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By Bruce Norris .

Aaron and Bruce Norris of The Norris Group on the Real Estate Radio Show #334

Friday, June 14th, 2013

Aaron Norris

Aaron Norris,
Marketing Director of The Norris Group

(Full Bio)

Bruce Norris

Bruce Norris,
Realtor, Investor, Hard Money Lender, Educator

(Full Bio)

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In a reversal this week, Bruce Norris is the special guest again this week. He is interviewed by Aaron Norris, his son and Vice President of the Norris Group. Bruce is the president and founder of the Norris Group and has been a real estate investor since 1980. During this time he has been involved in over 2,000 transactions. As an investor, builder, and/or hard money partner he is best known for his long-term market timing reports including The California Comeback 1997 and The California Crash 2006.

In the last session Bruce and Aaron talked a lot about California Comeback 2 as well as what they are currently working on. Aaron said they are still two weeks away from it even going to print, so Aaron wondered if Bruce was still doing research. Bruce said he is since he saw the stock market was down 200 points on the backs of poor employment and the Fed decisions. During the week there was some unhappiness about the Fed possibly stepping in and doing less buying of the mortgages. At the same time we do not have any new employment, and that is the conundrum for them. They are going to make a national decision to not have a double-dip recession by continuing the low interest trends. California will say this is fantastic.

Aaron wondered who some of the naysayers are who are still expecting a poor comeback for real estate. Bruce said Shiller from the Case-Shiller Index expects a flat market for ten years, which is not uncommon. He owns two houses, but he does not own them with any expectation of them going up. Bruce never feels arrogant about the conclusions and feels like there are much more intelligent people than him who have disagreed with him and been incorrect. You do not celebrate this, but rather you ask what you are seeing that they are not. He thinks the only thing it really comes down to and is important when you start talking about transactions. Bruce looks at a chart, and it is alive to him. He remembers 1995, 1989, what he did, and paying for what he did. This is part of the moodometer. He can look at this and feel the mood of getting it wrong.

Bruce remembers when he first talked with Michael Carney about prices doubling. He mentioned how if they look at a foreclosure chart, Bruce will see something in it that he does not. It is okay because he is collecting the data but is not in the industry. If we have refinement and better conclusions, it is probably because we also have a history of what we have said coming out true. If it is not true and you are a researcher, then you go back and not pretend it was wrong but instead see if yours and another’s thought process was incorrect and change it. This is what you have to be honest and do. When prices did not end when people thought they would, they got some heat for this. There was a whole year of $500-$600 they did not think would happen, but then they did not even know what a collateralized debt obligation was. They had no idea people were financing things, and it turned out they did not even know what a debt obligation was either. You can then go back and at least see why something occurred.

There are some things you can point to and say you are not going to change your thesis because something was nonsense. This is one of the things they have had to do in the conclusion chapter. He is forced to not go to the peak price we have reached. To extrapolate the future, he has to go backwards. We cannot go to the peak price since that was nonsense. The question asked was if they could go down to 11% affordability, to which the response was they could if they play with it. They are probably not going to play with it, so we have to go back to a historical number and play with where our price goes from there. Literally, the ending chapter of his new book will have what they have done before but only in California, and now they are breaking it down per area where the stopping payment will be. This is something they have never done.

They have come up with the affordability number, but he thinks this time it will end on a payment ratio. You could say in Riverside County it will be one particular payment; so if it was one price in ’89 and produced a certain payment at the end, then this time we will extrapolate it all in payments to where you can feel comfortable making a decision. Bruce has not even looked at this yet, so it may be that the payment ends earlier in coastal areas. We did see a progression of money going from the coast, so maybe this is what we will do as investors. We may get the gains out of high-dollar areas and keep moving it. Rosamond did not even pencil until 2004, so it makes sense to him. He has not seen this statistically, but he thinks this is where it may go. When you are maxed out in one area, your historical payment looks like it is over. However, it may not be over somewhere else. Lancaster and Palmdale still has a price per month that is around 1990’s price per month.

