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The Norris Group Real Estate News Roundup 12/06/11

Tuesday, December 6th, 2011

Today’s News Synopsis:

According to Bloomberg news, Bannk of America reached a settlment with investors from whom they faced a lawsuit, agreeing to pay $315 million. Pending home sales increased in October according to the National Association of Realtors. Fifteen euro currency union members will be reviewed by Standard & Poors to see if they will be downgraded.

In The News:

Housing Wire - “Regulators still buried by risk retention input” (12-6-11)

“Federal regulators are still working on the risk-retention rule after issuing a proposal in April, and lawmakers are growing impatient.”

Bloomberg - “BofA to Settle Mortgage Securities Action for $315 Million” (12-6-11)

“Bank of America Corp. (BAC) reached a $315 million settlement with a group of investors who sued its Merrill Lynch unit claiming they were misled about mortgage-backed securities, according to a court filing.”

DS News - “Fannie Mae: Market Will Take Five More Years to Adjust” (12-6-11)

“We are five years through a 10-year adjustment process,” said Fannie Mae chief economist Doug Duncan at the Five Star MPact Mortgage Conference and Expo Tuesday morning.”

Realty Times - “Pending Sales Rise” (12-6-11)

“Pent-up demand could finally be working its way through the market. Pending home sales rose sharply in October according to the National Association of Realtors.”

CNN Money - “S&P puts 15 eurozone governments on notice” (12-6-11)

“Standard & Poor’s said Monday that it placed 15 members of the euro currency union on review for a possible downgrade as the debt crisis in the eurozone continues to worsen.”

Mortgage Bankers Association - “Modest Changes in Commercial/Multifamily Mortgage Delinquency Rates During Third Quarter” (12-6-11)

“During the third quarter, delinquency rates declined for commercial and multifamily mortgages held by banks and in commercial mortgage backed securities (CMBS). Delinquency rates increased for loans held by life insurance companies
and held or insured by Fannie Mae and Freddie Mac but are still at low levels, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report.”

Los Angeles Times - “California, Nevada team up to investigate foreclosure fraud” (12-6-11)

“California and Nevada, two states at the heart of the nation’s housing crisis, will join forces to investigate foreclosure fraud and other types of mortgage improprieties. The agreement to share resources and work jointly is the latest sign that the nation’s state attorneys general are pushing to put themselves on the vanguard of cracking down on bank practices in the housing crisis: from the selling of mortgage backed securities to conducting improper foreclosures”

Inman - “Room to roam: Top 10 U.S. states with largest lot sizes” (12-6-11)

“If you’re looking for a house with a supersized backyard, you’re best bet is to search in the Eastern U.S. Only one Western state — Montana at No. 2, with a median lot size of 73,616 square feet — ranked in the top 10 for states with the largest median lot sizes for sale, based on properties for sale at real estate search site Realtor.com in September.”

San Francisco Chronicle - “Fed Uses ‘Dollar Rolls’ in Mortgage-Bond Program Shift” (12-6-11)

“The Federal Reserve Bank of New York entered into paired contracts to buy and sell mortgage securities for the first time since it began reinvesting in the debt in October, in a move that may reduce funding costs.”

Looking Back:

The Federal Reserve expected housing starts to reach 600,000 by the end of 2010. Fannie Mae suspended foreclosure evictions from Dec. 20 through Jan. 3, 2011. HUD representative Shaun Donovan claimed the Homeless Prevention and Rapid Re-housing Program prevented or ended homelessness for 750,000 Americans.

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 event 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 200 podcasts in our free investor radio archive.

Tags: Bank of America, bruce norris, California, CMBS, Commercial/Multifamily Delinquency Report, Doug Duncan, fannie mae, federal regulators, Federal Reserve Bank of New York, freddie mac, mortgage bankers association, Mortgage Securities, national association of realtors, Nevada, Standard & Poor's, the norris group
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244-TNG Radio – Christopher Thornberg 9-24-11

Friday, September 23rd, 2011

Christopher Thornberg

Principal at Beacon Economics

(Full Bio)

On October 14th, 2011, The Norris Group returns with its award-winning event I Survived Real Estate. An expert lineup of industry specialists join Bruce Norris to discuss current industry regulation, head-scratching legislation, and the opportunities emerging for savvy real estate professionals. 100% of the proceeds support the Orange County Affiliate of Susan G. Komen for the Cure. This event would not be possible without the generous help of the following platinum partners: Foreclosure Radar and Sean O’ Toole, Housing Wire, The San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops and President Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobbie Alexander, San Jose Real Estate Investors Association and Geraldine Berry, Real Wealth Networks, Frye Wiles Web and Branding, MVT Productions, and White House Catering, who will provide the 3-course meal for this black tie event. Visit iSurvived2011.com for more details.

Bruce is joined this week by Christopher Thornberg. Christopher is the founding partner of Beacon Economics and widely considered to be one of California’s leading economic forecasters. He is an expert in economic forecasting, regional development, real estate dynamics and labor markets. He is one of the earliest and most adamant predictors of the housing market crash and of the economic recession that followed. In 2008, he was appointed as chief economist for California State Controller John Chang as well as Chair of the Controllers Council of Economic Advisors. He also serves on the advisory board of Paulson and Company Inc, one of Wall Street’s most successful hedge funds. Dr. Thornberg holds a PHD in business economics the Anderson School at UCLA and a B.S. in business administration from the State University of New York at Buffalo. He has also been on the panel for I Survived Real Estate the past three years.

In one of Chrisopher’s reports, there was a quote that said, “Beacon Economics expects growth in the second half of the year to be 3 ½ to 4% range short of some unlikely turn of events.” Bruce wondered if we had any of these unlikely events, to which Christopher said they had toned down their forecast a bit as this was much earlier in the year. We’re looking at 2 1/2 – 3% growth now in the second half of the year. We have not had any unlikely events, but we know the market is in turmoil and a lot of his colleagues are running around drawing odds, whether it is a 30% or 50% chance of a recession. It doesn’t add up because, first of all, you have to separate slow growth from a recession. There are a lot of reasons why the U.S. economy is not growing fast enough to put people back to work in a meaningful way. There are also a lot of reasons why the U.S. economy continues to struggle in its recovery from the 2008 and 2009 recession. That’s a lot different than saying we are going to have another recession and another period of time where the U.S. economic output is contracting in a real sense and that we are producing less today than we were yesterday. For us to have another recession there has to be a shock and a hit to the system that can cause the type of turmoil that we call a recession. Christopher said if he looks across the U.S. economy today, he doesn’t see where that shock exists.

If you look outside the borders of our country and look at Greece; first of all, you see that Greece has not defaulted yet. You may link a Greek default to potential for a U.S. recession, but that is not what people are doing. They are saying that we are in a recession, but the default hasn’t even happened. The fact that their one-year T Bill is going for 130% interest gives Bruce an idea that it a default probably will happen. There are clearly problems in Greece. The question is whether Greece will default because they don’t need to. If they can continue to clean up their act, which is a big IF, make meaningful reforms, and continue to get the support from the European Union, they can work their way back to some kind of orderly workout over their existing debt situation. Christopher does not think they are ever going to pay all the debt back, but an orderly workout for a debt reduction is a lot different than a massive default. So Christopher is not worried about Greece contaminating other dominoes to fall in the area. People keep comparing Greece to Leman, saying Leman had $250 billion in debt and Greece had them outstanding across the European Union $400 billion. Therefore, it’s a Leman type episode.

It’s not a Leman type episode for a number of reasons. First of all, with Greece we’re talking about a straight debt default. With Leman, there were counter-parties and all sorts of transactions. They were intimately linked to other banks. When it comes to Greece, we know what is coming down the road at us. Leman was a total shock to the system; no one thought Leman was going to be allowed to fail. You have the surprise aspect; you have the counter-party aspect, the market maker-aspect. Leman and Greece are different situations. If Greece did go down, this would hurt some banks in Europe; but then, it’s not known how many people think the French government is going to allow one of their major banks to be pulled down by Greece. The lessons of Leman are clear. You don’t let your major banks default. The French government will step in with a program, recapitalize its banks, the central banks here and in Europe will work to provide the short-term funding necessary to calm investor jitters, and we’ll get through it. You have to have a lot of pieces in place for this thing to truly spiral out of control and start sinking the international banking system. If worse comes to worse and a lot of banks get hit hard, there is another way to deal with it which is simply basic short-term regulatory changes. The reason the banks are in trouble is because they have to maintain a certain capital ratio. If they start taking haircuts on the public debts, they are going to be in violation of the ratios and they are either going to have to raise capital on the fly or be closed down by the regulatory authorities.

There is also a third way, which happened in the U.S. It’s called the suspension of basic rules of asset valuation on bank balance sheets. You step in and say you’re going to suspend the rules for two years, so you better clean up. This way the bank is not undercapitalized and they have the leeway to go ahead and do what they need to do. In the meantime, you have to have the short-term lending from the various monetary authorities that will allow them to offset any kind of short runs that may occur on the banking systems. It can be handled and worked through. The idea that it is going to be allowed to spiral out of control and sink the worldwide financial system is a little far-fetched.

When looking at how things are going in the market and whether or not to be optimistic or pessimistic about it, Christopher will look at the data and know what it is showing him. He has some sense of the politics and what is going on in the regulatory authority’s minds. There is always the chance for a lot of boneheaded moves. Europe has shown us in the past that it can in extreme moments of crisis completely fail to do what needs to be done. This is a remote probability, but this is a lot different than people calling for a double-dip. One problem we have in our own country that may be extending over there is it seems to do something that is painful in the short term but most beneficial in the long-term rarely gets done. A lot of politicians, like most people on a two-year contract, have a “short-timers” syndrome. They are worried about getting re-elected, so everything is about now. It’s a problem, and what it means is we have to stumble from crisis to crisis. Right now, Christopher does not think we are in a situation right now that is going to send us into another hole.

