According to the latest Standard & Poor’s/Case-Shiller Index, the prices of homes decreased 3.7% from last year.  In other news, the Conference Board reported consumer confidence declined again this month after having increased at the end of 2011.   The Congressional Budget Office expects taxpayers will pay $27 billion to aid Fannie and Freddie from 2013 to 2022.

In The News:

CNN Money – “Freddie Mac: A mess, and likely to stay that way” (1-30-12)

“It’s not tough to find critics of Freddie Mac and Fannie Mae on either the right or the left. But there has been little progress made in rehabilitating the mortgage giants.”

Housing Wire – “S&P/Case-Shiller Nov. home prices down 3.7% from year earlier” (1-31-12)

“The average price of a single-family home fell again in November, with decreases in 19 of the 20 largest metropolitan areas during the month, according to the Standard & Poor’s/Case-Shiller index.”

Realty Times – “California Association of REALTORS® To Build Ethics Violations Data Base” (1-31-12)

Approve that C.A.R. build a system, to be developed by staff, to create a database that contains all final findings – within the last three (3) years – of a member’s Code of Ethics and membership duty violations, including whether the member fulfilled the sanction imposed, for use by local Associations in making their decision on membership applications.”

Housing Wire – “CBO slashes cost of Fannie, Freddie over next decade” (1-31-12)

“Taxpayers will spend another $27 billion between 2013 and 2022 subsidizing Fannie Mae and Freddie Mac, according to the Congressional Budget Office estimates released Tuesday.”

DS News – “Appraisal Institute Offers Guidance on Distressed Comparables” (1-31-12)

“The Appraisal Institute recently released new guidelines to instruct its members on how to deal with distressed sales and foreclosures when seeking comparables.”

Housing Wire – “Consumer confidence retreats in January” (1-31-12)

“Consumer confidence slumped in January after rebounding in the final months of 2011, The Conference Board said in its consumer sentiment index.”

Bloomberg – “Foreclosures Draw Private Equity as U.S. Rents Homes” (1-31-12)

“Private equity firms are jumping into distressed housing as the U.S. government plans to market 200,000 foreclosed homes as rentals to speed up the economic recovery.”

Inman – “LPS asks Nevada court to throw out consumer fraud suit” (1-31-12)

“Lender Processing Services Inc., provider of real estate technology, services, and mortgage performance data, today filed a motion to dismiss a consumer fraud lawsuit against the company filed by the state of Nevada that alleges the company falsified foreclosure documents.”

Housing Wire – “Foreclosure claims dominate CFPB mortgage complaints” (1-31-12)

“More than 38% of the 2,300 mortgage complaints sent to the Consumer Financial Protection Bureau in December related to loan modification and foreclosure concerns, the largest share in this category.”

Hard Money Loan Closed

Rialto, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $125,000 on a 4 bedroom, 2.5 bathroom home appraised for $200,000.

California Real Estate Investor Events:

Bruce Norris of The Norris Group will be at the Advanced Investing Skills and Strategies 2.5 on February 4, 2012.

The Norris Group posted a new event. Bruce Norris of The Norris Group will be at the 2012 Kick Off Brunch on February 18, 2012.

Looking Back:

Rismedia reported that new home sales increased 17.5% in December of 2010.  However, the Obama Administration reported that sales were still lower than levels at the beginning of the year.  According to Bloomberg, the rate of unoccupied homes increased to 2.7%, making the number of people who own homes the lowest it had been in 10 years.  Standard and Poor’s announced that home prices were still declining and most likely would continue, according to the Realty Times.

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.

Andrew Waite

Founder and Publisher, Personal Real Estate Investor Magazine

(Full Bio)

This week Bruce is joined once again by Andrew Waite. Andrew is the founder and publisher of Personal Real Estate Investor Magazine. He has authored a total of nine magazines, is a recognized expert, and is extensively published in sales and marketing automated processes, sports marketing, and sponsorship.

One of the things Bruce does as an investor is figure out where to put his money. He read one of Andrew’s reports word for word when it came out two years ago titled The Invaluable Investor, and he wondered what Andrew found in the report that might surprise people. Andrew’s main concern with the magazine is when they chose the word investor as part of the title; they missed the majority of Americans that were investing in real estate because there is a vast class of Americans out there that own real estate other than their own occupied property. They’re generating income, managing effectively and responsibly, and improving neighborhoods, but the last thing they define themselves as is real estate investors. The word investor implies professionalism, a structure, an operational sophistication, and it really isn’t that way when you think about it. If you are inheriting a family home, if you have a relocation that goes bad or you have a slow sale and you decide to get into the rental as a bridge strategy that ends up working out since you have not lost your assets, all of a sudden you have a really big market. Andrew said the problem with all the titling was the fact they chose the word investor. It’s not. It’s average Americans with some holding in real estate other than their owner-occupied home. They typically buy a multi-family house, and they also buy and hold it, the greater percentage of them tending to hold it. Flipping is a very sophisticated business because you have to worry about financing, timing, managing contractors, the buy and sell side, the marketing. You have to have a margin that isn’t necessary for cash flow.

When you look at a lot of real estate data, no matter the economy, the relativity remains the same. One of the interesting things that occurred with Community reinvestment, Fannie and Freddie, and all of the secondary market that was pushing liquidity into the market was they moved the homeownership percentage up to 69%. If you look worldwide over major English-speaking cultures and at the homeownership of quantity or relativity, it’s constantly 64-65%. It’s this way in every market, whether the interest rates are good or bad; the American dream or middle class dream in every country is to own their own home, which settles at about 64-65%. What Andrew and his business partners had done was they pushed the market into an area where it was beginning to defy personal and national economic trends. As soon as the market dried up on subprime and all of the artificially low loans, you found that those with budgets were pushed out of the market and later dropped back. Right now we’re running at about 67%, and we’re going to see a little more contraction, which is going to end up at about 65%. In Bruce’s opinion, it might end up less than this only because we have about 8% of the people that are still occupant owners not making a payment. When you look at the numbers on a relativity point of view to the actual market as a whole, if 3-4% of the investors solved their problem, you look at what this percentage represents in terms of the 123 million houses out there. The pendulum will probably over correct on the downside, but then it will float back to a 64-65% number. We’re talking about human behavior here, not about economics. To Bruce, this is the missing link between when people collect data.