Aaron said they have not gotten any debate invitations yet, but if there was a debate it would be a lot more fun than the debates in 2005 and 2006. He remembers being in the audience and being so upset about how Bruce was treated on stage. People were flat out snarky. Bruce said the fun part about it was there was somebody in the audience who is now an investor of the Norris Group. When he came in, he said something to the effect of being worth $75 million when he heard Bruce and is now worth $25 million. This felt good for Bruce because that audience of builders was not in the mood to hear this. When you make decisions based on how you feel, you are always going to be late. When you are booming in 2005 and 2006 and are a builder, the problem with being a builder is you really have lead time for your product.

If you think 2005 and 2006 are happy, you have to think that 2009 is going to be the same. Whatever you are buying today is not going to produce a house until then. This is a flaw and the same flaw they have now. They are not creating sub-divisions because they do not feel happy right now, so they are not going to start something that is going to come out of the ground until 2016. Bruce said he would not take this risk. Maybe they are smarter than he thinks and are not going to take the risk. He cannot imagine them not creating building lots, but when he saw the first quarter of 2013 he really thought it would be different. He thought it would be a year’s worth of 2012 and that the numbers would be 25, not 4. He thought we would get a pace of at least 100 this year, not 350. He thought the people are really skeptical. This is really the only way you can describe it since they have not signed up and do not have a backlog of new homes or available lots.

The way homes are handled is different than it was during the boom. They take your order first and a down payment before they even start building. You order first and then they build. They are not building a whole lot of models hoping to sell. Bruce said one of his family members just went shopping for a home, and someone in sales said four months ago there was still no excitement. Now, things are crazy and they are raising house prices every four houses. Just one company is raising the price every four sales. Somewhere down the road, one of the people who attended the Saturday seminar was a sales person and a material buyer for the company. He said what is happening now is the land cost is escalating. When they start figuring out their lot costs, they are now going back to their suppliers and trying to buy everything cheaper in order to make up for the difference. This will be an interesting problem since usually when building gets busier, the price of everything goes up instead of down.

Aaron has seen articles saying they are having a hard time finding labor too. We have not had to build anything for a while, and the labor migrates out or does not come at all. What is interesting about the California comeback is you are going to end up with migration from here. One of the chapters revisits everything we ever did with UHaul. They compare it with the years when there was a downturn and at the end of the boom, and they price out the UHaul going both directions to see where we are at now. When California does have a construction boom, we get migration from foreign people and other states.

Aaron said one of the chapters he liked in the presentation All in or Fold was the chapter about people migrating. It said if they do not come back soon enough, they might plan enough routes to where they never come back. What if this boom is not long enough to cement people in California where they have a good experience to where they want to plant routes and are gone again? The new report is covering 24 months about which he feels very positive. He does not see how it would end negatively inside of the 24 months, but he wants to set the guidelines for the numbers that tell you where it ends. He really hopes it does not come to this because he is tired of this happening in real estate. When he speaks in front of clubs and he has positive projections, Aaron gets so many comments from people about how Bruce seems so happy. He tells them it is because he likes what he is talking about to them. When you are talking about two days of the California Crash, it is hard to keep talking about it.

Aaron and Bruce discuss the hard money loan program, the 8-year program they came out with in 2009. At this time people thought they were crazy, and some of the research reports Bruce does plays into that. Aaron asked Bruce why he chose 8 years, to which Bruce said he thought it would be more than enough for them to have an exit. He did not expect someone to have to refi, he just wanted to give them plenty of time to sell at the peak. Aaron said he has not seen any hard money lenders who have been able to recreate the 8-year term. Craig Hill trusts the performance of the borrowers, and they pay on time. Bruce went back to present to Fannie Mae, and he had the green ball of all currents and they were blown away. His portfolio is at 9.9%, and everyone is current.

They were loaning to investors, not speculators, which is a big difference. The people who bought it in 2009 and 2010 and locked in the earliest bottom prices are going to be so happy. You also have to think about the trust deed investor who has a 9% yield going for 8 years. They probably started at 60% of value, and now they are probably at 40%. It has gotten even more boring, and your chance of taking a loss on this is ridiculously non-existent. Now we are starting to do building programs, which has just started ramping up and they have gotten a lot of interest in the last three months. These are people who have bought lots below what it cost to put into it.