Right now the ten-year T-Bill is 1.7%, which says that the Fed is not going to have much of an influence on the economy right now. You can’t lower the long run with long run rates much longer, and you surely can’t lower short-run rates anymore. Cheap debt is not really the solution for what ails the economy. If you think about the U.S. and ask yourself where the problem is and what the issue is that the nation is dealing with. About 1/3 of our problems stem directly from construction. We are not constructing homes or commercial real estate. That is the tyranny of the inventory. For several years we built too much retail and too many homes, so as a result of that those sectors are basically sitting in neutral until the inventories start getting worked out. The good news is they are getting worked out, and Christopher expects construction will start picking up again in 2012. This will go some distance towards reducing some of the stress on the U.S. economy. In the major markets, for example California, in the areas you have land to build on you have a price structure that would prevent it because is upside down.

In California, we actually have the second lowest housing vacancy rate in the nation according to the 2010 census. We also have the second lowest housing affordability here. It’s funny because you go to Sacramento, and what the regulators want to know is how they will push home prices up again in the state. All the time they are worrying about how to make California more business friendly: taxes, regulations, education, and infrastructure. We need to start with home prices. For example, in Texas the most expensive housing market is Austin, Texas. The median price of a house in Austin, Texas is $192,000. The most expensive housing market in Texas is cheaper than the California housing market over all. It’s on par with the Inland Empire housing market, which we consider to be an affordable housing market. If you think about businesses and think about the location in California locating in Texas, you have to know they are looking at Texas and thinking they don’t have to pay people as much there. Texas has more public employees than California does on the payroll. They have a larger public sector than we do in terms of bodies. They get away with that because they pay their people about 1/3 less than what we pay ours. This really boils down to the cost of housing; it’s better when the median price of a house is $100,000 in the whole state. We here in California need to stop thinking about home prices going up. In the long-run and for the good of the state, we would be benefited by seeing them go down more.

The construction could not possibly come back, but not because the cost of bricks and labor is so high. It’s because the cost permitting the properties is so high. It goes back to the problem of building in the state. You look at some of the cities in California, and up front you are going to pay anywhere between $40,000-$70,000 to permit a single lot, before you even put a single piece of concrete in the ground. This is ludicrous and not how you run a state. You’re much better taxing people on an on-going basis through property taxes than lumping all the costs up front on the builder who is making the property in the first place.

California is the second most unaffordable state in the country, yet it has to be at some of its highest affordability. It was more affordable back in the 80’s, but it is more affordable now that it has been in the last 15-20 years. You would be surprised how affordability has really not increased that much despite the drop in prices. In some places, they have not even fallen back to 2003 levels. As much as they came down, it is more because they have been driven to such unbelievable highs. It’s a little hard when you live in places such as Riverside, which is the epicenter of a lot of the damage. A lot of the Inland Empire is more extreme than most, but if you look in coastal areas like Orange County and San Mateo, prices have not come down much at all. There are a lot of people who owe more than a house is worth, which seems to be the biggest impediment for California. However, the biggest concern should be the overall lack of equity rather than the “underwater folks.” During the bubble, Americans picked up something on the order of $8 trillion in mortgage debt on the basis of what they thought was about $20 trillion in real estate wealth, maintaining about a 60% equity ratio in the housing market. The $20 trillion in housing wealth disappeared when the bubble broke, but the $8 trillion in debt more or less stayed in place. The result is we as a nation are carrying a level of equity in our housing market, which is about 45%. This is more acute in areas like Arizona, California, and Nevada where you had the bigger ups and downs in home prices. This is probably the single largest impediment to a housing recovery.

People talk about foreclosures, but this is not really the issue. They also talk about a lack of credit, which is harder to get out than it was in 2005 due to the markets being broke. For Christopher, the biggest single problem in fact the lack of equity, which is preventing move-up buyers from moving up the food-chain in the housing market. One of the biggest problems with the construction market right now is that you typically build homes for move-up buyers. Unfortunately, this is not going to be the market to work in over the next few years. Rather, you want to be working in entry-level housing. The fixed costs are such that there is very little incentive to build entry-level housing. It’s $50,000 whether you put a 4,000 square foot house or a 1,000 square foot house on the lot. This makes it very tough to build a small house, which is a big problem for the state. You have to go back to the fee structures and how the state pays for infrastructure. We have to get away from the builders’ inactive property taxes, which mean getting rid of Prop 13. This was one of the biggest fiscal disasters ever perpetuated out of the state’s budget.

For people who are elderly, have a house free and clear and have their taxes raised, you would use reverse mortgages. Mortgage your house and pay your taxes. We use the same roads, the same fire services, the same police services. It doesn’t mean that just because you happened to be 80, you shouldn’t have to pay your fair share. We want to be business friendly, giving businesses that have been located here for 20 years a massive cost advantage over a new business trying to start operations is reasonable. You have to level the playing field, and people have to pay their fair share. When you think of California, people think California is a high-tax state, but it’s not. We’re an average tax state. We feel like a high tax state because we have given these ridiculous protections to certain portions of the population and economy that we’re not all entitled to, and those folks are completely under taxed. As a result of that, we have to overtax everybody else to make up the difference. Texas makes their senior citizens pay property taxes the same way everyone else does, as does every other state in the U.S. except for California.

Foreclosure is not the reason for California’s problems, but one thing it does do is it does not replicate a buyer for the next transaction; those people are not buying. 70% of Riverside’s sales is either a short sale or an REO; so every time you have 1,000 houses moved, about 65-70% of people are not buying because they just lost their credit. This sounds good on paper; but if you go back to 2000 and look at the housing market in Riverside, you will see that close to 40% of single family units were actually rented out to other families. They were investor-owned rented out. It is pretty clear that there is a flourishing investor market in the Inland Empire. People buy single-family homes; they rent them out to people who need them, and there is no reason in the world why that process cannot do the job of absorbing some of the excess supply out there. In many ways, right now the administration course has been talking about how we get investors to move into the market to scoop up more units. Christopher’s answer is you don’t have to do anything except get out of the way and let investors have the same rights as individual buyers when it comes to securing financing. This would probably be the end of the problem in a very short period of time, particularly in California because there is not enough housing with it being the second-lowest vacancy rate in the nation. It is not going to fix the problems in Arizona, Florida, or Nevada because the problem there is the vast excess of supply. It doesn’t matter how many investors you pull into the market, it’s just not enough households to absorb all the stock.

What is interesting about this downturn is that as severe as it has been, we have not lost a lot of migration out of California. This is because migration is driven by two things: relative unemployment and relative home prices. As bad as things are here in California, they are bad pretty much everywhere, unlike the mid-90s where things were bad here but the rest of the country was doing okay. At the same time, we had a lot of people leaving in 2005 and 2006 because of the skyrocketing cost of housing. This goes back to the idea that affordability is a good thing and something we should strive for and not fight against. A lot of folks were simply leaving because they could not find a house. With affordability being so much better in California and them providing one of the best standards of living in the nation and many other factors, there is a lot of reason to be in the state. People want to be here. To see more, go to www.beaconecom.com.

Doug Duncan will be on the panel for I Survived Real Estate 2011, taking place on October 14th. The Norris Group would like to thank their gold sponsors for the event: Adrenaline Athletics, Coldwell Banker Pioneer Real Estate, Conaway and Conaway, Delmae Properties, Elite Auctions, Inland Empire Investors Forum, Keller Williams of Corona, Keystone CPA, Kucan & Clark Partners, LLC, Las Brisas Escrow, Leivas Associates, Mike Cantu, Northern California Real Estate Investors Association, Northern San Diego Real Estate Investors Association, Pacific Sunrise Mortgage, Personal Real Estate Magazine, Realty 411 Magazine, Rick and LeaAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Tri-Emerald Financial Group, and Westin South Coast Plaza. Visit isurvived2011.com for more details.

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.

Tags: Beacon economics, bruce norris, business economics, California, chief economist, Christopher Thornberg, Controllers Council, economic forecaster, housing market crash, John Chang, Prop 13, the norris group, The Norris Group Real Estate Radio Show
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The Norris Group Real Estate News Roundup 9/20/11

Tuesday, September 20th, 2011

Today’s News Synopsis:

Bloomberg reported that the number of homes being built is at a three-month low, lower than what was predicted in August. However, NAHB reported permits for new homes increased for both single-family and multifamily housing units. Median prices for homes in California are at their highest for 2011. The Senate held a hearing to discuss possible solutions for dealing with foreclosures.

In The News:

DS News - “Senate Holds Hearing on Foreclosure Glut” (9-20-11)

“At a Senate hearing titled, “New Ideas to Address the Glut of Foreclosed Properties,” witnesses discussed several possible options for dealing with foreclosed properties and spurring recovery in the housing market.”

Housing Wire - “10 million more mortgages set to default” (9-20-11)

“Roughly 10.4 million mortgages, or one in five outstanding home loans in the U.S., will likely default if Congress refuses to implement new policy changes to prevent and sell more foreclosures, according to analyst Laurie Goodman from
Amherst Securities Group.”

Bloomberg - “U.S. Housing Starts Fall to Three-Month Low” (9-20-11)

“Builders began work on fewer U.S. homes than forecast in August, showing the industry remains flat on its back even as mortgage rates fall to record lows.”