As an investor, Bruce always has to look at what’s next. On occasion, The Norris Group has written reports, and they created a “moodometer” that actually charts the history of the mood of the buyer. It doesn’t only track the mood of the buyer, but like a Case-Shiller case, your propensity to take risk, or herd behavior. You also get this in lenders, not only the buyer. The buyer wants it, and the lender says, for example, they can lend them 125% LTV, and loan programs facilitate the exuberance. You then get to an interesting place that you didn’t really want to go. Now the opposite is happening. You have a skewing way below the line where they’re saying no to loans that make perfect sense. The Norris Group just made 13 loans to a gentleman that is a well known investor in Southern California who owns about 44 houses free and clear and can’t borrow a dime. However, he has ten loans, so he had to borrow 13 loans from The Norris Group at 9.9% interest. It’s ridiculous that people would think this was a dangerous loan, but this is where we’re at. The very interesting thing is when you see this behavior based on what is the need of the financial institution and their quarterly reporting or the reserve rules of the summary promulgated by the comptroller of currency, you find they overreact. One of the most interesting things that Andrew saw that nobody else seemed to see because it was an FDIC change made in 2007 based what happened with the RTC from 1987-1990. At that time, they had decided to accelerate mark to market all of the assets that a bank had that were nonperforming. Everybody had to take a 100% loss then and there, which destroyed many banking institutions. This allowed no provision for the fact that when these properties were liquidated, they had value. The delta was really the loss and not the 100% loan. They changed the law in 2007, but they went the other way. They allowed for the bank to keep the properties on their books, but in an Enron style offshore entity that was really part of the bank but not part of the bank. As a result, it made people hold onto assets in the shadow inventory, which when you watch the numbers and listen to Sean O’Toole at ForeclosureRadar, Sean will tell you that the banks have bought enough time to be able to liquidate enough. This way there is never going to be a huge thud as everything arrives on the market overnight because at least someone was smart enough in terms of liquidating the assets but not doing it in a precipitous manner. We have learned, but now we have a whole new set of lessons we have to learn again. We did forget back in 2006-2007 when inventory was dumped in California and properties were being bought consistently when inventory was at its worst. If for example, there was 18 months of inventory available in the MLS, it was being bought at $0.19 on the dollar from what the lender was owed. They presented the inventory as they got it, and that is what happened to the market. It dove like a rock. After that they pulled out the quantity of inventory, so the MLS then had about 4 ½ months of inventory. In Bruce’s opinion the inventory level is very phony. It could be a lot higher, so as an investor Bruce looks at this and sees that they are in an extended period of time where the lenders are going to present their inventory at a very measured pace. It will then be a contender for people to sell again for quite some time.

Bruce sees that there is going to be a real bend toward increasing down payments for owner occupants. One of the statements that was made by Shelia Bair was that when somebody makes a down payment of 20% they have more stake in the game and will perform a lot better. We have collected the data for this over a long period of time, and the payment history for somebody who puts 0% down VA, 3% FHA, and 20% of Fannie Mae or Freddie Mac, the difference in foreclosure rate is ¼%. They’re going to dictate all these policies based off a false assumption. With that model, they have retired sales, and its classic overregulation. Since Andrew is in the advertising business, he really understands what a control piece is. A control piece for the audience is you have a mailer or an advertisement you know gets a certain result. You don’t change the control piece but one thing at a time, and then you know if it would improve or not improve the results. It’s like doing diagnostics on a broken computer. You start with one assumption, and then when that assumption is not proved, you keep that assumption stable and then move to the next one. We have a 30-year history, a control piece of how not to have a national decline in price, and we are forgetting that all the way from 80-2000 we had a perfect record. We had some ups and downs that were minor, and the loan programs that created it are not getting the blame. What is getting blamed is the down payment, and it is absolutely ridiculous. This is dangerous because the timing of it couldn’t be worse. In California, we have a market in Riverside that is 71%, either short sale or REO, and what that means is when you have 1,000 sales you’re really creating only 290 buyers. All of the other people are credit damaged to the extent that they are not a buyer. You start multiplying this across the state of California, and it is a pretty big percentage. CAR did a study showing that when a seller re-buys something, they are usually re-buying something 33% of the time. When we have 500,000 sales in California, we’re producing 165,000 repurchasers and having to find 335,000 new buyers, which is impossible. To come from a new buyer list, it’s going to have to be investors, and that’s why numerically you’re going to have to deal with the fact that investors better buy these vacant homes and fix them. This is where Bruce hopes we end up as an industry, with an industry that has enough influence. The people will start looking at what The Norris Group does in a different light and see that they actually bring something to the party. The I Survived events are a class of industry event and industry interest where you’re combing the interest of both parties and let them all understand they have common goals and now speak as a voice. Andrew ran an investor provider leadership summit and brought several little companies from all over the country and put them in the same room. They were astounded at each other in that they all used common accounting standards. Those who didn’t were a problem because they weren’t comparing apples and oranges. They all realized that they needed to have standards and that they could stand up and say they were a housekeeping seal of approval style business, and all of a sudden even though they competed they realized that they were a singular voice for responsible investment and reaching a class of buyers that was the ordinary American looking for a better return than what was offered through traded assets. And this is the goal of I Survived Real Estate, to have leaders from different industries that have their own special interests think about how if they were to sit in front of Congress, then they will also think about how there is an investor base that can assist in the solution to the problem. But, if they all had the same mindset in how to solve the problem, then they would probably have a lot more power collectively than they would individually.

It is average Americans who have sound belief in their country and how business and real estate work. It’s not an unusual or exotic asset, but it is something everybody understands pretty well. Investors or average Americans investing in investment grade rentals are not slum lords because if they let their property go and the neighborhood is affected, their investment declines in value. If these people are responsible or irresponsible as other people try to paint them to be, they’re missing the whole story because these people are really proud of their properties. The better the properties are, the more easily they rent, and the better rent they accumulate. It was the market that pulled Andrew’s magazine through, not him and his business partners saying smart things. In 2005-2006, the group that called themselves investors was probably a lot of speculators that are no longer here. There are more true investors in 2011 than there were in back in 2005-2006. When you run a magazine, the fear is you run a weddings magazine. In those cases, a bride subscribes to your magazine, and 6 months later she’s married. If she is subscribing to your magazine a year from now or go back to her and ask her if she wants to re-subscribe, typically you will find a very low number. Andrew found the same thing with real estate investors because he would go to several real estate investment clubs, and the clubs would find something they wanted to get married to/invest in, thought they could make some money, and would sign up for an association. Their expectations were high. However, after a year when you go back to re-subscribe to a “bride’s” magazine, you get two classes of buyers for the second year of subscription. There were a lot of people being drawn into the industry that weren’t coming in with reasonable expectations, a type of “millionaire by midday,” but soon they were all gone because they spent all their money on books and tapes. The class of persons that promoted “edutainment” was very bad for the industry and it created a lot of vestibule object that you’re seeing from the legislators. They remember seeing “Billy Tan” and his blondes on a boat in San Diego on midnight television. Almost everybody was a real estate investor in 05-06. Bruce lost three people who cut his hair during that stretch of time because they all became real estate agents. This is when Bruce knew he better sell his things, and he sold 100 houses in that time stretch. One of the things about investors and looking into the future is that it’s good to have a way to make non-emotional decisions. Charlie Dow was the inventor of the Dow Theory, and he contributed to a book in the late 1800s. He said, “You could always tell where you are in an investment cycle by taking the mood of the crowd that’s investing it.” He said if you want to get wealthy, sell to the (eager) and buy from the fearful. This is the marketplace we’re in right now where real estate has created such a fear around it that there are opportunities where any time you would look at each other and see something is wrong and too good to be true, there’s not an enormous amount of participation. Andrew’s magazine is really an outlet for this on a national basis since a lot of markets are local and it helps to have specific knowledge (of the market).