You also have the lending world who is not in the mood to do that loan. The private money world can react, and more appropriately and quickly to what the market is telling us. This is a side benefit of figuring things out in the future in that we can look at the loan business and say we need to adjust to a different product type. Bruce said the reason they do not have competitors is that you normally do not get to ask private party money people to take on an 8-year loan. This is completely the trust that has been in place. As a trust deed investor, Bruce has a lot of the 8-year loans. He does not have to get paid off every 6 months. It is the most boring part of his portfolio of things that he has that creates cash flow. No one calls him; there is no fix-it. He got a $500 bill a couple days ago on a rental, but he never gets one on a trust deed.

Aaron said Bruce does not really have to deal with tenants and toilets. Even though he grew up with Bruce in real estate, he really did not pay attention until he started working for the Norris Group. It has been interesting to see the progression of the customer life cycles. Sometimes you have been helping people start way back in the late 1990s, and as they progress they move into the trust deeds. It has been really interesting to watch this the last couple years.

Aaron talked to Craig Hill of the Norris Group, and Craig said that about 40% of the loans come from private sellers, 40% from short sales, and the remaining is a mix of probate REO and new build. It will be really interesting to see how this progresses in just the next twelve months. One of the chapters they are going to have in the new report includes data given by Sean O’Toole. The chapter will look at the equity position and how it has changed from a year ago. Short sales will continue as long as there are people upside-down. When you have price aggression like we are going to have, it is not going to be long. Some of the rules we have such as tax law changes and not taxing debt forgiveness are national policies that will probably not be necessary in California after 2013. Even if they pulled the plug in California, it would not be a big deal.

One of the main questions Aaron and Diana Barlet take a lot is if you had to start completely over with no money, where would you start in this market? Bruce said he would start with Subject 2, go to Craigslist, run an ad, and talk to people who wanted to walk away. He would then take over their position, get an option to buy some dirt, find someone he can flip to, and aggressively pursue responses from signs and mailers. This was literally how he started. He did not have any money to buy properties, he found. This is one of the important messages that people do not always understand. This is why Bruce uses the phrase “the simplest cotta.” Sometimes we spend an entire class doing the simplest cotta that you learned four years ago. You wonder why they are doing this, and then you see your sensei do it and see that it is a lot different than what you learned earlier.

The whole idea is that you are going to have expertise after a certain amount of years, but Bruce bought a lot of properties with no expertise and did not really want it bad enough to embarrass himself. There are two sides to this. You cannot wait until you are an expert, but you can bust your fannie (no pun intended) and get a lot of results. During the first three months of his buying career when he accumulated three years of money so fast, it really taught him that you really do not have to know very much. You have to bring what you have and be willing to try really hard. This is one of these markets where you are rewarded for trying something. You really get bailed out of mistakes you might make on appraisals and repairs. This year is 2004 and 2005 revisited in that there is a very strong upside.

At the beginning of June Bruce taught his seminar How to Make a Million Dollars in 24 Month, and Aaron said he really likes it when Bruce talks about bringing currently know and have into the business. In this market especially, Aaron likes watching Mike Cantu, Tony Alvarez, Bill Tan, and Bruce give advice on all their different areas of expertise while all showing their own unique personalities. One of the great things about the business of real estate is you can really come from anywhere and make it happen. We all can get out hustle by somebody who wants it bad enough. Bruce has had those conversations where you would have an agent you have dealt with before and have not heard from in a while. You call them and say you have not done anything for a while, and they tell you they got a call from someone else. It was like some hustler stepped in, and it makes you suspicious. You thought it was on automatic pilot, but it was not.

For this year’s I Survived Real Estate, Aaron has already heard back from Fannie Mae who told him that Doug Duncan cannot come as of now. However, he is on the radar and wants to be part of the panel if something changes. For people who do not know about the event, it is October 18th. At this event, they bring in thought leaders from all over the real estate industry to talk about regulation, legislation, solutions, and trends. It has been really fun over the years, and it is such a different conversation since you are getting things from different sectors. This year so far, we have gotten a few panelists returning for the first time in a couple years. This includes Debra Still, who was there in 2011 and is currently the chair of the Mortgage Bankers Association.