O.C. Register - “Realtors forecast ‘tepid’ housing market in 2012″ (9-20-11)

“The California Association of Realtors forecast a “tepid economic recovery” in 2012, predicting that both home prices and sales will go up slightly without any great improvement in the market.”

NAHB - “NAHB: NAHB Offers New Course on Universal Design/Build” (9-20-11)

“The National Association of Home Builders (NAHB) is premiering a new course on Universal Design/Build at the Remodeling Show in Chicago. With its focus on integrating universal design principles into all types of residential construction projects, the two-day training brings cutting-edge design solutions to building and design professionals.”

Housing Wire - “MBA supports large-scale REO disposition” (9-20-11)

“Large-scale disposition of real estate-owned properties is needed to stabilize housing, according to the Mortgage Bankers Association.”

DS News - “California’s Median Home Price Hits 2011 High” (9-20-11)

“The state of California is soaking in the last rays of the calendar summer and cashing in on the last days of the traditional homebuying season, with sales soaring in August and the median home price touching on its highest reading of the year.”

NAHB - “NAHB: Balanced Approach Needed to Dispose of REO Properties, NAHB Tells Congress” (9-20-11)

“The National Association of Home Builders (NAHB) today urged the Administration and Congress to take a balanced approach in disposing of the large inventory of real estate owned (REO) properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration to avoid further disruptions to pricing and markets and to limit further losses to the two government sponsored enterprises and the FHA.”

Rismedia - “Household Debt Drops for 12 Straight Quarter” (9-20-11)

“Household debt declined by a seasonally adjusted annual rate of 0.6%, dragged lower by a 2.4% decline in mortgage debt as consumers took out fewer mortgages, paid off or had debts forgiven, the Federal Reserve reported in its voluminous flow-of-funds report. Consumer credit outside mortgages rose by 3.4%.”

NAHB - “NAHB: Housing Starts Decline, Permits Rise in August” (9-20-11)

“Nationwide housing starts declined 5.0 percent to a seasonally adjusted annual rate of 571,000 units in August, according to figures released by the U.S. Commerce Department today.”

Looking Back:

The NAHB’s monthly survey showed builder confidence remained at the previous month’s low level. Trepp claimed that commercial real estate loans were the cause of 5 of the 6 bank failures that occurred over the weekend of September 18 and 19, 2010. FHA insured mortgages accounted for 37% of all originations in 2009, according to the Federal Financial Institutions Examination Council. In a recent survey, nearly 50% of economists claimed that economic growth in 2011 would be below the Fed’s estimated 2.5% annual pace. GMAC denied the claim that it instituted a foreclosure moratorium in 23 states.

Tags: Amherst Securities Group, Bob Nielson, bruce norris, California, California Association of Realtors, Commerce Department, fannie mae, Federal Reserve, FHA, foreclosure, freddie mac, Laurie F. Goodman, median home price, mortgage bankers association, mortgage rates, NAHB, the norris group
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240-TNG Radio – James and Lorraine Conaway 8-27-11

Thursday, August 25th, 2011

James and Lorraine Conaway

Financial Strategists, Conaway & Conaway

(Full Bio)

This week Bruce is joined this week by James and Lorraine Conaway. Their business helps people with money, whether strategizing how to make money, keep their money, and avoid taxes. Many of their services include wealth building, wealth protection, and wealth preservation. You don’t need a lot of these steps if you don’t have anything. Too many people concentrate on getting something first, but there is a natural gap in things they don’t know. Most people were good at obtaining something, but then realized they didn’t have it under the right hat or don’t know when they are supposed to sell it. It’s quite an educational process.

Bruce has been in the business for 30 years now, and a lot of the momentum starts after about 15 years. Everything starts kicking into gear, and a lot of their clients have been pretty wise in accumulating assets. However, Bruce talks to them on a regular basis, and there is a lot of tricks of the trade that James and Lorraine know that even Bruce has not heard. A lot of what Bruce has not even heard of are things people think they don’t necessarily need right away, but life can surprise you and you have things come up that you should have planned well in advance. Many times the James’ and Lorraine’s clientele are very surprised by what they found out they didn’t know. Many times people realize what they didn’t know and then ask why that’s the case, so the Conaways have to go through and prove where they’re getting the information from. In most of the cases they collaborate very tightly and closely with their tax advisor, attorney, and the other appropriate people. In one example, there was a couple who the husband was working as a W2 person at a job, and the wife was managing their property. They had four rental properties, and for years they never heard of professional real estate status. They didn’t even know they were professional real estate status. To qualify for professional real estate status, you have to spend 750 hours of your time, so more than 50% of your time is earning time, and you have to have material participation. If you qualify, you earn unlimited depreciating against all income. When the Conaways introduced the couple to this strategy, they contacted their tax advisor and, sure enough, they qualified, which translated to over $1,000 more cash flow in their pocket per month. One thing you can do if you qualify is if you have a loss on a property, which there have been a fair amount of people who invested in something they wished they hadn’t, and then when you sell it you have a write off against current profits. If you don’t have that designation, then you would have suspended losses and be taking it over the course of a very long time. These are “suspenders” you don’t want to wear.

Despite the fact that the average change of the Dow is 400 points a day, which doesn’t lend itself to a peaceful life, James said surprisingly their clients are fine because their mix of ownership is a lot different than most people. Lorraine said she and James have been business owners and real estate investors for the last 17 ½ years, so a lot of their clients take a lot of risk in their business and in real estate and therefore, they handle their portfolios in a very conservative manner. A lot of people don’t know what they don’t know, and they don’t know that you can have investments that are in the stock market and have either a guaranteed income or guaranteed principle or even that you can insure a percentage of your portfolio. When they tell their customers this, most of them say they have never heard of these things. James said when they are dealing with their clients; they spend an enormous amount of time getting to know them and their personal situation. This way they are sure of whatever recommendations are appropriate for them and their taste and level for comfort.

In 2006-2008, these years were not pleasant times for their clientele. Bruce imagined if they had real estate investors that some of them were blindsided and took losses. When you have a mood shift, which a lot of people imagined would not happen; they go from being what they considered wealthy and done to having to resurrect the whole thing again. That mood, unfortunately sometimes, makes overreactions or inappropriate responses. Bruce’s least favorite comment when he would speak was during that cycle when people would come up to him and tell him they just lost $1 million and had to find a way to get it back the next day. This is a formula to say goodbye to everything else you have. We have to understand that chasing returns can be the most devastating risk-taking activity that anybody can have in their portfolio. Bruce sees it in real estate; James and Lorraine see it in everything else. It’s horrifying to watch people take way more risk than what they’re really comfortable with to attempt to win back what the market has taken away from them or what real estate has taken away from them. Real estate normally does not do what it did between 2003 and 2005, as it normally does not gyrate $100 grand per house. At a time like this, you really think you’re a real estate genius and everything you touch is turning to gold. What is happening now is you don’t really have the capital gain likely to reoccur at that speed again. It’s going to be a much longer term project to get the wealth back, and Bruce really doesn’t know if people are ready to be patient yet.

When Lorraine hears the word “mood,” it makes her think of her mood back in 2008 and her mood today as a real estate investor and several of the people with whom she spoke. She remembered speaking to a woman in Northern California who was a very sophisticated long-time real estate investor. Her mood was she literally could not work for two days straight and would lie on her bed and cry. Today, her mood is that she cannot get into real estate yet. It defected her that much. Yet now we have the opposite where people’s moods are they lost a lot of money and need to get it back, so what is the fast path to getting it back. James and Lorraine like to take a look at the lessons learned from clients’ experiences so the same mistakes are not made again. They can then create a sequential plan to how the money is going to be made back in a much better way. This is what they call strategic planning. Otherwise, you would have to read a long disclosure to your clients every day telling them who securities are offered through and how they are not affiliated with Conaway & Conaway or Bruce Norris. When you are talking about mood shift, there really has been a shift in their clients’ behavior. What it really comes down to is they have gone from a performance mentality to a cash-flow mentality. People don’t care what they earn, they care what they see showing up in the mailbox.

If you have $1 million and don’t want to risk principle, this might be tough because people are dealing with a ten-year t built pace, 2.1, or the stock market going down 400 points so they had $1 million and now only have $950. This is the scope of products most people know, and these are actually scary times for people who just have a standard product type in front of them. Interestingly, the company slogan for Conaway & Conaway was developed after they interviewed their clients and the two words that kept coming up were “clarity” and “confidence.” Therefore, the company slogan was changed to “Build Wealth with Clarity and Confidence.” These two words were what people have so ardently sought, and this is why the strategies make such a huge difference in their lives. When you have confidence, it really comes down to that you have some measure of control. This is why the product types that Bruce chooses to invest in are things that he has personal knowledge of and at least somewhat knows how to get out of it if it turns out to be lousy. Back in 2000, Bruce invested $260,000 in penny stocks. He studied all kinds of penny stocks, and it just happened to be the right 45-day period when he turned it into $800 grand. Unfortunately, he made every classic mistake as far as thinking you are Mr. Stock picker. What he had done was he had followed the mood of the crowd and said he needed to throw investment money into stocks because he had a lot of real estate already and had enough of it, so he didn’t sell at $800 grand but rather at $100 grand. He lost $150 grand, and it only took 16 more days. However, he said it was the best thing that ever happened to him because he went back to a control piece with which he was familiar. There can be experts in other things, but the aforementioned is one of the things he really thinks most people don’t do, especially if they’re on this course of saying that they have to go aggressively and get some super return. Then, they’re really likely to make a very aggressive mistake with a product they really don’t understand. This is something they see at Conaway & Conaway almost weekly. At least weekly they come across a situation where somebody did some research and thought they could really make a great amount of money; so they bought an asset, and it didn’t go the way they thought it would. One of the things that they talk about is how much money is the right amount of money to put in a strategy like penny stock, real estate, and other things. You have to decide what your overall strategy around the tactic of picking a particular asset class is.

