Housing...Stimulus...Bailout

Holy Cow! Could the news get any bleaker? Price declines, softening demand, and the inability to get financing. How can an investor overcome all these hurdles?

It's simple. Stick to the Plan! If you don't have one, make one! Don't invest a penny until you have educated yourself, developed an investing course of action, and reviewed the possible results. Prepare contingency plans, and then...

TAKE ACTION! I talk to real estate investors every day who have analyzed dozens of deals and techniques - but have not taken any action! Don't go to the extreme of analysis paralysis. Focus on an attractive technique or idea, and TAKE ACTION!

If you have ideas but no money - focus on raising money!
If you have good credit and no money - focus on partnering!
If you have a few bucks but not sure the best course of action - make a decision and have faith - Trust Yourself!
Be prudent, check your contingency plans, and take that leap!
If you are in trouble with something you have done/tried - make a decision and TAKE ACTION!
Call the bank, call a realtor, call a lawyer, call ME!

Things are definitely going to get worse. Maybe even much worse. Review your situation, protect yourself, and - OF COURSE - TAKE ACTION!

"Shadow" Inventory

RealtyTrac and other respected bean counters in the real estate market are trying to get the word out about a new problem in the housing market - Shadow Inventory.
Shadow Inventory are homes which have been foreclosed by the bank, are technically now on the books of the banks, but have not been listed yet in a MLS for sale.
Evidence points to unlisted inventory as high as 66% of the properties the banks have taken back!!!!
On a slightly better note - additional evidence suggests that most of the subprime paper has been dealt with - properties have been foreclosed, sold or changed hands in one way or another. However, a whole new wave of problems is starting - a bigger problem yet - of alt-a and prime paper defaults. These are by and large bigger loans and nicer properties. In an era of plummeting demand, this points to even greater losses for the banks. Ouch!

Realtors - Don't Trust the NAR!

We just stumbled across the very distressing story about David Lereah, the Chief Economist of the NAR during the boom and more recent real estate collapse of the real estate market in America.

The NAR fiddled while Rome was burning. It now seems Mr Lereah has had a stroke of conscience, and admits to spinning positive for the NAR, concealing his true feeling of imminent housing price collapse. His most current outlook?

"We’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back to the peak prices we saw in many markets."

To all the Realtors, Brokers and Agents out there - do your own economic research. It appears the organization you pay millions of dollars to each year for dues, has a problem telling the truth.

This CBS News Report Says it All!

Ladies and Gentlemen - This mainstream media report on the next HUGE wave of foreclosures is surprisingly unbiased. The quotes by many of the people we respect in the investing world are dire.
THIS IS A MUST-WATCH FOR EVERY REO BROKER, ASSET MANAGER, and PORTFOLIO MANAGER in the financial industry!

Watch CBS Videos Online

Hot Deal!

Another Option Gone!

Folks, they did it to us again... This past Thursday our Treasury Seceratary Paulson broke the news to homeowners. The 700 billion dollar bailout will not be helping homeowners in trouble after all. Instead, they are just going to give the money to banks so they can hoard it and keep their balance sheets solid.
Are we surprised? Not at all. Bailing out the banks was the intent all along. Homeowners are again left to fend for themselves. As investors, we consider this the best way anyway. These property values must be reset - but how? Aren't the banks doing Loan Modifications? Yes, a few. But why would you want a loan mod? Other than some short term relief, it locks you in to a property worth WAY LESS than what you owe on it.
So what is the answer? SHORT SALES, of course! Get rid of that property at market value, get the lender to share/take the loss. Short sales of one of the most effective yet misunderstood methods of selling property in todays' market. See our special report at http://www.78homes.com/Short_Sales.html !

Auction News

Hello Fellow Investors:

This is a quick note to give you my observations of the REDC Auction at the San Diego Convention Center on Saturday. As a reminder, these are mostly bank REOs, some of which have been on the market for awhile with no luck for the seller. Many of these properties need a lot of work – some, however, are turnkey.

So what did we see? In a nutshell - just more of the same. We had viewed many of the properties and determined conservative retail market values.
Though the starting bids were attractive, usually homes were bid up to and sold for about 80% of that conservative market value. Add the 5% buyers premium to the transaction, and you end up at 85% of retail. In my humble opinion, just not a good deal. Especially if you believe, as we do, that there is still more downside to this market.

If you are in the market for "buy and hold", positive cash flow real estate in San Diego, NOW IS THE TIME. To find these properties and make them work, you need an edge. The Savona Group finds these properties, and brings quality, economical rehab services to these deals, giving you that edge.

Call or email us for a list of potential properties, and to get moving on your investing career!

Richard Worcester
The Savona Group, LLC
952 Postal Way Suite 5 Vista CA 92083
Phone: 760.208.2845
Fax: 760.454.2956

Borrowed from an October 6 Article about TARP (Troubled Asset...)