From their experience, having people coming out and testifying in front of Congress and really being in it that year makes it fun to have them come out again since they are a lot more candid. Leslie Appleton-Young, the Chief Economist for the California Association of Realtors, is also returning. Also on the panel is Christopher Thornberg, who is always a favorite. Round out the panel are Sean O’Toole, with Property Radar (formerly ForeclosureRadar) and John Burns from John Burns Real Estate Consulting. John Burns now has experience with both builders and hedge funds and does consulting. Bruce knows that John has been very positive about the market, and it would be very interesting to see what his take is on how far behind builders are. He just cannot look at the subdivisions and know what all they need. He is probably having trouble with people listening to him.

Aaron asked Bruce what he will most likely talk about at I Survived Real Estate. Bruce said that because it is near the end of the year, you still have Dodd-Frank that needs to get finalized. This is why he thinks what Debra Still has to say will be very interesting. Sean, with his knowledge of foreclosures, can really see if there are any trends and if there is shadow inventory. Christopher Thornberg will be there, and he is very knowledgeable on the economy and disagrees with some of the policies we have in place, including Prop 13. This year the money will go towards Make a Wish and St. Jude again. Last year $70 grand was raised, so we will see if we can up that a little this year. Aaron said this is one of his favorite events of the year, and usually about 450 people attend. They broadcast it live, and the Norris Group is currently working on the event as we speak.

Their plate is full this summer, although Bruce said he did not know we would be starting the year writing California Comeback 2. It became obvious to him when he saw what was happening in the market that he should be writing it. Next year they may have to change the title of I Survived Real Estate, but it has been such a treat for them to do over the years.

Sometimes Aaron gets asked about family. Bruce has never pushed any of his children into real estate, and he has been very hands off unless it was something about which they were passionate. However, he never pushed it onto them. Bruce said oddly enough, both his sons Aaron and Greg brought expertise to the company that he did not have. An opportunity opened up for Aaron, although it did not seem like it was very enjoyable at times. At first Bruce thought maybe it wasn’t for Aaron, but he had no idea that he knew what he knew and was learning a lot on the job. All of a sudden, their documents went from ho-hum to “Oh my goodness!” This was a lot of fun, and Greg is like Aaron in the sense where they both work hard all the time and learn on their own. Bruce has enjoyed every moment, but he did not push it on them because he did not see any reason to and wanted them to do their own thing. People are shocked when they hear Aaron moved from being an artist in New York to real estate in California. It is far from the truth to say Bruce has done a lot for his children, but rather they have done a lot for the company and have gotten them to levels they would not be at otherwise.

The industry is also getting to see a document in a way that no one else produces, not even Academia. Aaron actually used The California Crash to get into the MBA program. This was the document he presented at the school. Bruce remembered the first person who opened this document in the seminar was shocked by it. Even Aaron said it was a fun document to present.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

Aaron and Bruce Norris of The Norris Group on the Real Estate Radio Show #333

Friday, June 7th, 2013

Aaron Norris

Aaron Norris,
Marketing Director of The Norris Group

(Full Bio)

Bruce Norris

Bruce Norris,
Realtor, Investor, Hard Money Lender, Educator

(Full Bio)

streamitunesdownloadrss

In a reversal this week, Bruce Norris is the special guest this week. He is interviewed by Aaron Norris, his son and Vice President of the Norris Group. Bruce is the president and founder of the Norris Group and has been a real estate investor since 1980. During this time he has been involved in over 2,000 transactions. As an investor, builder, and/or hard money partner he is best known for his long-term market timing reports including The California Comeback 1997, The California Crash 2006, and he is the moderator for I Survived Real Estate. This is their award-winning show that has produced almost $350,000 since its inception in 2008.

Aaron said Bruce saved him a lot of money in the last decade. Aaron moved back from New York City in 2004, and Bruce told him to not buy anything. After he got out of debt and saved up his money for several years, he bought in 2011 at the bottom of the market in his neighborhood. He refinanced in late 2012, and it has gone up almost $100,000. Even when he was in New York Bruce snagged a property for him and held it for a while. He sold close to the peak, so Aaron came back with a chunk. He bought the house in 2011 for about half of what it was going for, and it was a new house they finished building in 2005. Bruce has done the same for a few people in the office. The scary part is imagining people having to make decisions based only on what you say.