One of the things James and Lorraine loves about what they do at The Norris Group is Bruce teaches people the tools so that they can then choose for themselves their own strategy, tactics, entry point, exit point, holding costs, holding time period, the whole nine yards. What is interesting about this product type and why Bruce likes using charts is mood would dictate that you don’t do real estate right now because every article you read is about real estate going down, you’re better off renting, and the ownership of it is really to be shunned. Bruce, as a contrarian investor, uses charts so he does not have to make emotional decisions. When he looks at a market like the one we’re in now, it is so ridiculous that on the front cover of Time Magazine they literally tell people that they probably really need to rethink home ownership. Home ownership is locking in a guaranteed monthly payment at this point at 4% interest. The equivalent would be if you can negotiate a 30-year fixed rent with your landlord. If you can’t see the benefit of owning right now, it is completely a mood decision. In investing, it has really helped Bruce to have charts to look at and say, “I don’t care how anyone else feels about what I’m about to do, I know this is correct.” This included selling 100 pieces of property back in 2005 and 2006. The mood was euphoric. When he got in front of the builders during that timeframe and debated one of the economists about how if he was a builder at that time he would sell every house, every project, every lot, because you could buy them back for $0.5 on the dollar. The mood was beneficial if you realized that you had the tools to be a contrarian and say that people have overreacted and forgot that real estate could ever be great.
What is interesting about the cycle we are going through is that the assumption had been that if someone had lost a home, they would become a renter. This has not happened. People sometimes become a non-household, so you really have a reduction of household entities. This could be people moving back in with mom and dad or people living with three pieces of family together. We’re going to get through this cycle, and those people will not like that arrangement for very long. They will reemerge as a household and be demanding somewhere down the road exactly at the point where somebody that takes the risk and is a contrarian in 2011 and 2012 will say that the aforementioned people will reemerge and want to own their own place again. Now is the time to own real estate and take advantage of the low interest rates. One of the things people ask is how people handle a situation if they foreclosed on or short sold a home and don’t have the credit. One of the things they talk about at Conaway & Conaway is when you pick up the local paper; you see that people are willing to do rent-to-own. You could lock in the price today, even if you may not get the 4% interest as the Wall Street Journal said the interest rates were going to stay low until 2013. There is an opportunity to do a rent-to-own where you are building up your down payment. Lorraine even sees in the paper where people are willing to do seller financing, so there are ways to have ownership.

Bruce talked recently to a couple people who are doing some of selling houses and carrying notes for people. They are buying and holding some of them, as well as doing buy-sell and renting properties. This is not necessarily something they go in immediately with. They may give the owners an option or an option-to-purchase, which are a technicality and not a lease option. The decisions that investors are making now go back to the cash flow instead of capital gain slot. It really needs to go there because you don’t really know how long a hold period is going to be, so you have to be happy the whole journey. Fortunately, we have been handed this ridiculous market where a lot of properties in counties such as Riverside and San Bernardino are on sale for such a price that they make sense as rentals. California is not really known for this, which is why you have people running into other states. However, California has had a history of aggressive price when it is our turn since we get migration of people and excess demand, so this will probably replay itself in some form again, which you’re not going to get in other states. Lorraine loves the fact of having positive cash flow in our own backyard and having appreciation because there are many states out there that do provide positive cash flow but no history of appreciation. A lot of states do not create their own headwind. California creates their own headwind and then effects places around it. When California explodes, what ends up happening is there is a lot of extra money and people start sending off some of the money to places like Nevada or Arizona. Therefore, you can get there early and follow the progression, but it happened because of California’s growth, not because the other states’ markets grew by themselves. This is one of the things you find as an investor. There is this trail that if you can literally say that while we’re booming in California so you are going to go option Phoenix dirt. It’s perfectly sensible because that would be next. James and Lorraine just went to Phoenix, and it was almost like California because nothing there is expensive. Bruce also went with a group to Texas, and one of the first things they noticed was to leave your California brain at home because they were not in the same environment.

Both the Conaways are Certified Specialists in Planned Giving. James and Lorraine have taken a long course with Cal State Long Beach and have been certified to do charitable planning. They also have a Charitable Remainder Trust, which is the simplest form of a split interest trust. It is also the simplest form of saying, “I’m going to own part of it, and part of it I’m going to do something charitable with.” What normally happens is people will transfer a property into a CRT and then sell the property. This trust is tax exempt, so it pays no tax, but you have liquidity. Now you have a liquidity event inside the trust, and you can reinvest it. The advantage of it is now you’re reinvesting 100% of the proceeds instead of the 75% of the proceeds for whatever your tax burden is. The income can be turned on for one life, two lifetimes, a period certain, or a lifetime and period certain. In other words, if James and Lorraine were old enough, the might have a lifetime income guaranteed for them and then 20 years for their children. Another thing you can do with this type of trust is you can design it to have the income turn on and off or up and down. It does not simply just have to roll as income. That part is called a net income makeup provision. Now we get a thing called NIMCRUT, which stands for Net Income with Makeup Charitable Remainder Unitrust. This means that it is designed around what it’s worth, and as it earns money it owes to the person who set it up if it doesn’t pay it out. There are ways to customize that trust so that you can have the income on, off, fixed, veritable, or set for a number of years or a lifetime. It really is customized to the person’s needs.

To find out more information about Conaway & Conaway, you can visit their website at www.conawayandconaway.com/.

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.

Tags: Arizona, bruce norris, Build Wealth with Clarity and Confidence, building, California, Certified Specialists in Planned Giving, Charitable Remainder Trust, Conaway and Conaway, James Conaway, Lorraine Conaway, Nevada, NIMCRUT, penny stock, Phoenix, radio show, the norris group, wealth preservation, wealth protection
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The Norris Group Real Estate News Roundup 8/17/11

Wednesday, August 17th, 2011

Today’s News Synopsis:

Top story in the news is the sales of California homes dropped 11% last month from 38,975 in June to 34,695. In other news, Housing Wire reported that a case against MERS that sparked much controversy is going to the Supreme Court. Consumers fears of the market and unstable economy have led to a decrease in mortgage rates.

In The News:

Housing Wire – “California home sales decline 11% in July” (8-17-11)

“California home sales fell 11% in July with 34,695 homes sold last month compared to 38,975 in June, real estate data firm DataQuick said Wednesday.“

Inman - “MLSs, Realtor associations pitch in $7.5M for patent license” (8-17-11)

“Multiple listing services and Realtor associations now have blanket protection from legal claims by a company that holds several patents on location-based Internet search techniques, after the National Association of Realtors raised $7.5 million in licensing fees by Tuesday’s deadline.”

Bloomberg - “Fortress Joins LBO Firms Seeking Real Estate Funds as Fees Under Pressure” (8-17-11)

“Fortress Investment Group LLC (FIG), Colony Capital LLC and Starwood Capital Group LLC are among a record number of private-equity firms raising real estate funds, according to people familiar with the process, driving down fees in a business reeling from earlier losses.”

Realty Times - “Mortgage Rates Sink Lower With Unsteady Markets” (8-17-11)

“Another active week occurred with mortgage rates sinking lower as uneasiness continues to create unsteady markets. Concerns over economic stress around the globe has markets reacting unpredictably each day of the week and have resulted in sliding mortgage ratesrket.”

DS News - “HUD Offers Discounted REOs to Storm Victims” (8-17-11)

“HUD has announced it will sell almost 90 REO properties to public housing authorities in central Alabama and Joplin, Missouri — areas suffering the impact of this spring’s tornadoes.”

NAHB - “NAHB Applauds EPA Decision on ELGs” (8-17-11)

“The Environmental Protection Agency’s decision today to reconsider the imposition of a nationwide cap on how much sediment can be part of the stormwater draining from a construction site is a nod to the importance of sound science – and a big victory for home buyers, according to the National Association of Home Builders (NAHB).”

Housing Wire - “Case against MERS reaches Supreme Court” (8-17-11)

“A controversial case challenging the ability of Mortgage Electronic Registration Systems to foreclose on a California man was filed with the Supreme Court Monday, making it the first major MERS case to reach the nation’s highest court.”

Mortgage Bankers Association - “Refinance Applications Increase in Latest MBA Weekly Survey” (8-17-11)

“Mortgage applications increased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending August 12, 2011.”

CNN Money - “Fed dissenters speak out” (8-17-11)

“Three Federal Reserve officials are starting to speak out about why they disagree with Chairman Ben Bernanke on the central bank’s latest policy move. The Federal Reserve decided last Tuesday to leave interest rates exceptionally low until at least 2013 — a dramatic move considering the Fed doesn’t typically give hints, let alone outright time frames, for monetary policy that far in advance.”

Realtor Magazine – “Borrowers Opt for Shorter Loan Terms” (8-17-11)

“Record-reaching low interest rates have prompted more home owners to shorten the terms of their mortgages. Thirty-four percent of refinancers changed their loan to a 20- or 15-year mortgage during the first quarter — the highest level in seven years, Freddie Mac reports.”

Looking Back:

Statistics from MDA DataQuick showed 18,946 new and resale homes were sold in Southern California in July 2010. Frank Nothaft of Freddie Mac announced that refinancing activity had accounted for over 80% of conventional loan activity. National housing starts increased by 7.1 percent in July 2010, according to the NAHB. The MBA expressed concerns that recent policy changes restricting seller concessions went too far and would damage the industry.