There are four parts to the magazine: Process, Principles, People, and properties. The process and principles are pretty universal. It’s the people and properties that differ on a regional basis because if you are investing in the northeast you tend to be dealing with a lot more older stock custom houses. When you’re dealing in the Sunbelt or in the newer states, there is a lot more production housing. As a result, that is a far easier market for investors to operate in because there is far more predictability in it. Andrew sees a lot of activity in the “smile” of the southern states, starting in the Carolinas and going up into Northern California. It’s weather, economic strength, right to work, and a whole lot of things that make the markets much more attractive for real estate investors than the northeast, Midwest, or the far northwest. For California, what we have is a double whammy of you getting emotionally damaged by real estate after losing money plus high unemployment and not attracting migration. In California it is a perfect storm. Andrew moved to California in the ‘70’s when he lived at Berkeley, and just after watching and plotting the path of progressive strategies, he has seen that the people who leave the state are the productive people.

If you want to find out more about Andrew’s upcoming event in September, the Investor Provider Leadership Summit, go to www.personalrealestateinvestormag.com. You can also find Andrew’s magazine here or download it onto your iPad.

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.

Andrew Waite

Founder and Publisher, Personal Real Estate Investor Magazine

(Full Bio)

This week Bruce is joined by Andrew Waite. Andrew is the founder and publisher of Personal Real Estate Investor Magazine, which debuted in 2003. He has authored a total of nine magazines, is a recognized expert, and is extensively published in sales and marketing automated processes, sports marketing, and sponsorship.

In 2003 when his magazine debuted, his company had just sold a technology investing magazine in New York, closed on September 10, 2001. After September 11 occurred, Andrew and his partners had to think what to do because of the impact September 11 had on technology investing and since they had investments in real estate. They discovered that despite the fact that the stock market had been severely impacted by both the .com crisis and September 11, their real estate investments had not been affected. They decided to go find the national magazine on real estate. At that time they didn’t understand anything about the market dynamics, so they asked the usual questions such as whether the 300 national brands were interested in real estate investors and were they supporting that market with large media buys. On the other side, they asked who is the logical newspaper or magazine that has a list of subscribers that will lend themselves to real estate investment. Andrew went to do his research and at first could not find a thing. He started looking around and tried to list the 300 companies he knew it would take to justify the launch of and budget for a national magazine. He found four magazines that had some national footprint that were interested in real estate investors. He went back to his two business partners in New York and told them his problem of not being able to find either classes of people listed above, but in Phoenix alone there were a group of people spending about $3 million a month on real estate advertising. So he didn’t really understand what was going on with that. The statement that is now made is that real estate is local, unlike the traded assets, stock bonds, funds, etc., which is not traded on a national exchange but rather a very inefficient one-to-one process in local markets of the world of traded assets, which is regulated by the FCC, FINRA, and other interested parties. The world of real estate is regulated, if at all, by the local department of real estate and practice standards within the NAR. Andrew and his partners found it was a major structural difference in the real estate business and the subset notice known as real estate investing that could not be kept compared to the world of investing from retail or an institutional point of view at a national level.

Bruce said he just bought one of Andrew’s magazines at a Borders store, and Andrew wondered why no one else has reached out and gotten any footprint in the local Borders or Barnes and Noble stores, in airport stores, or other kinds of bookstores. At first they decided to start selling in Phoenix, Arizona because back in 2003 the market was booming and because it was a mid-price point market that attracted people outside the state like Californians. It was also a Sunbelt state with a lot of production housing and a destination for both tourists and capital. By chance they launched in Phoenix, and then what they found was the poll factor, meaning people who bought the magazine then subscribed to it when they were out of the state, and the people at the newsstands showed that they were selling so well and their rate exceeded Time Magazine and Cosmo. They were asked by other paper sellers if they consider expanding to California and to the rest of the United States. All in all, the market pulled them through, and they found that there was a very interesting dichotomy in the market. The DIY real estate investor makes up about 5% of the market. What they found was the interest for the remaining 95% is in performing assets that are packaged, presented to them, and managed at a portfolio level by people they can trust. This business is continuing to expand at an incredible rate.

In his publisher’s letter, Andrew talked about how a lot of people with their current investment strategy are destined for destitution. Real estate is different from traded assets, so you shouldn’t try to apply a traded assets lens to real estate because you will get crazy, non sequitur responses from places like Case-Shiller. They look at real estate data and try to wrap it in the convenience of a national number. Clearly, this is not the way it works. What Andrew found was as soon as you start granulating the market, looking at individual markets, and taking it into neighborhoods, you’re stock-picking for real estate investment properties is a pretty logical process; but most people have never looked at it this way. In the real estate industry, the traditional owner-occupied seller and big sales brands have always found real estate investors a problem because they ask lots of questions and mistake due diligence for indecision and questions. As a result, they marginalize real estate investors as not a particularly productive client. There is a lot or reasons why real estate investors are marginalized in this way, and these reasons create opportunity for the astute real estate investor.

It seems the astute real estate investor would have a hard time turning the reigns over to a group. If you step back and look at the traditional real estate agent selling what they claim to be investment-rate real estate to an investor, they say, “Here is this wonderful property that is going to generate $1,000 a month in rent,” you see that the investor makes his decision based on those representations. He then buys the property and hands it to a referral property manager who immediately sits down and asks who told them it would earn $1,000 a month. They say it will actually only earn about $750 a month and that they bought in the wrong neighborhood. Consequently, what are found are the effective property managers who understand rentable and attractive property profiles tend to be a better source of selection intellect than a realtor who is transactional and commission driven. The opposite is also true. A conscientious realtor who does know everything there is to know and does a good job, but then passes off a valued client to a poor property manager loses that relationship and the potential for recurring or repeat business. What is being found is a number of companies who have realized that just sitting, taking a property, doing the renovation for a client, and then renting it, the revenue and returns is very low and the risk is much higher. When they actually control the process from expectation creation through property selection, through property preparation, lease-up, and finally performance, then it is a much easier purchase for a retail investor who is looking to be treated like they would at a Merrill-Lynch and a cash management account. In this case, it’s a property management account or real estate management account. If you think in terms of the 5% of the market that is acquainted with do-it-yourself real estate investment, it’s probably never going to go across and relinquish all control and management to a property management or a real estate management company. Why it is attractive to the retail investor is when you can deliver an 8, 10, 11, or 15% true net yield, all of a sudden when you take indexed inflation into account you see that this particular investment asset becomes a very competitive asset against a traded asset. We see on the financial advisor side that they are losing clients to the real estate space. Andrew was invited to speak at the First Innovative Real Estate Conference, and he shared the stage with Nick Edwards, who is the advisor’s advisor. He was saying to the other clients/advisors that if they’re attracting clients on the basis of providing them protection of the principal in downturns, then that’s not good because you’re still going to treat them poorly. What we are now confronted with the volume of boomers is they will be driven into destitution because the assets we strongly believe in tips and reaps. Funds, bonds, and equities just don’t have any inflation indexing in them to speak of, whereas residential real estate is completely inflation-indexed, both on the income side and the appreciation side. When you look at these buyers who have no background in real estate investment or renovation personal management, you see their heads are not even turned by the option because they have lives, careers, and families. If you’re an effective real estate investor, it’s not very long before you go full-time or at least give up your weekends because you’re doing it yourself.