"Federal Reserve Chairman Ben S. Bernanke told lawmakers last month that the government would likely pay above current ``fire-sale'' values, while still seeking discounts to shield taxpayers. The sales will force some financial institutions to book losses they've been able to avoid until now."

end quote

Therein lies the rub folks. The "frozen" credit market, the asset managers refusal to accept market value for properties in the real estate market. All products of fear on the part of the financial institutions to take market value.

The emporer has no clothes. Now what?

A Voice of Reason

Here are my thoughts on the presentation done by Dr. Christopher Thornberg at Nick's meeting last night in the Inland Empire.

1- We are in a recession. Witness this morning Ford announced sales down 33%!

2-Chris believes we do not need the bailout bill as the mechanisms are in place already to fix the problem. In fact - he is against it. The Fed Discount window is open - that is all we need.

3-We have 2 choices - take the write downs and losses now in the form of market contraction, or bail out the system by injecting false support (read that as more national debt for us and generations to come)

As the old commericial so aptly put it - you can pay me now, or you can pay me later.

Please - spend a few minutes at Chris' site http://www.beaconecon.com/index.html - it will open your eyes.

REO Setbacks

Looks like our fellow REO Broket/Agents are going the wrong direction! Most likely they have no choice - the lenders are still dictating the asking prices - but the REO properties coming on the market are being priced EVEN HIGHER than the ones in the past year.
Let's explore the possible reasons...

1. Prices are being inflated to counteract the low offers the sellers are receiving. They might think we base our offers on a percentage of asking price - rather than what we think true value is for that property. The sellers are mistaken - and if you are basing your offers on a percentage of asking price without doing due diligence on value - you are in trouble.
2. The lenders are having little success selling their inventory and are raising prices to increase book value for the impending bailout.
3. BPOs are not accurately reflecting the values of properties because the highest BPO gains most favor with the lender, and might even get the listing.
4. The quality of the properties coming on the market is increasing. This is true - however this does not justify unrealistic pricing. Now we are going to have a ton of Nice houses on the market
5. Properties are selling fast at full price and we are back in a sellers market! Not!

The fact is that inventory is increasing, market time is increasing, and failed deals are increasing. Please do your homework. The stories of multiple offers and a recovering market are being brought to you by the same people that denied we had a housing bubble, the same people that declined short sale offers at 80% of value only to ultimately take back the property and not be able to sell it at 1/2 of that short sale offer, and the same people that say sales are up year over year. The fact is, if you pay asking price for any property today, REO or otherwise, it will be worth significantly less in the next 12 to 24 months. It has not even hit yet!

All the government bailout help in the world can not put Humpty Dumpty back together again. Values are continuing to decline and until the sellers make an effort to price with the purpose of unloading - rather than shopping - the majority of smart investors will just stay on the sideline.

Connect to REOs

Hi Everyone! Just wanted to let everyone know we have created a yahoo group for REO Sales. It is called - REOsales@yahoogroups.com!
Brilliant naming strategy - I know...

The End is Near!

“The end is near!” No, I am not talking about the end of the world (I hope!). I am talking about the securitized investment /cdo debacle which has precipitated this monumental drop in value in the real estate market.

Are we near the bottom? While I do not know any respected real estate investor or financial guru who is willing to call it – you must wonder?! Last week the Bank of Australia decided to mark their paper down to 10 cents on the dollar. Today, Merrill Lynch has tried to draw a line in the sand at 22 cents on the dollar. THESE FOLKS WANT THIS PROBLEM BEHIND THEM! It will still take months and even years to reconcile this mess – but at least these lenders are finally admitting… “I can not tell a lie. It was I who cut down the cherry tree.”

As a real estate investor, now is the time. Get your financial ammunition loaded up and get ready to fire. Whether you are a onesy-twosey, or blind or specified pool type, take heart. The end is near…

Now that really is a Surprise!

There are certain players that you expect to be around - even flourish - in this declining real estate market. It appears, however, that we should take nothing for granted.

Two of the largest national distressed real estate auction houses have hit troubled waters. And a third - the biggest - may be laying off staff. Why? Well, if you have been to an auction you know what it is not. These operations are very successful at what they do - getting people to commit to buying a property at the best price possible for the seller. So what is it? In my humble opinion - the buyers who commit cannot perform! They can not close the deal - be it lack of financing or appraisal hangups, or just changes of heart.

So now we have great deals out there - and no buyers. What's next? Watch out - here comes the RTC Freight Train!

San Diego Foreclosure News!

I have tracked trustee sales (sales on the courthouse steps ) for the last year – watching for the avalanche of foreclosures we have all been anticipating.

There has been a marked increase in these filings the last couple of weeks. Yesterday, my weekly list had near 800 properties! Compare that to 155 a year ago – July 2007. This is a 500% increase in properties for sale coming on to the market. There is a noticeable upward bias to the east and north county neighborhoods, too.

This must be the feeling an astronaut has as he sits on the launch pad and hears “10, 9, 8, 7….”

These numbers are shocking, even to me. Clearly, we are in a buyers market. My advice is to avoid being a seller. If you must sell, have an iron clad, multi-pronged exit strategy.

