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I Survived Real Estate 2012 Part 2 #302

Friday, November 2nd, 2012

I Survived 2012

 

I Survived Real Estate 2012

Part 2

(Full Bio)

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On October 19, 2012, The Norris Group proudly presented I Survived Real Estate 2012. An expert line-up of industry experts joined Bruce Norris to discuss perplexing industry trends, head-scratching legislation, and the outlook for real estate in the coming year. Over $77,000 was raised to benefit Make a Wish and St. Jude Children’s Research Hospital. This event would not have been possible without the generous help of the following platinum partners: ForeclosureRadar, the San Diego Creative Real Estate Investors Associatio, the Investors Workshops, Invest Club for Women, San Jose Real Estate Investors Association, Frye Wyles, MVT Productions, and White House Catering. Lean more about the panel and how to attend at isurvivedrealestate.com.

Bruce continued his discussion on the market. When you start mimicking a year in the past, you also can match it with debt that was owed on the property values at the time, which is significant. Bruce showed another chart of debt, and if you start looking at the year 2000 on the bottom and you go straight up, you will see that when a real estate property was only worth $245 we owed $11 trillion on it. At the time in 2000 we only owed about $5 trillion, and this is a bit of a problem. You have a lot of debt you don’t know what to do with, and you wonder if you can forgive it all. Bruce does not think the system would have done so well. Now that we have a $340 price, we are starting to mimic 2003. When you look at 2003, you see that we can now deal with about $7 trillion of debt. It has equity coverage. If you notice the articles that come from CoreLogic, they say that prices went up several thousand dollars. What this did is it took so many thousands of people out from under negative equity. Bruce showed another chart that has shown the progression we have had. If you have price progression enough, you get the debt to feel less bad. This is what is starting to happen.

The next chart Bruce showed displayed the number of borrowers who are underwater. Approximately 3.6% of them are only 4% underwater. If they have a 4% price increase from, for example, $340, this is $13 grand. This means a chunk of these people are not in negative equity. This is going to begin to occur, and this is why Bruce thinks Mr.Shiller is not correct and why he thinks it is going to start having a pretty profound effect. Bruce asked the audience how you solve this debt problem from the bottom up and get prices to escalate if that is the intent. He said it would be really nice if you made the monthly payment really cheap. This is something we have already accomplished.

Being the nerds they are, Sean O’Toole and Bruce went to Washington D.C. and read data. They went to the Library of Congress and looked at old microfilm. While Sean worked on the 1800s, Bruce worked on the 1900s. Bruce has seen articles that said in the last fifty years we have not seen interest rates this low. You later find out the data source only had 50 years of interest rates. We then need to figure out if we have ever had interest rates this low in this century since 1900. The answer is no. This is an all-time record; and Bruce wanted everyone to think about what this means. In San Bernardino and the Inland Empire in general right now, rent costs $6800 more a year than your payment to own. This has never happened in years prior. If prices went up $50,000 and your interest rate was 3 ¼, if you translated this into interest you have to ask yourself if the interest is the biggest portion of your payment. If you take 3 ¼ of $50 grand and divide it by 12, your payment would not go up very much. We have never been able to say this. What we are about to have is an escalation of price because there is room, and it makes sense.

The question we need to ask is not being afraid and wondering about never having a $50 grand or $100 grand price increase. The question we need to ask is if we would willingly go from renter to owner, with all things being equal on a monthly basis. Most people would say yes to this. Bruce thinks this is what is about to happen. Other investments are volatile. Bruce asked if anyone had owned Google Stock prior to the event; and if a lot of people like him had started that night saying he had a great investment opportunity that is really volatile, this is not what we would want to hear. However, this is where a lot of money is placed. If you don’t like this, you can put it in a ten-year t-bill, which is all the way up to about $1.8 today. Real estate is starting to attract money because it is the best thing to do.

Bruce also talked about gradually reducing inventory for sale. Bruce showed a chart of unsold inventory in California over 3.2 months. He showed a specific chart that dealt specifically with Riverside. The chart showed we have gone from six months to one month of inventory for sale. Bruce asked if this was a recipe for price increase. Another aspect introduced into the mix now is several billion of a buying company that want to hold these properties as rentals. There is a whole slew of these people, one of whom is Carrington. This is added volume that we cannot deny in the business. Instead of foreclosing, we should sell the loans in bulk. FHA started selling bulk note pools, two of which Carrington won. This way, we get to talk a little bit about that. Bruce said they used to attend HUD auctions, which is not going to happen this time.