One of the vehicles good for the busy professional is trust deed investments. The Norris Group has $40 million of people’s money involved in trust deeds, and some of them are now financing long-term rentals for our investors. The investor with the trust deed is getting a 9% yield, and the Norris Group charges 9.9% to the California investor who is getting rentals that cash flow almost twice the payment. This is a true pre-tax net yield, and there is no tax benefits involved. Andrew watches both the funds play out and direct ownership. In the direct ownership, there are some other models that are beneficial because even though it is managed transparently, the tax status is as if they were doing it themselves.

In April the National Real Estate Investors Summit was held, which culminated with a trip to Washington D.C. and meeting with legislature. They conducted an investor provider leadership summit, so they took their vendor side clients and told them they needed to understand what was going on at a legislative level. There are good resources in that space, one being the National Association of Real Estate Investors and American Rental Property Owners and Landlords Association. He told the clients they need to get alongside the people in the aforementioned organizations, and one of the benefits would be their lobbying enterprise. The National Association of Real Estate Investors typically picks on a particular subject, whether it be financing or the current Safe Act. There is a lot of unforeseen consequences coming out of this mess, and you can tell the whole thing was assumed that anybody providing money or had access to real estate was going to be predatory lender. They completely missed the boat on it, but the impact is obviously very negative for creative financing any way, shape, or form where there is money left in the deal by the investor to make the deal happen. On the other side, there is also an attempt to put feed governance into long-term contracts whereby any future transfer generates a fee for a Wall Street entity. There has been a huge movement to prevent any transfer covenants or transfer fees creating fees for HOAs or developers who transfer the package fees and try to sell them as funds to investors much like CDOs or other derivative style transactions. This is pretty much being shut down in all but about twenty states now. There are about 30 states that have come back at an AG and Department of Real Estate level and said they were going to forbid any kind of transfer taxes.

At this point, there is no difference between a speculator and an investor since it is far too nuanced for them. They are still running on the five-year old definition. When Andrew first launched his magazine, their title was Personal Real Estate Investor Magazine, and is still called this to this day. If he had another shot at doing his magazine, he would probably soften the investor title because it is designed for the DIY investor who has no shame or embarrassment in calling himself a real estate investor. Andrew was encountering people who said they don’t deal investors and had several anti-investments clauses in their buy/sell agreements and would not speak highly of them. He said he and his business partners would go talk to a Del Webb or a KB, and they would go through a whole conversation and only to hear from the company that they don’t deal with investors and had these investors’ clauses so you couldn’t sell within a year. The meeting would go nowhere, but at the end of the meeting the companies would say with pride that they were investors too. They were buying their own stock and were speculating on company housing stock. These were huge SEC violations, which they were not recognizing. So Andrew was getting from the companies that they did not like investors, yet they were ones themselves. What he found was that when you did the analysis, there were a lot of people investing in real estate that weren’t showing up to the local REIA clubs, but they were holding one or two houses that they accumulated either as a matter of inheritance or a relocation that had not sold. They realized that to them it worked, they were doing okay, and the buy and hold model they had fallen into was a good idea. Andrew spoke with Real Trans president Steve Murray, who was one of the best real estate analysts in the country from a practice point of view, and he said they should work out how big a portion of the market real estate investment makes up. They put together a study and had Harris Interactive do the quantitative analysis. They asked 44,000 people in the last quarter of 2007 if they had bought a home, why they brought the property, and whether they were a first-time occupant, if it was a move-up, second home, or intentional investment. Twenty-eight percent came back and said they were buying it as an intentional investment. If you took the size of the market in that year, it was running about 2.4 million transactions, and 28% of them were people buying for investment purposes. It was a $320 billion market.

The National Association of Realtors runs a poll of about 1,000 realtors, and they ask them what proportion of their sales was made to investors. Andrew said he does not really like this question because it assumes ahead of time that people define themselves as investors. That’s why instead Andrew and Steve asked them why they bought the house. NAR found it was round about 20%, 19% the year before and 25% in previous years, so both NAR and Andrew’s own research were all in the same ballpark. Judging by NAR’s poll size and the types of questions they ask that they are probably missing a number of people. They also tended to use validation from a lending point of view, asking questions such as whether the property was owner-occupied or an investment. The problem was back in 2006 and 2007 people were lying through their teeth over these statements. Everything NAR does tends to downplay the numbers, so Andrew and Steve were very comfortable saying that in 2008 about 28% of the market was intentional investments.

Andrew will be holding an event called the Investor Provider Leadership Summit on September 30 which he said will be on the provider side because he said he wants to make an industry out of real estate investment sales, providers, and service leaders. Andrew said his goal with the magazine is to be the magazine of record for the real estate investment industry as it speaks to individuals and not to the institutional market because from those numbers the market is huge. You can check out more on the event at www.personalrealestateinvestormag.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.

Mike Shedlock Registered Investment Adviser Representative, Sitka Pacific Capital Management (Full Bio)

This week Bruce is joined once again by Mike Shedlock.  Mike is a registered investment advisor representative for Sitka Pacific Capital Management. 

Mike’s blog, Mish’s Global Economic Trend Analysis, was started back in 2005.  Before, he had worked in the banking industry for over 20 years as an assistant vice-president for Harris.  He then became a consultant in 1999, but the consulting  jobs dried up after Y2K and 9/11.  For this reason he was out of work for almost 3 years.  He started his blog with the intent of being discovered, which originally he thought the odds were 0, but he proved himself wrong.  He now gets a million and a half to 2 million page hits a month on his blog.  He initially started writing about the things that he was going through at the time that a lot of people are going through right now.  I could see the bubble in housing building, and people were telling him “Cash is miss, cash is trash,” but when you are out of work cash is not trash.  Now, most of the people who told him this have actually lost money on their houses.  He wonders how many of them would like to have their cash back in their pockets now that they’re unemployed.  However, very few people listened.  Bernanke tried to claim the housing bubble didn’t exist, but it was very easy for Mike to see it did indeed exist.  He called the exact top of the housing market on his blog in real time in the summer of 2005.  Some people tried to say that Case-Shiller showed the peek was in 2006, but Case-Shiller only looks at re-sales and not at new home sales.  What started happening in the summer of 2005 that didn’t reflect itself in prices was huge incentives, whether it was free garages, free trips to Europe, free cars, free swimming pools, free landscape upgrades, free granite counter tops.  It actually started with the free granite counter tops, and then it went as big as free pools.  Case-Shiller never picked up any of this.  Housing peeked in 2005, and it took another year for things to start heading down in earnings.  The same type of thing happened back in 2006 when there was an 18% commission to sell a house in Phoenix. 