Aaron asked if the current market feels like any of the other markets Bruce has experienced since he became a real estate investor. Bruce said it has not gotten here the same way, but it does feel like a full-blown comeback in the sense of the aggression of the price moves. This market has started this way rather than being ramped up to that point. Normally they ramp up, and there is a ramp-up period of statistics, job improvement, migration improvement, attitude adjustment. Everything goes in unison and dances along, then you have an explosion where we are all happy and all the news articles are positive. We have gone from 0 to 100 miles an hour, and it took six months. Aaron’s house went up $100 grand, which is a big percentage jump. A press release went out in December where Bruce predicted the 20% increase in the California median price. They got a little bit of flak for that online since people thought he was crazy, but it is also coming true much more quickly than people thought. Bruce was being conservative at the time, but it is interesting how quickly it has been happening.

The nice thing about looking at the charts they have is seeing how it stems from their own experience in the market. Bruce’s son Greg will sit down with him and show him what is happening in the market, and then they will buy a property and think they will have to buy it close to too high of a price. They think they will sell it in 4-6 months, and they end up selling it as is in 22 days and it ending up all cash. Bruce asked why this was happening, so they almost had to re-engineer and go backwards to see why it was happening. This was what was different. They normally had a sequence to a comeback that they breeched because of policies. This did not make it any less profitable; it only made it a surprise.

Aaron did some research before the show and looked at the timing reports Bruce had done since 1997. Right now he is currently working on his latest report California Comeback 2: Fast, Furious, and Dangerous. In 1997, Bruce wrote his first report at a time when everybody hated real estate. Aaron asked Bruce to share his story about how he got a platform to give this presentation. Bruce said one important person to him making this happen was Michael Carney at Cal Poly Pomona. He had his own real estate construction report, which had been around for literally decades. Bruce was doing all his research in college libraries, and he went to a company where you could have a hand-held printed copy of an appraisal. In an area were several reports from Michael’s company. At this time he had never met Dr. Carney yet, but he was able to access all his reports; and they were not only statistics but stories as well. He began reading them, and it was fantastic because it was like a history of California. He would read about what occurred in the ‘70s, and he realized the Japanese, for example, were just given permission to buy California real estate at this time. In essence, this was like inviting the hedge funds. This was extra demand and an impetus to price.

All these things played a role, but the original idea really came from the week that Aaron graduated. He bought him a car that cost $15.7 and a house two days later for $13.3. This was in 1995, and they had come up a market in 1989 that felt just like ’05. You could not do anything wrong, prices would always increase, and people were talking about a shortage of land. It is always the same story until it is not anymore. You go through that emotional high of 1989, and you get to the emotional basement at the end of 1996. The trick is if you are going to write a report that is of value, you must ignore the emotion, look at the statistics, and say we are now inevitably going the other direction.

The valuable part is calling it in advance. Bruce was glad they were saying things, although they did not get to produce a California Comeback document until they July. However, they have said things such as “real estate all in.” However, he was not saying it was going to move rapidly in price, but he did think it was a valid investment vehicle. Now that they have had price aggression, what is interesting is that when you a ’96, you have an emotional bottom and it does not feel like a good decision. It was just like how getting off in ’06 felt like an emotionally bad decision. You were having so much fun and almost did not want it to end, and you want to get just one more $100 grand out of it.

The danger is to let it all go back, and this is what happened to so many people. It took six months too long, and all of a sudden you were not going to sell when prices were declining rapidly. The replay of that is possible this time, and this is why the Comeback document really contains an exit strategy. Bruce does not think we will have time to write the exit strategy, but we are going to go up so fast to get mathematically done. The second interest rates change, this will be a big game shift. Bruce thinks we should really withhold that final chapter until the last hour of the day. Aaron warns people as they are marketing the report that it is for chart nerds only since there are some people who only want the end chapter and don’t care about the rest of his research. However, Bruce strategically gives them all the charts and sources, how he came to the conclusions, and then tells them to try to challenge what he has come up with in his research.

In the document being produced, the only chapter he does not have is the conclusion chapter because he has not seen all of the charts in one place. He cannot draw the conclusions until he looks at all the data. He has a good idea because he has done all the studies of the chapters. He thinks what makes the report special is that, first, there is no agenda. He is not trying to get somebody to do something because he tells them to do it and it is what he is doing. He likes sharing the methodology to where people can see how he does things step by step. Things have changed over time; and the things he thought were absolutely true can be trumped by policy. Aaron said it has been amazing how much has occurred and is still happening. This is why it is going to be interesting to see how much policy in place, Dodd-Frank that still has not been fully implemented, and the California Homeowner Bill of Rights. It is just layers.