Fannie Mae just sold a pile of existing homes in bulk. One of the things the California realtor would probably appreciate is if that is actually not necessary. We probably have buyers and people who have REO infrastructure who could easily handle that. This is at least what has been going on fairly recently. Another option is to take a deed in lieu foreclosure and rent back to the people. Once again, a home that would have made it into the MLS for sale is not getting there.

Bruce asked how many people had heard the great news that building is off the matte and is accelerating at almost 15%. This was very impressive until Bruce showed them the chart that showed this really isn’t that much. If we had a 50% increase in Riverside, that would be almost nonexistent. When you start from numbers like the ones shown on the chart, it is not numerically exciting. Builders are excited about it because they create sub-divisions. That would be a stamp of approval saying they believe the market is going to accelerate. In Riverside you are typically creating 300+ subdivisions, and now you are down to a couple dozen. He does not quite buy that the builders are going to start providing lots of houses for us to see in the marketplace. By solving the debt from top down because of that $25 billion settlement, we have had some change in attitude.

Housing Wire quoted, “To provide relief more quickly, Chase executives are addressing the borrower fatigue with a letter sent to borrowers notifying them that their loan was refinanced into a new mortgage with a lower interest rate; no documentation needed.” Bruce added all you have to do is open your envelope. It gets harder if you want a principle reduction. Chase is sending different letters to other underwater borrowers. All that is required in order for a principal reduction on their loan is a signature sent back with the self-addressed stamped envelope the bank provides. Bruce got excited a couple days before the event because B of A was wiping out 150,000 credit lines to zero. It just so happened when he got home, he had a B of A letter in his mailbox. It was like Christmas to him at first until he realized he did not meet the quota for his credit line. You have to be delinquent on your first, which is part of the criteria.

In order to solve the debt from the top down, we are forgiving the debt, doing short sales, and we are even paying the former owner to do the short sale. In Moreno Valley, a person owed $250 on a 2-bedroom house. It went for $57 to one of the Norris Group’s investors, and the owner was given $25,000 to agree to the transaction. After closing costs, the lender netted $23 grand. The owner who was current on the payment had $25 grand. This owner will be able to go buy another house right away since he was just given the money. This is a very good deal.

The next slide asked if buyers in short supply or everywhere we look. When we were aggressively foreclosing on people in 2008 and 2009, we were not really thinking that they were all going to emerge three years later as able to receive an FHA loan. If that number is sufficient, that can be a wow for the marketplace. In a two-year period right at the peak, we have foreclosed in Riverside 61,588 homes. In 2011 we sold 37,000 homes. That number is consistent. We literally have 165% of the volume we did in 2011 stacked on top of 2012 as people who used to own and are now paying more rent to live in a house than it would cost them to re-own. The question is if some of them would make a decision to want to own, and the answer is yes. They do not all have to own, but Bruce said it was most likely not a small percentage. This might be why we are experiencing a lot of offers since we do not really think about this happening.

In 2010, we foreclosed on 22,000 people, which is 65% of the annual sales volume for 2011. They are going to show up in 2013 on top of demand that investors, Wall Street, and normal buyers provide. You have big piles of people on top of all this; so in conclusion Bruce said mathematically it is virtually impossible when you have one month of inventory to have a price decline when you have excessive demand. Bruce said it did not make any sense to him.

San Bernardino County is an excessive example that has 200% of the people foreclosed on in 2008 and 2009. Every county was aggressive in these years. You have more buyers coming out of the woodwork that we know what to do with. A good question to ask is where the entire inventory is going to originate. If we are down to one month of inventory locally, we are going to have a glut of REOs. However, it does not seem like this is going to be the intent. We are going to have private owners with equity sell. However, in the Inland Empire 40% or more do not have equity, so they most likely will not emerge in the quantity that is necessary.

A lot of sales are going to be short sales this year, but those do not happen overnight. Also, regarding investor flips Bruce asked if we are paying more for the property and if it makes more sense to hold them as rentals when they are not flipped. This is actually what is beginning to happen, and people who are buying at trustee sales have a different intent. Also in regards to new construction, we are a long way from that providing a lot of inventory. What used to go back to the banks is now being bought at trustee sales and not resold. These big companies who are buying rentals at the trustee sales are not fixing them and reselling them. Instead, they are keeping them as rentals. What used to go to trustee sale now gets sold in bulk or re-negotiated via loan modification. What used to go to trustee sale now gets sold via short sale. Instead of foreclosing quickly, the lender continues to be allowed all the time in the world to figure out how to solve it. Evidence of late shows home prices are going up across the board. Bruce believes we have only just started.

What also happens is a shift in the habit of people. When you start having price increases, you start having people with negative equity continue to make their payments. If they are current in 2012 after what we have just been through, the odds of them not making their payments seems rather unlikely. They will most likely make the payment.

