plan for end of life, prepare the necessary documents, and make their wishes known. This alone will prove a cost-cutter, since many seniors do not want extreme measures used to keep them alive, but haven't properly documented their desires to the people who will make those decisions when they can no longer do so themselves.

We will also see further explosive growth in online health information sites and support groups as people realize they are going to have to pay higher deductibles and co-pays and finally undertake the responsibility for their own health. This will be slow, but has already begun. A few more years of 30% premium increases to cover costs for the underinsured (because the Republicans may well repeal the individual mandate or it may be found unconstitutional) and most of us will be nursing each other.

Now that we have life and death out of the way, here's what may happen in real estate:

The loan modification programs that aren't working will go away. HAMP and HAFA have helped about 300,000 people out of a possible fifteen million foreclosures by the end of 2011.

Instead, one of two things will happen, depending on what the banks, who hold all the cards, want. Either there will be another wave of foreclosures, or loans will finally be written down to the current market value of homes, allowing more people to stay in their homes. Probably there will be some of both.

FHA and VA mortgages, which have always been assumable by a borrower who could qualify, may become assumable for buyers who can't, since there's almost no one left in the country who can qualify for a mortgage under the current standards. This will stimulate the lower end of the market, which has gone away since the first-time home buyer credits expired.

The wraparound mortgage and the seller carry back, gone since the days of high interest rates in the early 80s, will be back. These are financial products that allow a seller who has to sell or wants to sell but doesn't want to injure his/her credit with a short sale to sell to a non-qualifying buyer. Done correctly, the wrap and the carry back can be very advantageous to both buyer and seller, and were the way people built up real estate empires with no money down. If you wanted to, you could do that now. Sooner or later, people have to move for work or other reasons, and they become more willing to sell under unusual conditions. These may surface at the high end of the market, where in Arizona there is a 9-13 year supply of $1,000,000+ homes on the market. The lease purchase will also become more common.

I am an optimist, so I predict (think) these things will happen. Pessimists may comment below. Happy New Year.
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