One of the things that was very difficult about picking a top accurately back in 05-06 was you would have really had to understand the way real estate was being financed, and very few people understood what a mortgage-backed security or a CDO or a fault-swap until around 2007.  Part of the problem was possibly a disconnection between the ways things were really being financed and how little the lender cared if anybody really could pay.  However, it’s really hard to say what was going on in Bernanke’s mind, but he certainly did miss the housing bubble.  He didn’t think there would be a recession and said, “The housing prices were supported by fundamentals” and mentioned there possibly being some “local froth.”  Neither he nor Greenspan saw the role of the Fed’s interested rate.  It’s interesting to ask how much of what Bernanke said he really believes or if he is simply trying to absolve the Feds’ guilt.  Last week he did a very self-serving speech where he praised the Feds for doing things that caused the recovery, but ignored all the things that the Fed did that caused the bubble in the first place.  Greenspan was a veritable cheerleader for housing, preaching variable interest loans, adjustable rate mortgages.  He was praising derivatives and all the things we would look back on as silly.  One did not need to understand credit derivatives or anything like that to know housing was in a bubble.  All one needed to see was how fast home prices were rising vs. how fast wages were rising.  Home prices were 3-4 standard deviations above rental prices and 3-4 standard deviations above wage growth.  It’s simply not sustainable.  That is how out of line home prices were.  We’re closer now to being back at the trim line, but we’re still a little bit above it. 

The tendency, however, is to overshoot to the downside.  Should that happen, there is a chance for some significant declines in places like California.  Home prices look a lot cheaper in Las Vegas because the bigger the bubble the bigger the decline.  Some of the biggest bubble areas were Las Vegas, Florida, Phoenix, and a lot of places in California.  California still has not corrected to where it needs to go to where one would say the valuations are reasonable.  California also has Proposition 13, which is putting a floor on home prices.  Some cities, such as Chicago, New York, and San Diego, are always going to have a premium because these cities are where there are a lot of jobs.  However, there is a difference between premium and 300-400% and 3 standard deviations like we were above norm.  A deviation is a mathematical function of a normalized curve that shows just how insane things are.  Three times normal is an extremely low probability event, and when you get into that condition, you know that you’re in a bubble.  Australia, Vancouver, Canada, and China are in this same situation right now. You can look at all these places and see that home prices are going up faster than rents and faster than wage growth.  It’s not sustainable.  The bubble in Australia has now popped, but all the mentioned countries were in a bubble longer than expected.  When Canada’s and China’s burst, we are most likely going to see some 50% declines just like here in the United States. 

There are a lot of smart people who disagree with the direction the market is going and believe we need to protect against strong inflation.  However, before you can hear their arguments and debate you have to know what the terms mean.  Mike defines inflation as an increase in money supply and market to market credit.  A common definition people use for inflation is prices going up, and they look at consumer prices.  Unfortunately, they ignore asset prices, which is one of the mistakes Bernanke and Greenspan made.  They absolutely ignored asset prices and did not consider home prices as part of inflation.  Had you taken home prices and put them in the CPI, then interest rates in the initial stages of the bubble popping were 5-6% too low.  You put housing in the CPI; the CPI would have been about 8 or 9%.  Instead, interest rates were 4 1/2%, so there should be no wonder that speculation in homes was running rampant when interest rates are that low.  On the contrary, people today say inflation is going through the roof, but you have to ask if it really is.  If you put home prices in the CPI, we now see something different.  The CPI would be barely flat here now.  This is what happens when you ignore asset bubbles and don’t put them in the CPI.  This is what happens when you only look at prices.  It’s not even really possible to measure prices.  If you take a look at the CPI, this is a basket of goods and services, and there is not one representative basket.  Take for example someone who is on fixed income and retired.  They are going to care the most about gasoline prices, their heating bill, property taxes, rent prices, the prices of food, and medicine if they are not fully covered by Medicare.  If also, for example, you take the basket of someone with kids in high school heading for college, you see the cost of college education has doubled in the last ten years or less.  Someone can easily rack up $50,000 a year in expenses going to college.  Kids are racking up $100,000 in debt.  These are two different kinds of baskets, not one representative basket.  Therefore, the whole idea of thinking you can measure the CPI is flawed. 

Mike has a letter on his website from a lady named Stephanie who is retired.  To Stephanie, inflation meant her fixed income bought less.  She said she gets $938 from Social Security, which is what she lives on every month.  She has a cd that has $16,000 in it, which she was getting $75 a month on the cd at one time.  Short-term interest rates are now down to nothing, so she is getting nothing on $16,000.  She wrote Mike asking him for advice, and he responded saying that she was being clobbered by the policies of the Fed.  Not only did the taxpayers bail out the banks at their expense, but the Fed continues to do so.  When Bernanke holds the interest rates so low, he is hurting everyone on fixed income that has savings in cds or receives a social security check every month that buys less and less.  These are the people that Bernanke is hurting.  Norio Rabini just came out with a statement that he thought there could be quite a shaking up of bonds and yields in the next couple years.  Mike mentioned this possibility too, although it is uncertain.  He received an email recently asking this very question, and they got upset when he didn’t know.  However, the real answer is anyone who thinks they know is probably lying.  No one really knows.  We can put together our guesses and make a case why we think something is going to happen, but when someone says they know, they really don’t.  We don’t know what the Fed is going to do, or what the ECB is going to do, or what China is going to do.  Everything is intertwined.  China is having a government change in 2012, something of which not many people are aware.  It is going to be a very significant one.  The current leadership in China is focused on maintaining growth at any price.  It is highly rumored that the next regime coming into China is extremely concerned about the property bubbles.  If they slow the Chinese economy, slow the prices of commodities, drop oil, drop the CPI, and if Congress sticks to its policies of being fiscally conservative, we may still be running huge deficits, but we’re no longer adding to it.  This is a change in the direction of downward pressure on the dollar.  Last year the ECB thought Jean-Claude Trichet was going to hike prices last month, and he didn’t.  If the ECB doesn’t hike, this is going to put upward pressure on the dollar and downward pressure on the Euro.  All of these claims are being put out there, but most of the claims are lies; the people don’t really know.  However, Mike is very supportive of what Rabini said about there being a legitimate chance of a bond market revolt.  On Yahoo Finance Mike talked about this very thing.  He was on the air with Aaron Task and Henry Blodget and had mentioned it two weeks before Rabini had even mentioned it.  He said if they get another round of QE out of the Fed, there is a real risk of a bond market revolt.  However, if he doesn’t and delays off on it, if there is a stock market plunge, if Europe delays hiking, if Australia does rate cuts, China slows, and commodities come down, then we can see a flight to treasuries.  As of which one of these things will happen depends on where all the variables fit.  It depends on what China does, what the ECB does, and what the Fed does.  Only then can we have a more definitive answer. 

The Fed will attempt to inflate, but it would be better for us to bite the bullet and balance the budget.  Otherwise, there is a very big risk of what happened in Greece happening in the United States if the U.S. does not address its budget deficit.  Interest rates do shoot up, and this is a very real risk.  If we want to get back to growth policies, we need to balance the budget.  We’re already spending $750 billion on defense, and we could probably spend $100 billion and have enough defense.  We could also allow drug imports to come in from Canada, get rid of student loans, or kill the entire department of energy.  There are a lot of things we could do that would get this country back on fiscal track.  We can’t balance the budget in one year, but it is possible that someone can do it in 5 years.  There is not really a choice here.  If we continue on the current path of not tackling the deficit, then what’s going to eventually happen is something similar to what happened in Greece.  The path we’re on is unsustainable.  The sooner the Congress addresses this, the better.  The sooner they address it, the sooner housing, commercial real estate prices, and the stock market will be negatively impacted.  No one wants to see this happen; no one wants to see the short-term pain.  However, the long-term pain gets greater and greater just like what happened in Greece if we don’t address the problem. 