Bruce showed a chart of the California Foreclosure Funnel. The big number is you have all these people underwater in California, approximately 2 million. However, you only have 434,000 of them delinquent and only 70,000 REOs already owned by the bank. If you talk to some of the REO agents in the crowd, you will see that they are not getting a lot of assignments and really don’t anticipate that changing. Something else that happens is prices accelerate. This adds to the number of move up buyers. Bruce gave an example of someone who bought a house back in February for $205,000. This same house has already gone up to $285,000. The house was refinanced without PMI, and they bought a car with the extra money they saved per month. This happened inside of a year in Riverside, and this adds to the interest of first-time buyers. When they tell this story to their friends who did not receive an $80 grand increase for anything and they began thinking they need to buy something, eventually prices will increase to the point of profitable construction.

Now, people who own dirt want to build something new. When you begin construction, you see that we have manufactured a comeback in reverse. We will solve the jobs by creating construction; and part of the reason for this is because we have all this inventory that we are not bringing to market. We shoved it on the sidelines and pretended for a while that it does not exist. This happened to coincide with foreclosing on a lot of people years prior who had re-emerged on top of normal demand. These two things coming together makes for a nice volatile market, especially when you have a 3 ½% mortgage rate that does not give you too big of a monthly payment jump for a big price increase.

When you start solving the construction, unemployment, financial activities, and manufacturing problems, you fix migration. When you fix migration, you fix our tax base. Bruce thinks this is all about to play out; and the only things that they later discussed at the event were the policies put in place that need to stay where they are. This is artificially being supported by a lot of things, and it kind of makes sense. If you do not want to write off $4 trillion of debt, maybe you could push prices back up where they were at least for enough time for people to refi or sell and get their mortgage at around 3%. The monthly payment then makes a whole lot more sense. This is what Bruce sees just about to happen, and when that happens to a county like Riverside, the migration changes and everything we have to put up with now get to change very quickly.

The first two guests on the panel were two economists who spoke on the economy and what is occurring. Mark Palim is the Director of Economics for Fannie Mae and is in the Strategic Research Group for Fannie Mae. His work focuses on the impact of trends in the financial services sector and economy. Eric Janszen returned for the second time this year. He is an economic and financial market analyst. He is an author and speaker with more than 28 years of executive experience in high technology start-up companies including Venture Capital Finance and Economics. He is the founder and president of iTulip, Inc, and author of The Post Catastrophe Economy.

Bruce said it was exciting for him to be the moderator because he is questioning people who are much brighter than he is. What this does is it challenges him since he does a lot of reading in order to be ready. It is fun for him to overhear the conversations at the table. Mark began by talking with Mark about the quarterly supplement that Fannie Mae puts out. He asked him how people are feeling about where the prices are headed and if the sentiment has been changing in a positive way. Mark said one of the things economists have puzzled over since the Great Depression is how to get a handle on expectations. They know expectations have a huge impact on markets. People make decisions under uncertainty. You do this all the time when you invest, buy a property, or lend.

Mark said one of the things they have done is they have started doing consumer surveys again in the last few years. What they have seen since November of last year is a real improvement in people’s expectations about house prices. They ask people how much they expect rents to go up and if they expect home prices to increase. The part that is the most encouraging is that economists have not only seen this trend month after month, but the amount by which people think prices will go up is actually reasonable in terms of it not being a bubble mentality. They are being told that on average it will be 1 ½%, and another month it may be 1 ¼ or 1. These are the kind of expectations that create solid demand.

One of the things that is helping drive increased demand from first-time buyers in particular is how much rents are increasing. You see it in the data, and you also see it in the expectations. In the same survey, people think rents are going to increase about 3½%. This is true in many markets, and it is actually cheaper now to own than to rent. Bruce also wondered if being delinquent changes the consumer’s feeling of what is next for the future. Mark said this is another thing economists look at, and delinquent borrowers have remained significantly positive. They are not quite as positive as other lenders, but there is not too much difference in their consumer attitudes regarding housing in terms of their desire to want to continue to have homeownership and their view that housing is a good investment. If you are coming at it with a pure economics background, you think they have really been burnt hard and would not be interested. However, they do remain very interested in homeownership.

Bruce wondered if Mark feels we have passed the bottom of the housing market and are now on an upswing that is sustainable. Mark said they have not called the bottom, but what they are seeing in the data and seeing pretty broadly across the country is the return of a seasonal pattern where we had a really good spring in terms of not only house prices but also days on the market. Many markets are returning back to a very healthy situation in terms of supply and demand. Mark said the reason he is a little hesitant to say we are definitely past the bottom goes with the fact that prices are currently being supported by incredibly low interest rates and the Federal government having a huge involvement in supporting credit.