Foreclosure Rate

In Nevada, 1 in 146 homes is in foreclosure. In California, it is 1 in 204. The national average is 1 in (just over) 500. The attendance at the big foreclosure auctions has declined from 5 attendees per property to under 2 attendees per. So just as the REO wave is rising, interest is waning.

A message to all the REO Brokers out there. The way you are doing business is broken. Playing hard to get, and abusing the other agents and investors, is going to come back to bite you. This is not the mid '90s. The #$%^ is going to hit the fan. Eat your wheaties and get ready to deal. Be proactive and adopt the mindset of the investor. The bank is your enemy - not the investor.

Fannie, Freddie and Failure

This quote is from a May 7, 08 NYTimes article re: the 2 Major Mortgage Players in our market. This is a GIANT wake up call to investors and regulators, and I hope someone is listening!

"The companies are sitting on as much as $19 billion in additional losses that they have not yet fully acknowledged, analysts say. If either company stumbled, the mortgage business could lose its only lubricant, potentially causing the housing market to plummet and the credit markets to freeze up completely."

Here is a link to the complete article...
http://www.nytimes.com/2008/05/06/business/06fannie.html?_r=1&scp=1&sq=May+6%2C+2008+Fannie&st=nyt&oref=slogin

Bernanke tells Lenders to Get Hoppin'!

"Foreclosures Must Be Averted for Sake of Economy"
By Stephen Huebl and edited by Nancy Girgis

Fed Chairman Ben Bernanke said accelerating rates of foreclosures and delinquencies can have a significant impact on the economy and called for more to be done in order to prevent them.

Speaking Monday night at the Columbia Business School's 32nd annual dinner, Bernanke said the rate of foreclosures will likely increase in 2008 and that traditional anti-foreclosure steps may not be working to prevent them. He also said sharp declines in home prices can have a negative impact on the overall economy."High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy," he said. "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."

He said government-sponsored enterprises Fannie Mae and Freddie Mac should raise more capital and "could do more" to help ease the crisis. He also called for clear disclosures of home-loan modifications.

"Additional government policies can help address problems in the mortgage markets," he said.

"The Congress can take an important step by moving quickly to reconcile and enact legislation permitting the Federal Housing Administration (FHA) to increase its scale and improve its management of risks."

Bernanke also said the best solution is sometimes a mortgage writedown.

Bernanke did not comment on the outlook for interest rates.

Relief a long way off?

By JOHN CHRISTOFFERSEN, AP

NEW HAVEN, Connecticut (April 23) - An influential economist who long predicted the housing market bubble cautioned Tuesday that the slump in the U.S. housing market could cause prices to fall more than they did in the Great Depression and bailouts will be needed so millions don't lose their homes.
Yale University economist Robert Shiller, pioneer of the widely watched Standard & Poor's/Case-Shiller home price index, said there's a good chance housing prices will fall further than the 30 percent drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15 percent since their peak in 2006, he said. "I think there is a scenario that they could be down substantially more," Shiller said during a speech at the New Haven Lawn Club. Shiller's Standard & Poor's/Case-Shiller home price index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month. Shiller, who admitted he has a reputation for being bearish, said real estate cycles typically take years to correct. Home prices rose about 85 percent from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Shiller said. "Basically we're in uncharted territory," Shiller said. "It seems we have developed a speculative culture about housing that never existed on a national basis before." Many people became convinced that housing prices would increase 10 percent annually, a notion Shiller called crazy. Shiller, who said it's difficult to forecast prices, endorsed legislation proposed by Democratic Sen. Chris Dodd and Rep. Barney Frank that would allow the Federal Housing Administration to back as much as $300 billion in mortgages for struggling homeowners. Servicers would have to agree to take a loss on the existing loans, while borrowers would have to show they could afford to make new payments on their refinanced mortgages. On Tuesday, the National Association of Realtors said that sales of existing homes fell in March while the median home price declined to $200,700, a decline of 7.7 percent from the median price a year ago. Sales of existing single-family homes and condominiums dropped by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units. Many analysts said they do not expect a rebound for a number of months, given the problems weighing on housing from a severe glut of unsold homes to tighter credit standards for prospective buyers and a rising tide of mortgage foreclosures.

Bottom Fishing

Though my own personal opinion is that we are not yet at rock bottom for the real estate market prices, I do believe there are some serious bargains out there now.

Certain neighborhoods have not declined as much as they need to - but here is the kicker - some neighborhoods have overshot on the downside and are actually very good deals right now!

The local San Diego market is a very tricky animal. Do your due diligence and make sure you have a plan - then move fast! Now is the time you will look back upon in 5 to 8 years and say...
"That was the bottom and I wish (or I am glad I did) I bought 4 or 5 homes in 2008"!

History Repeats

A famous saying, no doubt. Does anyone remember the Japanese meltdown of the early 90's? Their refusal to write down the bad paper resulted in a lost financial decade ! Hang on to your hat - Bear Stearns is the first of many, can the government bail them all out?