The U.S. has been following the path of Japan, which has had a 20-year run with their housing market.  It seems we are still on this path, and even if the Fed does manage to obtain a little bit more inflation, home prices will probably not go anywhere for a decade due to the deleveraging of consumers.  All the people out there who are thinking housing is at a bottom and better buy now should forget it.  We are not going to have hyperinflation, and home prices are going to be stagnant for a long time.  

To learn more, you can view Mike’s website at globaleconomicanalysis.blogspot.com, or type Mish in a Google search.  He talks about housing, interest rates, Europe, gold, silver, and the global economy every day of the week. 

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.

The Associated General Contractors of America reports California ranked 18th in year over year economic improvement. According to LPS, Option ARM foreclosures currently represent 18.8% of foreclosure inventory. The Congressional Oversight Panel estimates HAMP will avert only 800,000 foreclosures. Statistics from S&P shows home prices decreased 3.1% year over year.

In The News:

Sign On San Diego – “California construction jobs up in February” (3-29-11)

“California added 15,500 construction jobs from January to February, far outpacing all other states. But it still ranks 18th in year-over-year improvement, according to the Associated General Contractors of America.”

CNN - “Home prices near a double dip” (3-29-11)

“January home prices fell for the sixth month in a row, edging closer to a double dip. The S&P/Case-Shiller home price index covering 20 major markets fell 3.1% year-over-year, hovering near the market’s bottom set in April 2009.”

Housing Wire – “House Democrats give Geithner plan to revamp HAMP” (3-29-11)

“the Congressional Oversight Panel estimates HAMP will avert only 800,000 foreclosures before the program ends, far short of the 3 million to 4 million originally estimated.”

Mercury News – “As gas, food prices rise, consumer confidence falls” (3-29-11)

“The Conference Board’s Consumer Confidence Index fell more than expected to 63.4 from a revised 72.0 in February. Economists expected a decline to 65.4, according to FactSet. A reading of 90 indicates a healthy economy.”

Housing Wire – “Foreclosure inventory volume outpacing actual foreclosure sales: LPS” (3-29-11)

“Another significant shift occurred in February with data showing a 23% hike in Option ARM foreclosures in the past six months. Option ARM foreclosures now make up 18.8% of the foreclosure inventory, outpacing subprime foreclosures.”

Bloomberg - “U.S. Treasury to Publicly Grade Mortgage Servicers Over Loan Modifications” (3-29-11)

“The U.S. Treasury Department plans to publicly grade mortgage servicers on how well they respond to homeowners seeking reductions in payments as the government encourages loan modifications to stem foreclosures.”

Housing Wire – “Average national mortgage rate rose in February: FHFA” (3-29-11)

“The average national contract mortgage rate for the purchase of previously occupied homes by combined lenders hit 4.79% in February, up 0.8% from the previous month, the Federal Housing Finance Agency said Tuesday.”

Housing Wire – “Regulators vote for 20% down on QRM” (3-29-11)

“Federal regulators voted in favor of the initial mortgage risk-retention proposal Tuesday. Qualified residential mortgages exempt from the rule will require a 20% down payment.”

DSNews - “House Republicans Introduce Eight Bills to Speed Wind-Down of GSEs” (3-29-11)

“The eight proposals include measures to raise guarantee fees the GSEs will charge for mortgage-backed securities they insure and to prevent the GSEs from offering any new products while they are under conservatorship or receivership.”

Looking Back:

One year ago, a study from USC showed that immigrants were more attracted to mid-size cities. Goodman claimed HAMP was bound to fail because of its failure to address negative equity. According to Realpoint, the delinquency rate among commercial mortgage-backed securities reached 6 percent within a month. First American CoreLogic estimated the average home experiencing negative equity would not obtain positive equity until late 2015.

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.

A Survey from Harris Interactive shows 70% of Americans aspire to homeownership. According to S&P/Case-Shiller, national home prices fell 4.1% in the 4th quarter of 2010. FNC Residential seems to confirm this saying home prices fell 2.2% in December. CB Richard Ellis Group expects office rents to increase this year.

In The News:

Ventura County Star – “Apartments can be good investment as more people rent” (2-19-11)

“While construction in Ventura County has taken a significant hit since the downturn began, shedding about 7,700 jobs from June 2007 to June 2010, the pain has been uneven. Single-family homes have been hit hard and condominiums even harder, said Dawn Dyer, president of Dyer Sheehan Group, a Ventura real estate consulting firm.”

Los Angeles Times – “Homeownership loses its luster” (2-19-11)

“Two-thirds of Americans still see a home purchase as a safe investment, but that’s down from 83% in 2003, according to a study by Fannie Mae. Homeownership has fallen to 66.5% of the adult population, down from 69.2% in 2004. A Harris Interactive polls says 70% of Americans aspire to homeownership, down from 77% a year ago.”

San Francisco Chronicle – “Consumer Confidence Index hits 3-year high” (2-22-11)

“The Conference Board says its Consumer Confidence Index climbed to 70.4 this month, up from a revised 64.8 in January, hitting its highest level since February 2008. It was the index’s fifth consecutive monthly increase. The figure topped economists’ expectations of a reading of 65, according to FactSet.”

CNN - “Home prices near 2009 lows — and may fall more” (2-22-11)

“National home prices fell 4.1% during the last three months of 2010, compared with 12 months earlier, according to the latest report from the S&P/Case-Shiller home price index, a closely watched indicator of market trends. They were down 1.9% compared with three months earlier.”

Housing Wire – “Fitch Solutions subprime credit default swap prices highest since October 2008″ (2-22-11)

“Analysts said the firm’s index for subprime swaps rose 5.2% in January on top of increases the prior two months, including a 7.2% gain in December. Fitch said the 2004 and 2007 vintages performed well last month with returns of more than 7% although constant default rates average 20% higher for the swaps from 2007.”

Housing Wire – “Moody’s finds commercial real estate eluding recovery” (2-22-11)

“After three consecutive months of increases, commercial real estate prices fell 0.9% in December, according to Moody’s Investors Service.”

Housing Wire - “Foreclosure sales weigh down home prices in 23 markets” (2-22-11)

“Home prices in 23 U.S. metropolitan areas fell 2.2% in December, the largest one-month drop for fiscal 2010, and a sign that foreclosed properties continue to weigh down home values across the nation, the FNC Residential Price Index revealed Monday.”

Bloomberg – “U.S. Office Rent Growth to Be ‘Modest’ in 2011, CB Richard Says” (2-22-11)

“U.S. office rents will increase for the first time in three years in 2011, with growth ‘modest and limited to key markets’ before a recovery accelerates in 2012, according to CB Richard Ellis Group Inc.”

Looking Back:

One year ago, Moody’s reported that commercial property prices increased by 4.1 percent in December. A survey showed that 87 percent of homebuilders expected to lose money due to the new FHA guidelines. Short sales accounted for 15.9% of home purchases in January 2010. Janet Yellen predicted the U.S. economy would perform below potential throughout this year and the next.

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.