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.

Tags: Alabama, Ben Bernanke, bruce norris, California, CIVIX, Colony Capital LLC, DataQuick, Effluent Limitation Guidelines, Environmental Protection Agency, Federal Reserve, FHA mortgage rates, Fortress Investment Group LLC, freddie mac, HUD, Joplin, MERS, mortgage bankers association, Mortgage Electronic Registration Systems, NAHB, national association of realtors, reo, Starwood Capital Group LLC, supreme court, the norris group, trulia, Weekly Mortgage Applications Survey
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238-TNG Radio – Rick Solis and Andrea Esplin 8-13-11

Friday, August 12th, 2011

Rick Solis

Appraiser/Investor

(Full Bio)

Andrea Esplin

Appraiser/Investor

(Full Bio)

This week Bruce is joined by Rick Solis and Andrea Esplin. Both are real estate investors in Southern California and have been doing it for a long time. Rick is also the appraiser that appraises most of The Norris Group’s hard money loan situations.

Andrea got started in real estate investing right around 2001/2002. Her timing could not have been better because everything she touched probably started to go up a little bit, but as she was going through ‘03/04 it started going up a lot. Andrea said at the time she was too ignorant to know that, so she lucked out in that sense. Bruce said one of the things that happens is you immediately assume that whatever you’re experiencing is normal. If that is the only blueprint you have, then you think it is really how it works. This has changed. Andrea has gone from the most ridiculous upswing to the most incredible crash. In Bruce’s opinion, her having gone through that is an interesting experience. Andrea started out buying notes, and the first house she bought was actually a result of her taking one of The Norris Group boot camps. After the bootcamp, she came back and followed everything to the T. The first house she bought was in December 2003 on Orangetree in Fontana. At the time she attracted it through a non-owner occupied mailer. Prior to 2001, Andrea had a bookstore in La Verne that sold books on tape, so she gained a lot of skills here that helped her in the property-buying business. It’s all about helping someone out and the different ways that can be accomplished in closing your transactions.

Rick bought his first house in 1998, a HUD repo in Montclair on Princeton Street. It’s easy for him to remember this because he closed escrow one week after his 20th birthday. He decided to start really early after watching the late night infomercials as well as when he was that age he was looking to get rich quick. At that time he thought he was going to be a millionaire by 25 and be all done. Both Andrea and Rick had opposite experiences. Rick came in at the end of the cycle when he would have been blindsided for what he thought would have been true for two years but ended up not being true for seven. Rick was actually blindsided twice because he thought the 90’s was just a fluke and wasn’t really going to go down. When things were booming again in 2001, he really thought things were going to stay the way they were. He overestimated the success and, although he sold a lot, didn’t sell everything he should have sold. He knew bad times were coming, but he never suspected things would be as bad as they were. No one suspected anything, even though Bruce wrote a report called “The Crash” where he talked about the worst case scenarios. Rick did not suspect the worst case scenario was going to happen; he thought things would only drop 20-30%.

When Rick bought his first property, he held it the whole time just by the skin of his teeth. He lived there for the first year, renting out the bedrooms to individual tenants. After that, he rented it out, but things were plunging at this time. He was having trouble keeping the property afloat, so he gave the new tenant an equity-split deal. The tenant took care of the maintenance and the payment. He finally sold the property in either 2005 or 2006, and it worked out pretty well. When Rick was younger, he was loading up on the “nothing down” concepts from Robert Allen. He had tons of books by him which he picked up from the bookstore every week. He was reading a lot on creative financing, and interestingly enough Rick has no interest in any creative financing now. If there is no equity in a deal, then he is not interested. When Rick got started in real estate at age twenty, he didn’t really tell anyone what he was doing and didn’t care what they thought. He came from a lower-income area, so he didn’t tell any friends and kept it pretty quiet from everyone. When Bruce was younger and was selling electrical supplies in hardware stores, he knew at that time in his life if you told anyone what you were planning to do with real estate, you wouldn’t get much support for it. A lot of the time it is solo for a while until you start cashing a few checks, then all of a sudden people come around, which is really nice.

Andrea met Rick through her bookstore, and she actually started buying seconds as a result of Rick. He was the one who referred her to the bootcamp. They had not planned to be in business together. She started buying seconds in 2001, which was a real safe time to make these purchases and therefore worked out well since they were not kept past 2006. Timing has a lot to do with how things work out. You can have the perfect blueprint for the wrong era and have a real problem. This is what is unique about the real estate business in that timing aspect might seem good but won’t work for another three years. Rick just started buying notes again. There is a lot more available to buy, but he has noticed it is much harder to get the borrowers to make any kind of payment now. Even if it’s in their best interest, you can’t even get them to pay $100 a month because they’re so used to not paying that it is a bit of a challenge. Andrea thinks this is because they have been dealing with the banks that were not doing anything about them not paying. They’re used to this, so when they’re sent a letter saying that their house will be foreclosed on, they think this means a year from now.

Andrea and Rick’s first property they worked on together was the house on Orangtree in Fontana in 2003. They held it a year before they sold it. The bought the house at $.60 on the dollar, and Rick remembers after walking out the door everyone was giving Andrea a hug. At first he couldn’t understand it because the customer had just given away $40 grand and was hugging Andrea like they were planning vacations and picnics with her. Andrea and Rick are partners in a business that is hard to be partners in. Most of the time it doesn’t work because in a lot of partnerships you have two people who would be incapable of doing the business alone, so they partner together and don’t do it well in pairs. This is not the case with Andrea and Rick. Both of them are very capable of doing it on their own. In the beginning, Andrea said she was ignorant about real estate. She and her employees put together a letter, which her employees mailed out. She knew how to close a deal; this was her only true gift. She thought she would be able to figure everything else out, but if she couldn’t close anything, then what’s the point of having the knowledge. Rick truly has real estate values, so they would both take phone calls. He did all the values in the beginning, while Andrea sent all the letters and did all the negotiating. It worked out that she didn’t know they were buying their first house so cheap because she thought she was doing a service to everybody and was going to solve their problems. They both had different strengths, which worked out well. The reason why they have stayed together is because they both have the same type of character but two different skill sets.

Rick does not really enjoy negotiating. He usually did the best and picked up the best deals where it was people who were just calling him, telling him what they had, and mailing him an offer. He did best where all he had to do was get them an offer in the mail, then perform quickly and close it. He is not really good at establishing relationships and getting back and forth, but he usually cuts to the chase. He asks them what they have, what they want, then tells them the offer and that he can close in ten days. Andrea is the best at closing the hard ones where they need to feel very comfortable with the person to whom they are selling the house. A lot of people don’t realize they have a lot of the tools that are important in the buy and sell business, but they think they can’t do it because they don’t know real estate. Bruce had a very similar experience when he went to work for a company in Orange County in 1981. He didn’t know a grant deed from a trust deed, but he was able to understand the concept of what they had as he had cash and the buyers had equity. He understood this clearly, but he would have made the same decision on most of the deals that he was sitting across from. It made sense for him to get a yes answer. Rick also looks at the customers problems and says it makes sense to him that it would be an acceptable solution to what he has. The belief of this is very important, as Andrea agrees. You have to believe that you truly are solving their problem. Both Rick and Andrea have done some wholesaling, so in a way they are making the same decision mentioned before, but at a different level. They understand they are leaving part of the pie for somebody else, and it’s perfectly okay. It’s a big step once you cross the barrier because you realize there are circumstances where a piece of something is so much better if it is quick than the whole pie six months down the road. When you do some wholesaling, you all of a sudden really get it. You understand the service and don’t even mind being on the other side of it. This really makes you more persuasive because it’s not like you’re trying to get somebody to do something and are then shocked when they say yes.

When Rick and Andrea started in the business back in the early 2000s, they were initially only going to sell most of the properties. However, the ones Rick saw were the most profitable were the ones that were held on for a little while. Initially, they did sell quite a few, but they actually regretted it years later. They walked out with $10-$20 grand profit, whereas the houses they held for even just a year profited over $100 grand in profit. This was an error they had never seen before and would be hard pressed to see again.

Around 2004/2005, the mood of the investors was they seemed like they had just come out of a pep rally seminar for Amway and were really pumped. This made having any type of discernment not necessary because it had a front door and was going to make dough. At this time it was hard to make mistakes. This is one of the hardest things coming from the era where Andrea obtained her experience. At that time you could misprice something and be forgiven for it and sometimes blessed. Also, you didn’t have to repair properties as well as you do right now because the retail buyer was of the same mindset that they had to get something. So if they had a front door, then they were not picky about what was on the other side of it. At that time they did not fix their properties; there was no granite or floors. They usually were not handed repair lists from the home inspector. This is hard to overcome mentally when you come from an era like that to what amounts to the Great Depression of California real estate. To overcome this, Rick said he just stopped looking in 2007. Andrea said some of the pains they have had were blessings because they were able to learn quickly from them. She learned more going through bad times than good. In good times there is not as much to learn because you think you’re doing everything right. When things change, you realize if you really were doing everything right then how come you are in a bad situation. There were a lot of houses Rick kept that he now realizes he should have dumped. Life would be better now if he had not kept them, but you later just write it off as experience. He and Andrea now have a new plan that should get them in the same place, which involves buying and holding. Andrea said she still has to do retailing to make a living, but they have been acquiring more rentals. Last year in particular they acquired several rentals by going by Tony Alvarez’s plan. This was the first chance Andrea had to buy a property and still have a cash flow. When she started out she knew the long-term wealth was in holding and cash flow. Especially in this cycle this is true because the margins are really tight for buy/sell because there are so many people trying to buy/hold that they will pay a different level than we can buying and selling. That margin is tight, and for the first time you can buy something you don’t even need a super deal on to cash flow. If you get a deal, then it makes even more sense. Ever since 1988 Rick has never been able to buy something where the rent is way higher than the house payment, even with a hard money loan. Yet you still don’t have people breaking down the doors wanting to buy, and if they do they are not qualified. There is not very much demand. Bruce cannot imagine the perspective of coming into the market for the first time here because you would get a picture where things are normal when it is anything but normal. There are a lot of people that could buy houses or even just a home to live in are not motivated at all and don’t realize what a gift this is. A lot if it is mental, both in lender policies and buyer decisions. About 25 people Bruce knows are in escrow right now, and for the first time in their life 25 people are looking at every article negative to real estate, biting their nails and asking if they should borrow money at 4 ½% at a price that is 60% off. They’re really tossing and turning over it because they don’t have support. People made decisions back in 2005 because it was overwhelming that that was the right decision even though they were paying a ridiculous price. Now, it’s just the opposite. You know that your rent is going to be higher than your payment would turn out to be, and yet signing the documents is so permanent that people hesitate to do it. Rick said they don’t realize that they’re always going to need a place to live.