To find out more, tune in next week for I Survived Real Estate 2012, part 3. The Norris Group would like to thank their gold sponsors for supporting the event: Adrenaline Athletics, California Property Solvers, Coldwell Banker Pioneer Real Estate, Elite Auctions, For Investors By Investors, In a Day Development, Inland Empire Investors Forum, Inland Valley Association of Realtors, Investor Experts, Inc., Keller Williams of Corona, Keystone CPA, Las Brisas Escrow, Leivas Associates, Mike Cantu, Northern California Real Estate Investors Association, Northern San Diego Real Estate Investors Association, Personal Real Estate Magazine, Pilot Limo, Realty 411 Magazine, Real Wealth Network, Rick and LeaAnne Rossiter, Southwest Riverside County Association of Realtors, Jon Risinger Photography, Sonoca Corporation, Spinnaker Loans, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Westin South Coast Plaza, and Winning in Tough Times, LLC. See isurvivedrealestate.com for the video from the live event.

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.

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Christopher Thornberg, Principal at Beacon Economics, Joins Bruce Norris on the Real Estate Radio Show #299

Friday, October 12th, 2012

Christopher Thornberg

 

Christopher Thornberg

Principal at Beacon Economics

(Full Bio)

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On Friday, October 19, the Norris Group proudly presents its fifth annual award-winning event I Survived Real Estate. An incredible line-up of industry experts joins Bruce Norris to discuss perplexing industry trends, head-scratching legislation, and opportunities emerging for real estate professionals. Proceeds for the event benefit Make a Wish and St. Jude’s Children’s Research Hospital. This event would not be possible without the generous help of the following platinum partners: ForeclosureRadar and Sean O’Toole, 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 Bobi Alexander, San Jose Real Estate Investors Association and Geraldine Berry, Frye Wiles, MVT Productions, and White House Catering. Learn more about the panel and how to attend at isurvivedrealestate.com.

Bruce Norris is joined this week by Christopher Thornberg. Christopher is the founding partner of Beacon Economics LLC and widely considered to be one of California’s leading economists, an expert in economic forecasting and regional economics, economic policy, and industry economics. He was one of the earliest and most adamant predictors of the global economic recession that began in 2008. Since 2006, Dr. Thornberg has served on the advisory board of Wall Street Hedge Fund Paulson and Company, Inc. Between 2008 and 2012 he served as a chief economic advisor to the California State Controller’s Office and was the Chair of Controller John Chang’s Counsel of Economic Advisors. Dr. Thornberg holds a PhD in business economics from the Anderson School at UCLA and a B.S. in Business Administration from the State University of New York in Buffalo.

Bruce wondered if Christopher was comfortable with the direction of the U.S. economy, which Christopher said he actually is. He said there seems to be this need in the popular press today to continue to beat this drum of decline. In reality, when you look at the data it is quite far from the opposite. We are three years into the current expansion, and numbers look okay across the board in the private sector. The weakest part of the U.S. economy overall is the public sector. You could argue this is almost a normal expansion. Bruce asked if you would want expansion in the public sector. Christopher said over the long term the government spending tends to grow more or less in proportion to the rest of the U.S. economy. Therefore, it is a contributor to overall economic output growth, at least from the demand framework that is typically used when examining the macro economy.

There are many among us who believe a smaller government is better; and from that perspective you could look at the current statistics and say they are good things. Ultimately, we may be right if we continue to see the public sector downgraded and people feel it is a hindrance to the economy. Ultimately, you would suggest that it will bring better growth rates at some point in time in the future. In the short run, when you shrink government, it is a drag on the economy. The idea that you can shrink the government and promote greater economic growth right now is just false and not how it works. You are creating structural transitions inside the economy, which are painful in the short run.

Across the seas they are having an exaggerated example of this. They want to cut back and expand the economy at the same time, and it is very difficult to accomplish both of these. Christopher would argue that it is not quite the same thing. The new insults in politics is to call you Greece. We are not anything like Greece. Greece is where it is because for years it was vastly over borrowing and had a level of debt relative to its economic output that was at one point in time at least twice if not over that larger than the U.S. economy. On top of everything else, the underlying Greek private sector economy is one of the least competitive and least efficient in the world because of all kinds of crazy rules, regulations, and corruption. This is not like the United States, which still has one of the most competitive private sectors in the global economy today.