The Commerce Department said construction spending fell 2.5% from July. Fiserv forecasts a 5.5% decline in home prices this year. According to the Treasury Department, the re-default rate for the Making Home Affordable Program averaged 20.4% after 1 year. Marcus & Millichap expect Orange County rents to rise 4.5% this year.

In The News:

Bloomberg - “Construction Spending in U.S. Unexpectedly Fell to Decade Low” (2-1-11)

“The 2.5 percent drop was the biggest since July and brought the value of all projects down to a $787.9 billion annual rate, the lowest since July 2000, Commerce Department figures showed today in Washington. The median estimate of economists in a Bloomberg survey called for a 0.1 percent gain.”

Housing Wire – “Fiserv sees housing prices stabilizing in most MSAs” (2-1-11)

“Fiserv Inc. (FISV: 63.03 +2.04%) expects home prices to decline 5.5% this year, but three-fourths of the 375 metro areas the company tracks will see prices stabilize by the end of the year with all markets stabilizing by the end of 2012. The company said 25% of all markets already show signs of prices leveling off, although the Fiserv Case-Shiller Indexes, which use data from the Federal Housing Finance Agency, still point to a slow recovery ‘with many false starts,’ especially in areas hit hard by foreclosures.”

Housing Wire – “Rep. Issa wants explanation for Fannie, Freddie legal fees” (2-1-11)

“Last week, Rep. Randy Neugebauer (R-Texas) released the results of his investigation into the fees. Since entering conservatorship in September 2008, Fannie and Freddie have spent more than $160 million in legal fees, including $24 million in defense of former Fannie CEO Frank Raines ($7.9 million), former Chief Financial Officer Tim Howard ($4.5 million) and former Controller Leanne Spencer ($11.8 million), according to the data.”

Housing Wire – “Senate committee considers foreclosure mediation program” (2-1-11)

“The Senate Committee on the Judiciary held a hearing Tuesday regarding possible legislation granting bankruptcy judges the power to require foreclosure mediation between banks and homeowners.”

Housing Wire – “Rosenberg warns against boosting 1Q GDP estimates” (2-1-11)

“David Rosenberg, chief economist and strategist at Toronto-based Gluskin Sheff + Associates, said the high level of housing inventory with many cities facing backlogs between 13 and 15 months’ of supply also continues to hinder growth.”

Bloomberg - “One in Five Mortgages Default Again After Modification” (2-1-11)

“The re-default rate for the Making Home Affordable Program averaged 20.4 percent after 12 months, 15.9 percent after nine months, 10.7 percent after six months and 4.6 percent after three months, according to a report released today by the Treasury Department.”

Orange County Register – “Forecast: O.C. rents to soar 4.5% in ’11″ (2-1-11)

“Orange County apartment tenants should brace themselves for the biggest rent hikes in three years, with landlords pocketing 4.5% more rent in 2011 than they did last year, a Los Angeles-based national real estate brokerage said forecast.”

Looking Back:

One year ago, the MBA reported there was a $1.45 trillion balance of outstanding mortgages held by non-bank investors. SIGTARP predicted a second housing bubble. Fannie Mae’s mortgage delinquency rate increased to 5.29% in November 2009. U.S. home construction spending decreased by 2.7 percent within a month.

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.

69,799 Notices of Default were recorded during the 4th quarter of 2010, according to MDA DataQuick. The Case-Schiller Index shows home prices decreased 1% during November in the nation’s top 20 metropolitan areas. University of the Pacific estimates unemployment will remain above 10% in California for 3 more years. IEmergent expects mortgage loan origination to fall below $1 trillion this year.

In The News:

MDA DataQuick – “Another Decline in California Foreclosure Activity” (12-25-10)

“A total of 69,799 Notices of Default (NoDs) were recorded at county recorders offices during the October-to-December period. That was down 16.2 percent from 83,261 for the prior quarter, and down 17.5 percent from 84,568 in fourth quarter 2009, according to San Diego-based DataQuick Information Systems.”

New York Times – “U.S. Home Prices Slump Again, Hitting New Lows” (12-25-10)

“Prices in 20 major metropolitan areas fell 1 percent in November from October, according to the Standard & Poor’s Case-Shiller Home Price Index. The index is only 3.3 percent above the low it reached in April 2009 and has fallen fell 1.6 percent from a year ago.”

Sacramento Bee – “Grim economic forecast for California, capital” (12-25-10)

“Even though job growth is picking up, unemployment will remain above 10 percent in California for three more years, according to the latest forecast from the University of the Pacific.”

Housing Wire – “Home prices on federally backed mortgages unchanged in November: FHFA” (12-25-10)

“Home prices fell 4.3% between November 2009 and November 2010. The FHFA revised the previously reported 0.7% increase in October down to a gain of 0.2%. The agency’s monthly index is calculated using purchase prices of houses backing mortgages sold to or guaranteed by Fannie Mae or Freddie Mac.”

Housing Wire – “$1 billion in mortgage help to unemployed won’t come until spring” (12-25-10)

“The Department of Housing and Urban Development will release $1 billion in mortgage assistance to the unemployed this spring, a HUD spokesman confirmed to HousingWire Tuesday, after receiving complaints from lawmakers and advocacy groups that HUD was dragging its feet.”

Housing Wire – “Mortgage loan origination to drop below $1 trillion in 2011″ (12-25-10)

“iEmergent expects mortgage loan purchase volume plus refinancings of between $903.8 billion and $990.7 billion this year.”

Housing Wire – “Moody’s says keeping Fannie, Freddie intact is lose-lose” (12-25-10)

“The Treasury Department is delaying a report on the future of the government-sponsored enterprises from the end of January until mid-February. Meanwhile, Moody’s Investors Service is throwing its hat into the ring, arguing that the current model is not only unsustainable, but against government vision.”

Housing Wire – “Housing analysts expect home price declines through 2011″ (12-25-10)

“Radar Logic made a similar assessment when it released its RPX composite price index last week, which showed a 0.3% increase in home prices from October to November. Research firm Capital Economics also forecasts a price drop. The firm predicts a 5% drop by the end of 2011.”

Housing Wire – “Ten indicted in California mortgage fraud scheme” (12-25-10)

“A newly unsealed 56-count indictment charges 10 people in California in a $20 million mortgage fraud scheme in Bakersfield, Calif., said U.S. Attorney Benjamin Wagner.”

Looking Back:

One year ago, existing home sales decreased by 16.7 percent in December. The HVCC repeal bill, named HR 1728, passed in the House of Representatvies and was waiting approval from Congress. The FDIC took over 5 more failed banks in one week. FTN Financial reported that declining home values had little effect on the nation’s economic recovery.

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.

Bank of America Merrill Lynch stated that house owners may have to default their underwater mortgages in order to take care of their debt.  Last October, pending home sale prices rose 10.4%, according to Realty Times.   Prices on commercial property rose for the second month in a row according to Moody’s Investors Service and are expected to continue to fluctuate, according to Moody’s Investors Service.  According to the National Association of Home Builders/Wells Fargo Housing Market Index, consumer cofidence in newly-built houses declined 4 points from November in the West.   In other news, Moody’s Investors Service reported that prices of commercial property increased 1.3% in October.