When Bruce was speaking in front of people a lot, one of the questions he started asking was if anyone renting houses was willing to give a 30-year fixed rent. Imagine if your life was blessed with a 30-year fixed payment at this level because at some point you are going to make a lot more money. When Bruce first bought a home with Marsha, the payments seemed pretty high since they were at $209. They stepped up to the next house where it was $310, and it was stressful. All of a sudden, five years later, you realize you basically have two car payments on your hands and it’s basically a joke. This is the chance people have now, but that mental problem is they’re surrounded by everybody that has gotten damaged by the product. The memory of the 05/06 era is gone. The optimism has now turned into the mindset of, “How long has it been since you made your payment, or when are you getting booted out.” The optimism came back really fast last year when the tax credit was put out. Buyers flew back into the market so fast, and Rick does not understand what has changed their minds so much now. It’s kind of unusual now that they either cannot qualify or are simply not interested. $8,000 was basically a down payment when you have a nothing down loan program. People need to look at how these loans have performed that people got back $8 grand. They would have performed wonderfully. They got $8,000 back and paid $20,000 more for the house. What’s interesting is mindset currently going on is it is all geared toward down payments being bigger in the future, 20% down being mandatory in most cases. This concerns all of them, especially since they’re making that decision based on faulty information. There is an assumption that that loan pile is safer than any other one, the best performing pile of loans for forty years is a VA nothing down loan. It beats the 20% down Fannie Mae loan. Bruce wants the people at the Nixon library to see a chart of this and take it wherever they go because it really fights the nonsense and is undeniable. Nothing down beats 20% down because they have underwriting standards, so it makes sense. Usually their underwriting standards have nothing down, and you will have people coming out of the woodwork and a lot of people buying houses.

Join us next time to learn the work Andrea and Rick do on a daily basis and their thoughts going forward for being a real estate investor and how it might change in the next decade as opposed to what they just experienced.

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.

Tags: "The Crash", 30-year fixed rent, Andrea Esplin, bruce norris, California, Fontana, real estate, Rick Solis, Robert Allen, the norris group, The Norris Group Real Estate Radio Show, Tony Alvarez, VA nothing down
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The Norris Group Real Estate News Roundup 7/6/11

Wednesday, July 6th, 2011

Today’s News Synopsis:

Bloomberg believes the housing market is recoving at a slower pace due to tighter restrictions and higher standards set by the government. On a positive note, Inman reported an increase of 6.7% in rental prices, and Realty Times reported mortgage rates have remained the same and housing prices have shown a slight increase. In other news, the Republicans are introducing a bill to merge Fannie Mae and Freddie Mac into one corporation.

In The News:

Bloomberg - “Housing Recovery Stymied by Government” (7-6-11)

“Sue Stamper, a business owner in Sacramento, California, wants to buy a home. After mortgage- financiers Fannie Mae and Freddie Mac imposed the strictest loan standards in more than a decade, she doesn’t qualify.”

Los Angeles Times - “Treasury’s holdings of mortgage-backed securities drop below $100 billion as sell-off continues” (7-6-11)

“The Treasury Department said Wedneday it had recovered about 65% of the $225 billion it spent to purchase mortgage-backed securities to help stabilize the housing market during the financial crisis as the government continues to slowly sell off its holdings.”

Inman - “National rental prices climb in June” (7-6-11)

“Rental listing prices nationwide rose 6.7 percent year-over-year in June, according to a report from real estate search site HotPads. ”

DS News - “Washington Mutual Reaches $208.5 Million Settlement” (7-6-11)

“Washington Mutual Inc.‘s former executives, underwriters, and auditor reached a $208.5 million settlement in a class-action lawsuit by investors.”

The Wall Street Journal - “Bill Calls for Fannie, Freddie Merger” (7-6-11)

“A California Republican is set to introduce a bill as soon as Wednesday to merge Fannie Mae and Freddie Mac and restructure the company into a government-held corporation.”

Housing Wire - “Obama administration pressures banks to reduce mortgage principal” (7-6-11)

“The Obama administration is putting more pressure on banks to help underwater borrowers by reducing the principal on current home loans.”

Realty Times - “Mortgage Rates Remain Steady as Home Prices Improve” (7-6-11)

“Over the past week, sparks of good news indicating a step in the right direction for the economic recovery kept mortgage rates steady and still at their lowest for 2011. For the first time in eight months, U.S. home prices showed a slight increase as reported by Case Shiller Home Price Indices.”

Inman - “Lenders warned not to discriminate against women on maternity leave” (7-6-11)

“A report in the New York Times that suggested mortgage lenders had discriminated against women taking maternity leave has resulted in a settlement with Houston-based Cornerstone Mortgage Co. and charges against mortgage insurer Mortgage Guaranty Insurance Corp. (MGIC) for alleged violations of the Fair Housing Act.”

The Wall Street Journal - “Sellers Brace for New Mortgage Caps” (7-6-11)

“The federal government is readying its first retreat from the mortgage market, with the size of loans eligible for government backing set to decline in October.”

Housing Wire – “Treasury to reward servicers for quicker mortgage modifications” (7-6-11)

“The Treasury Department will pay mortgage servicers more for modifying loans in an earlier stage of delinquency and less the longer the process takes, according to guidance released Wednesday.”

Looking Back:

One year ago, Lender Processing Services reported the national mortgage delinquency rate increased to 9.2% in May 2010. Reis reported national office vacancies increased by 0.1 percent in the second quarter of 2010 to 17.4 percent. The former CEO of Irvine Co. believed the housing and commercial real estate market would be rocky for the next year or two due to the volume of underwater loans. The former secretary of labor under President Clinton, Robert Reich, believed the U.S. economy would have a very slow recovery and experience a double dip..

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.

Tags: bruce norris, California, Case-Shiller Home Price index, Fair Housing Act, fannie mae, freddie mac, JP Morgan Chase, jumbo mortgage loans, Lender Processing Services, Mortgage Guaranty Insurance Corp., mortgage rates, mortgage-backed securities, Obama administration, rental housing, rental prices, Sacramento, Sue Stamper, the norris group, Treasury Department, Washington Mutual
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The Norris Group Real Estate News Roundup 12/21/10

Tuesday, December 21st, 2010

Today’s News Synopsis:

Modifications to foreclosures on Freddie Mac and Fannie Mae mortgages increased more than twice as much in the third quarter, according to Housing Wire. Shaun Donovan said he and Secretary of Energy Steven Chu are discussing plans of creating an energy scoring system for houses. Standard and Poor’s reported levels of securities backed by mortgages are the slowest they have been since 2007, both for commercial and residential property. NAHB stated that the driving force for the housing market are actually the smaller businesses. CBIA announced that construction on new homes increased 21% this month.

In The News:

Realty Times - “Curb Appeal Projects Remain Cost-Effective” (12-21-10)

“Buyers are hit hard by first impressions, and sellers take advantage of this fact, aiming to amp up their curb appeal. This is, after all, where they get the most bang for their buck. According to the latest Remodeling Cost vs. Value Report, the National Association of REALTORS® (NAR) reports that “nine of the top 10 most cost-effective projects nationally in terms of value recouped are exterior replacement projects.” These exterior projects are outperforming their remodeling counterparts.”

Housing Wire - “Fannie Mae, Freddie Mac foreclosures double modifications in 3Q” (12-21-10)

“Servicers started 339,000 foreclosures on Fannie Mae and Freddie Mac mortgages in the third quarter, more than double the 146,507 modifications completed, according to data from the Federal Housing Finance Agency.”

Inman - “‘Energy Score’ Worries for America’s Houses?” (12-21-10)

“Most houses come with no stickers, no ratings and no disclosures about how big a fuel guzzler the property is, and how that might compare with other houses on a rating scale.Donovan said he and Secretary of Energy Steven Chu were already working on plans to create what he called “a simple scoring system for housing” that could be reduced to grade levels or numerical scales — say one to 100 or A to F, like back in high school — that would be absolutely clear, authoritative and available to anybody considering buying a house.”

Realty Times - “2010 NAR Profile Can Help Agents to Find Buyers and Sellers” (12-21-10)

“We have noted that The 2010 National Association of Realtors® Profile of Home Buyers and Sellers contains valuable information for sellers and their agents as to how buyers find the homes that they ultimately buy. The profile also contains valuable and interesting information as to how both buyers and sellers find the agents that they ultimately use.”