The question then is how you know what will come next. Bruce said the uncertainty plays a role in people’s hesitation. Everybody’s opinion is that everything is coming back, and then you look at the number of subdivisions created in the first quarter. In Riverside in 2013, it was only 5. Normally what would be created would be 60, sometimes even 75-90. You are talking about making 5% of the subdivisions in a market where everyone is euphoric except for the people who have to take long-term risks. This is because of uncertainty. Is there going to be a Fannie, Freddie, an interest rate hike, will the Fed still participate, or will we have 20% down payments. There are still so many unknowns, but the bottom line is that when you buy a house right now you are locking in an interest rate that is at a ridiculous number, even going up a certain percentage.

You are seeing the public saying that it makes sense if they can only get something. Aaron said he is surprised the rhetoric has not changed yet since you have a lot of buyers who are completely pushed out because they cannot afford to compete with hedge funds and investors who can do all-cash or investors who have cash on hand. This is why some of the subprime programs existed in the beginning. Aaron is just surprised that the California Association of Realtors and the Center for Responsible Lending that they have pushed so hard onto the other side that you wonder what is going to be available for people in the lower income categories to even get into the market. Bruce, being a free market Republican, still says this is one case that feels like an IPO where the insiders get something for one price while the people on the outside get it for another. Bruce feels sorry for the person who is 21 years old, has to get an FHA loan, fights to get a property, and is paying $50 grand more now than he would have 5 months ago since he did not get an offer accepted.

There are many people making decisions. We have made decisions not to sell to the hedge funds. This takes private people saying they want some owner-occupant to buy the house. An article came out last week about the Carrington hedge funds exiting the market. They are managing 5,000 properties for Fannie, Freddie, Citi Bank, and all these properties are being turned into rentals. He wonders what the government is going to do with these, whether they will start releasing them or not. Aaron wondered if there was a deadline put on them, to which Bruce replied he does not think so.

However, in talking to Rick Sharga he thinks it is some years down the road and they really wanted to have that government pile of properties not be competition for the private sector. What then happened was we just have no inventory. In a way, it has been a very smart move since they are not going to lose a lot of money on those properties. As prices increase, they are going to have a lot less problem loans since the people who are upside down will have equity. Whoever thought of this and if it is really how they planned it, then it has been pretty genius. It has happened in unison with the buyers coming off the sidelines who were foreclosed on in 2008 and 2009. He doubts that they calculated the historic number of people they foreclosed on back then coming back and wanting back in. It was not genius foreclosing on so many people since that really set up the downturn. Now, you have the boomerang of those people being excess buyers on top of really strong demand anyway.

It will be really interesting to see if they decide to pull out and use the other hedge funds to follow suit. Bruce thinks if we put it in perspective, what is really important is that you have other groups who have shown up before who make up a certain percentage of the market. Sean O’Toole wrote a report that concentrates on hedge funds. They talked about where they bought, what price range they bought, how many they bought. All of a sudden you can put this in perspective and say you will move 420,000 properties in California of which they might buy 5%. You look and see that the number is not so humongous and think they may not have the same game plan or exit at the same time. Even if they did, Bruce is not impressed with their timing model.

Bruce was buying back in 2008 and 2009, and they bought in 2011 and 2012. He paid a lot less than they did since he was intending to hold. Bruce was not sure their exit plan was any better than their entrance plan. The company like Carrington decided to leave because the cap rate probably does not work to rent it and they just missed one of the greatest comebacks as far as upside price, and it is going to happen fairly quickly. At the end of the day, if they wanted a deal it would have been on the upside in price. However, they probably could not look at the model and say it cash flows. This is why he has never had them as a participant.

Aaron said it will be interesting to see the people coming out from underwater and how they feel about what they own. Will they stay put and be happy, or will they be eager to get out. Bruce thinks they have been through a lot of grief, and he does not know if you will be able to sell your property and replace it right away. He does not know if you will be able to net it enough to have enough of a down payment. He also does not know if they will want to go from owning to renting. If you stuck it out all the way through the downturn, then why would you become a renter if you have been current all this time? Logically it does not make sense and looks like things are going to be fun again. You can see them maybe wanting to sell and getting to another location, but they want to own again and have to wait until they have the down payment. This would make more sense.