In The News:

Housing Wire - “Households likely to deleverage debt with underwater mortgage defaults: Report” (12-20-10)

“Bank of America Merrill Lynch analysts said the most likely way households will deleverage roughly $1 trillion in excess debt is through the default of more underwater mortgages.  Home prices in the Standard & Poor’s/Case-Shiller 20-city index have dropped 28.6% from the peak in the summer of 2006. This has led to more than 10.8 million homes, or 22.5% of the entire U.S. market in negative equity as of the third quarter, according to the analytics firm CoreLogic.”

Realty Times- “Real Estate Outlook: Existing Pending Sales Rise” (12-20-10)

“Existing pending sales may have jumped a staggering 10.4 percent in October, the strongest pace since April of this year, but interest rates are on the rise. According to Frank Notehaft, chief economist for Freddie Mac, investors moved from U.S. Treasury debt to European markets — where improvements are being made to the debt crisis. This in turn caused ‘bond yields to rise and mortgage rates along with them,’ he says.”

Housing Wire - “Recent CMBS modifications, sales prompt Trepp to warn investors” (12-20-10)

“Loan modifications and note sales in the commercial real estate space have analysts at Trepp warning investors to be vigilant with their trading. According to the data firm’s latest report, two specific CMBS deals incurred severe losses when they were modified or sold, and wiped out several investor classes.”

San Francisco Chronicle – “U.S. Commercial Property Prices Rise, Moody’s Says” (12-20-10)

“U.S. commercial property prices rose 1.3 percent in October from the previous month, the second consecutive monthly gain, Moody’s Investors Service said. The Moody’s/REAL Commercial Property Price Index climbed 3.2 percent from a year earlier, Moody’s said in a report today.”

Housing Wire – “Commercial real estate investors hungrier for more risk in fourth quarter: PwC” (12-20-10)

“Commercial real estate investors see slight but promising signs in the U.S. economy during the fourth quarter and are more willing to look for riskier buying opportunities going forward, according to the PricewaterhouseCoopers Korpacz Real Estate Investor Survey.”

Fortune – “Riding the unlikely commercial real estate rebound” (12-20-10)

“For years commercial real estate has been billed as the next big train wreck. So why are some investors shouting all aboard?  A slowly recovering economy is part of it, though no one expects to make a quick killing on loans and securities tied to office buildings, hotels, shopping malls and the like. The bigger drivers of this rally are the low rates pushing investors to reach for yield by taking on more risk, and the wide open junk bond market that has allowed lots of companies once left for dead to refinance loans and trudge forth.”

Orange County Register – “Western builder confidence drops” (12-20-10)

“Homebuilder confidence weakened in the West again.”

Housing Wire – “Moody’s expects commercial real estate prices to remain ‘choppy’” (12-20-10)

“The price of commercial property has been fluctuating all year and prices rose for the second-consecutive month in October with a 1.3% increase, according to Moody’s Investors Service.  The ratings agency said the gains in September and October followed significant declines the prior three months. For the first 10 months of the year, prices rose five times and fell five times”

RisMedia – “Foreclosures Intrigue Home Buyers Looking for Deals” (12-20-10)

“In a survey released last week, conducted by Harris Interactive, on behalf of Trulia and RealtyTrac, nearly half, or 49% of U.S. adults admitted they were at least somewhat likely to consider buying a foreclosed property.
That’s up from 45% in May.”

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.

The MBA estimates total originations in 2011 will be $400 billion less than the total for 2010. According to MDA DataQuick, 83,261 Notices of Default were recorded at California county recorder offices during the 3rd quarter. Lender Processing Services is releasing a new valuation model that brings listing and pending sale data into the equation. The FHFA claims U.S. house prices increased 0.4% in August.

In The News:

Mortgage Bankers Association – “MBA Sees Growth in Purchase Originations, Drop in Refinancing, and Weak Overall Economic Growth in 2011″ (10-26-10)

“The Mortgage Bankers Association expects to see mortgage originations fall from an estimated $1.4 trillion in 2010 to slightly under $1 trillion in 2011. The drop will be driven by a decline in refinance originations, but the industry will see an increase in purchase originations. The economy will grow at a slow pace but with no significant job growth until 2011. The increase in purchase originations will be driven by modest increases in home sales and stabilizing home prices. In contrast, MBA refinance originations are expected to fall steadily as mortgage rates gradually increase throughout 2011 and 2012.”

DQNews - “California Mortgage Defaults Rise in Third Quarter” (10-26-10)

“A total of 83,261 Notices of Default (“NODs”) were recorded at county recorder offices during the July-through-September period. That was up 18.9 percent from 70,051 in the prior quarter, and down 25.5 percent from 111,689 in third-quarter 2009, according to San Diego-based MDA DataQuick.”

Los Angeles Times – “Consumer confidence rises only slightly in October” (10-26-10)

“Americans’ confidence in the economy rose only slightly in October from September, according to a monthly survey, as they continue to grapple with job worries. The Conference Board, a private research group, said Tuesday that its Consumer Confidence Index rose to 50.2 from a revised 48.6 in September.”

CNN - “Home prices sag in August” (10-26-10)

“Home prices fell 0.2% from July after five consecutive months of gains, according to the S&P/Case-Shiller composite index of 20 metro areas. However, prices rose a modest 1.7% compared with a year earlier, the housing group reported Tuesday.”

Housing Wire – “Mortgage fraud index suggests shift toward property crime: Interthinx” (10-26-10)

“Mortgage fraud risk remained ‘essentially unchanged’ in the third quarter of 2010 compared to the second and down from a year ago, according to Interthinx’s Quarterly Mortgage Fraud Risk Index. Interthinx reported the risk index for 3Q at 144, down 0.9% from last quarter and 1.4% from the same time last year.”

Housing Wire – “U.S. declines on Transparency International corruption index” (10-26-10)

“The financial and the foreclosure crisis have contributed to the United States’ decline on a global corruption index, released by the watchdog group Transparency International. The U.S. ranked 22nd of 178 countries with a score of 7.1 on the 2010 Corruption Perceptions Index, down from 19th last year.”

Housing Wire – “New LPS valutaion model uses multiple listing services from NAR database” (10-26-10)

“Lender Processing Services (LPS: 27.59 +2.91%) unveiled a new valuation model for realtors that brings listing and pending-sale data into the equation.”

Housing Wire – “Zillow: National 30-year FRM rates remain flat week-over-week” (10-26-10)

“The 30-year, fixed-rate mortgage remained flat from last week ending at a 4.14% national average the week of Oct. 20-26, according to the Zillow Mortgage Marketplace weekly update.”

Housing Wire – “FHFA house prices up 0.4% in August, down from year-ago” (10-26-10)

“U.S. house prices increased 0.4% in August, almost regaining the 0.7% revised decrease in July, but fell more than 2% from a year ago, according to the Federal Housing Finance Agency monthly House Price Index.”

Looking Back:

One year ago, on October 9th, a judge ruled against a lender, wiping out a $461,263 mortgage debt. Goldman Sachs estimated that government interventions had sustained prices by 5 percent above what they would be. According to CAR, a total of 530,520 escrows closed in California during September 09.

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 170 podcasts in our free investor radio archive.