Housing Wire – “Structured finance downgrades, defaults slow as 2010 ends: S&P” (12-21-10)

“November downgrades and defaults on residential and commercial mortgage-backed securities slowed to levels not seen since 2007, according to a report from Standard & Poor’s.”

San Francisco Chronicle - “Wells Fargo Agrees to Modify California ARM loans” (12-21-10)

“Wells Fargo Bank has agreed to make $2 billion in loan modifications for California homeowners with risky pay-option, adjustable-rate mortgages that Wells purchased from other banks, and to pay $32 million to 15,000 borrowers who had similar loans and lost their homes to foreclosure, according to an agreement with the California attorney general’s office.”

NAHB - “NAHB Report Finds Small Builders are the Mainstay of the Nation’s Housing Industry” (12-21-10)

“Small home builders are the mainstay of the nation’s housing industry, including a sizable number of self-employed mom-and-pop operations, according to a new study by economists at the
National Association of Home Builders.”

CBIA - “New-Home Construction in California Up 21 Percent in November, CBIA Announces” (12-21-10)

“California homebuilders pulled permits for 21 percent more homes in November when compared to the same month a year ago, but it wont be enough to keep the state from seeing the second-lowest number of housing starts on record, the California Building Industry Association announced today.”

The Orange County Register - “South Coast Homebuying Up 4% Over Year” (12-21-10)

“For calendar month November – DataQuick’s freshest stats — South Coast homebuying patterns showed:

142 homes were bought in the region in the period – +4% vs. a year ago.
Countywide, it was -11% vs. a year earlier.
The sales-weighted average of median price changes in South Coast ZIPs was -38% vs. a year ago.
Price change in all Orange County beach towns ran +9% vs. a year ago.
Countywide, it was +1% vs. a year earlier.”

Mercury News - “Clean House: Tips for Paying Down your Mortgage” (12-21-10)

“Don’t let your biggest debt run your life. There are ways to trim your monthly costs that will move you closer to a mortgage-free retirement.”

Fortune- “New Jersey warns foreclsoure fiends” (12-21-10)

“The state’s Supreme Court ordered the biggest lenders to prove they are acting lawfully in processing foreclosures.”

Looking Back:

PMI Insurance Group predicted that 2010 would produce a moderate increase in economic production. According to John Burns Real Estate Consulting, real estate investor activity exceeded 2005 levels. Moody’s reported that commercial real estate values had decreased by 36 percent from 2008. A total of 140 banks were seized in 2009.

Tags: ARM, California, california building industry association, fannie mae, Federal Housing Finance Agency, freddie mac, mortgage, National Association of Home Builders, national association of realtors, New Jersey, Orange County, Shaun Donovan, Standard & Poor's, Steven Chu, Wells Fargo
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200-TNG Radio – Alvarez, Cantu, & Solis 11-13-10

Friday, November 12th, 2010

Tony Alvarez

Veteran Investor

(Full Bio)

Mike Cantu

Veteran Investor

(Full Bio)

Rick Solis

Veteran Investor, Appraiser

(Full Bio)

This week Bruce is joined by Mike Cantu, Rick Solis and Tony Alvarez. Mike Cantu has been an investor in the Inland Empire for over 25 years. He has been a builder, rehabber and property manager. Rick Solis appraises all of The Norris Group’s loans, and he is also an investor. Tony Alvarez has been an appraiser, residential and commercial property buyer and author. This is The Norris Group’s 200^th radio show.

Bruce begins by asking Mike about what he learned from the 90s that helped in the most recent down turn. All things come full circle. A good market will eventually become a bad market. The down turn took longer this time, but it hit much harder. Sales dropped off the cliff, but fortunately, Mike began preparing for the down turn in 2004. Tony agrees with Mike.

During the evening of Obama’s election, a newsletter was put out, which was titled “Obama Administration Sings New Tune on Foreclosures”. The article is laughable. The media went from saying “no foreclosures” to “foreclosures are the answer to this problem”.

Rick began investing in 1989. He was not very active in the 90s. The main thing he learned from the 90s was that you can miss many opportunities when you ignore the market. A lot of people are afraid of the market right now, but Rick won’t let that fear control his investing plans.

Bruce believes that fear certainly is affecting the market now. People are afraid to buy properties despite the fact that prices have dropped 50% and interest rates are historically low. Its hard to believe that not buying could be perceived as a rational decision. Rick Solis has never seen a better time to buy houses since he began investing. Bruce definitely believes that it is the best time to buy and hold.

Tony just bought a completely rehabbed duplex. In 2007, it sold for $175,000, but he bought it for $35,000. The saddest part is that the duplex sold with multiple offers. The reason why so many people are afraid of buying is because they are paying too much attention to the media’s opinion.

Mike knows many investors, but only a small number of them are still investing. The number one problem that caused them to fall out of investing is their overly expensive life style. A lot of people learned how to make money in real estate, but not many people learned how to keep it. The investor pool has shrunken significantly. Many people would like to invest in real estate right now, but they made bad decisions at the top of the market, which handicapped them from buying. Mike agreed with Rick and Tony when they said that now is the time to buy.

Mike is a fairly frugal person. Bruce laughed when he saw Mike’s 1998 Toyota truck. It has 441,000 miles, but it runs like a champ. When a dog gets old, you don’t get rid of it, you just take better care of it. Mike has a hard time spending money on a vehicle when you can get a rental house for the cost of a new car. Every time Mike sets money aside for a new truck he ends up spending it to buy a new house, and he realizes that his truck is just fine.

Mike’s daughter recently began investing in real estate. Mike helped her develop a 5 year plan for buying cash flow houses in good neighborhoods. Their goal is to help her get $3,500 of cash flow per month, and they are half way there.

If Tony could have done anything differently throughout his career, he would have focused harder on one segment of the market place. He wishes he had been more aware of the value of his time. Tony spent a lot of time driving to deals that didn’t have much potential.

Tony prefers to buy and sell, but he currently owns 40 rentals. Before the peak, he had 100 homes. He wanted to get out before the peak, but Bruce encouraged him to not sell for another 3 years. Bruce’s advice helped Tony gain an extra $3 million in profit. Tony is now buying some of the same houses that he sold near the peak. In the past, Tony would buy almost any property he could. Some of the properties he bought and sold were in such a terrible condition that they have now been destroyed. He doesn’t buy properties that are that terrible any more, but he is still willing to buy wood structure homes and other properties that people tend to stray away from.

If Rick could have done anything differently in his career, he would have sold all his properties by 2006. Rick has accumulated quite a few properties, and he is glad to have them, but he is not looking forward to managing them.

Mike chose not to sell his properties despite the fact that values were sinking, and he does not regret that decision at all. Mike got into real estate for the cash flow, so that all his expenses would be taken care of. He knows people who are struggling right now and have to make a deal every month to keep food on the table. The value of his rental properties is immaterial to him. He has not had to reduce rents by any more than $50, and he has had no difficulty in keeping them occupied.

Mike was the person who introduced Tony to the concept of exchanged junky homes for quality rental homes. Exchanging for quality rental properties allows you to keep rentals in competitive areas, and it helps reduce the amount of time spent on property management.

Bruce has learned a lot from observing the business models of other people. When Mike told Bruce that he wanted to obtain 10 rental properties, Bruce decided to try and do the same. Having free and clear properties gives you sanity when making investment decisions. If you are playing catch up on equity, or if you are relying on today’s deals to pay tomorrow’s meals, you tend to make riskier decisions. Bruce and Mike don’t have to make potentially risky decisions because they both have enough cash flow to get by.

One of the big differences that Tony has noticed between 2010 and 2009 is that many investors have left his market. Also, approximately 80% of his purchases went from being new listings from agent calls to pending deals. Fifty percent of the deals occurring in Tony’s area fall out of escrow 1 to 3 times. This has caused Tony to become more cautious when buying. He has dropped his rents by 20% in the last 12 months. He has also lost some of his tenants.

Rick noticed that when the stimulus program was going on, entry level properties experienced up to a 10% increase in value. Moreno Valley and Corona had a big increase in activity. That 10% increase has now disappeared. Rick will not buy a house right now unless the deal can work as a rental. Many investors have recently bought homes they thought would easily resell, and they are now stuck with them. Bruce will not buy a home on leased land.

From the beginning of 2009 to the end, we went from a period of market uncertainty to confidence. In 2008, Mike decided not to do a retail deals unless he could keep those houses as rentals. Mike does not use any July comps any more; comps must be within the months of August, September and October. There is a 5 to 20% difference between homes being sold now and homes sold in July.

Mike believes there are still a lot of people who will not accept the fact that their home values have significantly decreased. A lot of the private market is still in denial.

Rick invests primarily in Rialto, Hesperia and Victorville. Rick and his business partner work with rehab properties. He rents his properties slightly below market value and they are in good shape, so he has a lot of demand. Many times he has a security deposit and a tenant lined up before he closes escrow. He does not have any trouble with rents dropping. His typical house is a 3 bedroom, 2 bath. He loves it when he can squeeze a 4^th bedroom into the house by cutting the living room in half. He usually rents the 3 bedroom houses for $1,000, and the 4 bedroom houses for $1,100.

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.