Aaron said the timing report is around 250 pages and over 400 charts. In the back end they allow people to access all the reports. However, what does not make it into the report is even more interesting. The question is what the process is and how you decide what goes in and how much gets left out. You do have to make the cut, and what Bruce literally does is takes the table of contents for all past reports. He could cover up to 45 t0 50 topics. In a day alone he probably has 20, and other days he has covered two days. The California Crash was a very important document because he had to figure out the ending. The research papers show he does not have an agenda and use something that has a really cool title. Instead, he looks at the document and all the data and sees what is appropriate. Now that they have twenty chapters in a day and have a very educated audience, they know a lot of the process and has the other documents.

On top of each chapter is the question of why a particular chapter would be making the cut. This is important since this time there are now some chapters that are new and discuss the Fed. When you look at the Fed, they are going to be very instrumental in how this ends and whether it will end nicely or ugly. The odd thing is they have an agenda that is very different from California real estate. They have a national agenda, and the jobs reports have been disappointing. Our unemployment rate has gone down, and the only reason for this is people have become non-looking participants and have given up. They do not have a job, and they are still on unemployment food stamps.

Bruce had to look all the way back to 1970 where the Fed was very involved and look at the volatility of their changes from 1970 all the way to the present. He then divided this up into how many times a year they could change interest rates. When he taught, Bruce asked how many people had been in the business before 2007. It was not a large percentage and was around half and half. If you look up how many times the Fed could change interest rates a year and go back from recent experience, you see that they never change. You then find out they can change it 21 times. This is when you get shocked.

When Bruce and Sean O’Toole went to Washington D.C. to do research on interest rates and found out we were at the lowest interest rates in our life, to Bruce this meant a progression back to normal would be faster than any pace we have seen in our life. When the Fed decides to move, it is not going to be by an 1/8th of a point. Your mortgage rate could go from three to five in lightning speed. What is amazing in some markets is that you are still going to be paying less than rent. With the last chapter, we will literally play with the math and say that if we get to a median price where it is a little over $400, and we get to $500 grand and start handing it a 5% mortgage rate instead of 3 ½, you will bring about the end of the price rise more quickly and it will be safer.

His fear is you not doing it since nationally it does not look like you can raise interest rates yet and you still have to buy the paper you are buying to keep interest rates artificially down. Things do not get better nationally until California has a ridiculous median price on the backs of the interest rate. The problem is then really bad since we are isolated and have probably blown up in price. National policy will then do whatever it has to do while we sit here. Bruce agrees that it is a lot of fun, and we will ride it up until the point where we see that everything beyond this is mathematically all baloney. If it goes up anymore, he really does not want to participate and it feels like we are rolling the dice instead of investing. With all the proof sets we have, he feels like we can look at a number of different categories. Even these we have refined more and added new ones. This thing has always evolved, and he has always been surprised at the ending himself where he looks and says he would not have seen that happening. This adds another proof to it where you feel real comfortable.

The biggest thing about it is that it has such a long history and has availed so much information. Michael Carney has allowed Bruce to go into his archives that go all the way back to the 60s, and he has one copy of something he lets Bruce see. Bruce has been very privileged to look at everything Michael has and be able to put the history together. Now, there is 43 years of data; and what it boils down to is you taking a price chart. Whatever your assumption is, you can lay it next to the chart. If you think interest rates dictate price, then put the median price attached to that interest rate and see how much of a shock it is. The problem is that it is not a standalone answer.

You cannot say that interest rates went up and prices went up, so when interest rates go up prices increase. This is not always true, and neither is it the case with interest rates always decreasing. You then have to realize that interest rates are important in the way they affect another chart. You then see that affordability is really an important chart unless lending policies trumpet and let people go in buying who should not. The number that should have ended the run in price did not, and we went up 25% more from $500 to $600 on the backs of lending policies that have never existed. You then see that the way to make a comeback is employment, unless you pretend there is nothing for sale. Now your policies are saying to sell Fannie and Freddie, make partnership deals with loan approvals; and all of a sudden what should have been for sale is not. This is the hardest thing about predicting now in that it is intertwined in the next government policy.