Tags: business model, buy and hold, California, comps, down turn, escrow, foreclosure, foreclosures, hard money, investing, investor, Mike Cantu, norris group, properties, rent, rental, reo, Rick Solis, short sales, Tony Alvarez, trust deed investing
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189-TNG Radio – Christopher Thornberg 8-28-10

Friday, August 27th, 2010

Christopher Thornberg

Founder and Principle of Beacon Economics

(Full Bio)

September 17^th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate Investors Association and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, Claudia Buys Houses, The Business Press, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by Christopher Thornberg. Christopher is the founding principle of Beacon Economics, and is widely considered to be one of California’s leading economic forecasters. He is an expert in economic forecasting, regional development, real estate dynamics and labor markets. He was one of the earliest and most adamant predictors of the housing crash and the recession that followed. In 2008, he was appointed chief economist for the California State Controller as well as the Controller’s Council of Economic Advisors. He serves on the advisor board of Paulson & Company Inc., one of Wall Street’s most successful hedge funds. Dr. Thornberg holds a PhD in business economics from the Anderson school of UCLA, and a BS in business administration from the state university of New York at Buffalo.

Public sentiment tends to wander between optimistic and pessimistic. No one wants to believe that this recovery might be too slow. Instead, people either hope for a rapid recovery, or they panic over a double dip. Earlier in the year, people were far too optimistic about a rapid recovery, and now they are in a state of unwarranted pessimism. Thornberg does not believe that either of those beliefs are true. He believes that slow growth is most likely going to occur.

Expectations can have an economic impact. Forecasters tend to think that the stock market is a leading indicator of the economy. Paul Samuelson once said “The stock market has predicted 9 out of the last 5 recessions.” We must remember that when we see market swings, it has a material impact on the economy. When the market dumps 15 percent, you are literally talking about a couple trillion dollars in wealth disappearing from the U.S. economy. That does have an influence on spending, particularly at the top end of the income scale. From that perspective, unwarranted worries can create a self fulfilling prophecy and slow the economy.

Over the last 20 years, we have seen unprecedented volatility in the equity markets. We would help ourselves by putting in some rules to dampen that volatility. Thornberg describes the problem as “the tail controlling the economic dog”.

GDP growth in the 90s was caused by stocks. In 2000, it was from real estate equity withdrawal and profits. Currently, our limited growth seems to come from stimulus money. Thornberg does not believe there will be any sort of big driver, and that is part of the reason we will have a slow recovery.

In the mid 70s, there was a consumer let down with the oil shock. Consumers responded to the loss of jobs, high energy prices, and the overall pessimism by cutting back on spending, and that caused a down turn. At the back end of that down turn, consumers who were under-spending started to ramp up their income. They then bought the car they would have bought during the down turn plus another one. That caused a huge surge in consumer spending growth.

Similarly, in the 2001 down turn, we saw a cycle in business spending. Business spending was very high, and then it collapsed. When business spending came back in 2002, we pulled out of the down turn and we got back to normal growth in 2003.

This time, there is no single great source that will cause us to bounce back. The economy was vastly overheated in 2008, and the pain of the down turn was severe, because the pull back occurred in multiple markets at one time. The government got massively involved in both monetary and fiscal policy. In their attempt to stabilize things, they prevented our imbalances from returning to a steady state.

Consumer spending should represent about 80 percent of income, and the other 20 percent should go to savings, taxes and a couple other things. In the midst of the asset bubble, we went from 80 to 84 percent. That extra 4 percent represents approximately half a trillion dollars in excess spending. Savings rates have popped back up in the midst of the crisis, which is good, but the pain of that decline in consumer spending was profound on the economy. As a result, part of the stimulus package was a huge cut in taxes. Right now, Americans are the lowest tax rate in 65 years. This has steadied consumer spending at 82 percent of income. The government is running a deficit of $1.4 trillion per year. At some point, the government will have to raise taxes. When they raise taxes, consumers are going to have to cut back on spending, and that will slow the economy.

We have a lot of deleveraging going on. 23 percent of Riverside is not making a house payment. Because so many people aren’t making their house payments, Bruce believes that people will have plenty of money to spend. Thornberg disagrees, because he does not feel that the money saved from not paying mortgages will amount to that much. Mortgage payments in the U.S. amount to 15 percent of income. Thornberg believes the non-payment of mortgages only adds up to .5 percent of personal income. That is a much smaller number than what happens to personal income as a result of the rise and fall of the unemployment rate.

Bruce explains that in California, a house payment typically represents 40% of someone’s gross. When they don’t make mortgage payments, that saves money, and that fuels GDP. Thornberg understands this, but 1/3 of homeowners in California homeowners own their house free and clear. Of the 2/3rds that are left, the majority are still making their payments. You only have 10 percent of the people in the state that aren’t making their payments. Thornberg does believe that this will make a small difference in the economy, but it is not as significant as people make it out to be.

Bruce asks, “What does seeing a 2.6 10-year T-build tell you?” Thornberg laughs and exclaims that the t-builds are in a bubble. You got to call it as you see it. Sometimes that works and sometimes it doesn’t. A few years ago, Thornberg claimed the housing market was going to crash, and he was right. One of the worst forecasts Thornberg ever made happened 3 months ago when he claimed that interest rates would never go lower. Thornberg has seen some crazy things happen lately. He never could have forecasted this. He believes these things have been driven by worries about sovereign debt in Europe, and a potential for a double dip. This is why Bruce asked his question about Thornberg’s expectations for the t-build, because people’s fears have skewed a lot of categories.

The raw ratio of prices to income will show you that we have not seen a level of retraction that brings us back to the levels we were at in 2000. Prices are still high in comparison to income, but once you adjust for interest rates, affordability levels have never been this great. We have never seen such an affordable housing market when considering current interest rates. Thornberg does not believe that the current interest rates will be maintained. They are going to rise, but he wonders when they will rise and how fast they will rise. If we are on the path to recovery, we could have problems if the credit bubble pops rapidly. If interest rates increase 4.5% to 6.5% in 6 months, then it will severely damage the housing market.

Fannie Mae is planning to hire 1,000 REO agents in Southern California. This tells Bruce that Fannie intends to release inventory; perhaps as soon as the 4^th quarter. FHA has 73,000 REOs and 555,000 people that are 90 days late. There are a lot of properties that the bank has not released, but we also have to be concerned about the properties that the banks are not foreclosing on yet. There are probably 4 to 5 million homeowners that are behind on their payments.

Because affordability is so good right now, there will probably be some demand for the shadow inventory. One thing that distinguishes California from states live Nevada, Florida and Arizona is the fact that we did not over build. Nevada and Florida have years of home supply.

Rental vacancies typically stay high after a recession, but vacancies are actually starting to drop quite quickly, especially in California. Thornberg does not believe there will be enough inventory in California, so when the shadow inventory gets released, it will probably be easily picked up. Thornberg believes we will have a stronger housing market over the next couple years because of the inventory levels in relation to the population. It surprised Bruce to hear Thornberg speak so positively about the housing market.

Bruce and Thornberg do not believe we have pent-up demand, but Thornberg does believe that we have a lack of overall supply. When you look at permits over the past 20 years, the numbers show that we have not built enough housing relative to the population growth since 1995. Even in the midst of the bubble, Thornberg believes we were only building an amount that was appropriate for our population growth.

The builders do not have many vacant unsold homes right now, but their competition, which is an REO, is going to be much to competitive. This competition will force them to build smaller houses. Going forward, Bruce believes that vacant homes are going to increase a tremendous amount. Thornberg does not believe prices will come back a lot.

The kind of building going on right now is on the basis of already finished lots. The inventory of finished but unused lots is disappearing rapidly. In the peak of the housing bubble, local economies ramped up fees. Given what people were willing to pay, there were enormous profits to be made in the sale of a new home. Now that the bubble is gone, cities need to reduce their fees, but they probably won’t. Right now, local governments have a lot of pressure placed on them because of the down turn in revenues. Thornberg believes we will have crowded housing, because many people will not be able to purchase new property due to the excessive fees.

In a down turn, people tend to start living together rather than moving out. This is actually starting to change, which is part of the reason why apartment vacancies are going down. We are not in a strong recovery, but it has been a year since the recession ended. Things have stabilized, and fears are beginning to lift.

Overall, jobs are down right now, but that is mainly due to losses in the public sector. Construction jobs actually bounced a decent amount from June to July. Thornberg does not believe the construction industry will come roaring back to what is was like 5 or 6 years ago, but we are seeing more stability in that sector.

Here are the pros and cons of our current situation: On the con side, we still have problems in the housing market. Many people are not making payments and many are underwater. California has some of the worst unemployment rates, which means we have more to recover from. On the pro side, prior to this down turn, this state was driven by internal demand. This means that our demand was coming from consumers with excessive amounts of false housing equity. At the same time, our external sources of growth were getting hammered. The dollar was over-valued and housing was too expensive, which made it hard to run a business here. Those internal sources of demand will not come back. On the other hand, with a weaker U.S. dollar and cheaper housing, other things will begin to improve. Despite our high unemployment rate, people are beginning to migrate back to California.

The percentage of homeownership is probably headed down. Thornberg does not believe that this is a real concern. He does not believe there are any particular benefits for owning vs renting.

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.

Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Adrenaline Athletics, Benton Investment Group, Community RE-Invest Group, Delmae Properties, Elite Auctions, Entrust California, Everlast Photography, Inland Empire Investors Forum, Keystone CPA, Landwood Title, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association, Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Rick and LeeAnne Rossiter, San Jose Real Estate Investor Association, Starz Photography, Summit Solutions, Tony Alvarez, Wealth Point, and Westin South Coast Plaza.

Tags: affordability, apartments, Beacon economics, beacon econommics, bruce norris, builder, builders, California, Christopher Thornberg, construction, consumer spending, demand, economics, economy, foreclosure, gdp, hard money, house hold, housing, income, public sentiment, real estate, realtor, reo, stock market, supply, the norris group, trust deed investing, vacancy
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