Aaron asked if they were doing the moodometer again this year. Bruce said absolutely since the moodometer is not just statistics, but rather we count on people doing the same thing over and over again. Everybody does it, including the news media. One of the chapters is titled The Media Gets an Assist. This is based off the basketball term where players feed the ball. In this case, the ball is fed to the public, and you go from ominous pictures of homes floating underwater to 2005 where the house is being hugged. These are all emotional things and all play to your head as being a very comfortable thing. This is what the media does. They join the price aggression with more aggressive happy pictures. When this happens, people get off the dime and buy something. The volume of sales right now is down as far as it is. It is okay, but there is nothing for sale. We are getting price increases, but we could go up in volume a lot more. He is not worried about the hedge funds leaving since they will when it is mathematically not good for them. They will then be replaced with other people.

The only place it could really come out would be with the equity seller, and this person will be an equity buyer 85% of the time. You would have a temporary rise, and then they would buy another one.

Tune in next week as Aaron continues his discussion with Bruce Norris.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

82-TNG Radio – Bruce Norris 8-23-08

Saturday, August 23rd, 2008

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Bruce Norris

President of The Norris Group

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This week we shake things up as Carl Angeloff, a radio celebrity in his own right, interviews Bruce Norris (President and CEO of The Norris Group) in preparation for “I Survived Real Estate 2008” where Bruce will act as investor representative and moderator.

Bruce and Carl discuss how Bruce got started in the business, Bruce’s first foreclosure experience, Bruce’s “California Crash” report written in January 2006, why Bruce wrote the report, Bruce’s mid-90s report called “The California Comeback” predicting the boom, HR3221 and his view of the solutions it presents, what the potential consequences are from HR3221, California being a non recourse state, when Bruce thinks this downturn will end, what things he looks for when predicting a boom, Bruce’s prediction for the remainder of 2008-2009, the percent increase in foreclosure numbers, what 2010 will hold, why this downturn happen so quickly, this downturn compared the 90s downturn, why the inexperienced got surprised, what The Norris Group does today, purchasing California REO properties, the bank taking 31% of what they were owed, what skills are needed, who the typical buyer is in this California market, the good points of HR3221, what kind of house The Norris Group likes in a downturn, why inventory preferences changes depending on the California real estate market, how The Norris Group fixes the houses, why condition and price are important, why cities need inventors to fix properties, what inventory Bruce dislikes, why Bruce doesn’t like corner houses, what we can do now to help solve the problems, the thought behind I Survived Real Estate 2008, isurvived2008.com.

Bruce Norris is an active investor, hard money lender, and real estate educator with over 25 years experience. Bruce has been involved in over 2,000 real estate transactions as a buyer, seller and money partner. Renowned for his ability to forecast long-term real estate market trends and timing, the release of The California Comeback in 1997 gained him much notoriety and its accuracy of the extensive report led many California investors to financial freedom. His January 2006 release, The California Crash, is an in-depth look into the California market correction and the statistics behind Bruce’s predictions.

Bruce speaks and debates throughout California and has been a guest speaker at the California Builders Industry Association, Appraisal Institute, Learning Annex, Real Wealth Expo, Foreclosures.com, several local and national investment clubs, and Realtor associations.

Bruce has contributed articles to many real estate magazines and newsletters including RealtyTrac‘s Foreclosure Newsletter, Creative Real Estate Magazine, AOA Magazine, and the Daily Commerce. He has also been featured in The Wall Street Journal, The New York Times, Fortune, Mortgage Banker Magazine, Money Magazine, The Orange County Register, and numerous others.

Bruce is now host of his own radio show on KTIE 590am where he interviews real estate industry leaders. Guests have included Frank Nothaft with Freddie Mac, Peter Schiff of Euro Pacific Capital, Leslie Appleton-Young with C.A.R., Alan Nevin with the CBIA, RealtyTrac, PIMCO, PMI Group, REDC, HUD, National Auctioneers Association, and the Center for Responsible Lending to name a few.

Bruce is currently on the Board of Advisors at Chapman University’s Roger C. Hobbs Institute for Real Estate, Law and Environmental Studies.

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http://www.thenorrisgroup.com/