Bruce asked Christopher how he interprets having a 1.7% ten-year T-bill. This says two things. For one, it shows people are willing to pay a premium for safety. Second, they continue to see the U.S. government as a place for safety and fully expect the money they give the Federal government today to eventually be paid back to them. It is like saying we are afraid, concerned, and conservative. To us, yield is not the big thing and we wonder if we can just get our money back at some point. To simplify things, there are two kinds of assets in world today. There are safe assets and risk assets. The demand for safe assets is enormous today, and this is not just driving interest rates on T-bills. Mortgage rates are incredibly low right now because people are willing to buy Fannie and Freddie bonds for very low rates. If you are a large, global corporation, you can borrow at incredibly cheap rates because you are considered to be safe. There is a lot more demand than there is supply for those types of assets, and this is what puts interest rates where they are.

Bruce wondered where California real estate fits into the risk quotient. Christopher said it should be very good, although he would argue that you are seeing money moving into California real estate at both the commercial and the residential level. We know cap rates are down, not just for apartments but are also slipping in terms of Class A properties, retail, and office as well. The housing market here is also really starting to tighten up. Bruce has been counseling for a while that people should be moving heavy and hard into residential real estate, and numbers confirm this. Another interesting thing is some of the hedge funds have moved some serious money into California and other states that have had downturns. This is a brand new occurrence for real estate, at least for housing, to have that kind of money interested in setting aside scattered homes in addition to apartment buildings with the intent of putting together a REIT. Christopher said he has seen some of this, and it is probably a pretty good financial plan.

What you are dealing with here are two things. For one, California still lacks housing supply. Over the last 4 years, for a variety of reasons the state has not come anywhere close to producing the quantity of new homes necessary for population growth. This is one of the reasons why we never took the same hit that Vegas or Arizona did. We did not have this vast, excess supply that those other economies did in terms of housing. At the same time there is something else going on out there. With this enormous wave of foreclosures, most of the new demand in the U.S. overall and in California is moving not into owner-occupied housing, but rather moving into rental housing. As a result of that, people see that there is a good potential to buy these homes in the short run, then rent them out since we know there is a lot of demand. Ultimately, you can turn around, flip them, and make good money selling them when the market is back towards a more focused, owner-occupied type of demand situation.

When you have an economic downturn like we had, Bruce wondered if this stunts household creation. Christopher said it really doesn’t even though you may have heard the theory a lot. The Harvard Joint Center for Real Estate Studies said that there is a vast, pent-up supply of 20 year olds desperately trying to get out of their parents’ homes. The Joint Center was also the same people who told us in 2006 and 2007 that there was no extra supply of housing and prices would go up forever. This is why when he looked at the recent numbers he did not find them true.

When you sit down and look at the numbers, you see there was some modest evidence of doubling-up, but it was pretty small. You could say the slowing of household formation was really in part economic to some small extent, but just as much we have to keep in mind that between 2002 and 2006, we actually had an excess supply of new households. What you had was a lot of 27 year-olds who would typically be living in an apartment with a roommate going out and buying homes because they could. The money was there, and it seemed like a path to quick riches. They took the chance, most of them probably foreclosed on. Now, they are back living in the apartment they would have lived in anyway. Those folks are the excess supply in the short run, and that part is starting to turn around.

Bruce wondered about the fiscal cliff in 2013. We have heard the term fiscal cliff so many times, and there is no such thing. The concept of fiscal cliff sounds like on January 1 taxes go up, spending goes down, and on January 2 we are in a recession. Christopher said he would not really call it a cliff, but rather a fiscal hill. The difference is for a shock to the U.S. economy to have recession-causing effects; the shock has to be large, rapid, and sustained. The fiscal cliff is large and rapid, but it has to be sustained for it to cause a recession. Christopher said the reason he is relatively confident it will not cause a recession is because he remembers what happened back in the mid-90s when Newt Gingrich and company were in the midst of their partisan battles with Bill Clinton and decided to shut down the Federal government for a period of time. A lot of it was over the budget of which they did not approve.

It is funny how Americans can seem so oblivious to the public sector and what is going on in our state capital. They seem to be far more inclined with whatever star is doing whatever horrendous thing. This is until the checks stop going out and they suddenly start paying attention in a very loud way. We saw this in 1995 when within 2-3 weeks the political crescendo was deafening. People were infuriated; and it single-handedly led to the Republicans losing the house and the collapse of what Gingrich pledged to America. Ultimately, it made the rest of Clinton’s stay in the White House much easier for him. Christopher’s feeling is by January 1 it seems highly probable we will not have a compromise by then. Even so, you can expect when the checks stop going out and the taxes start going up, you are going to hear an enormous outcry. This pressure is going to continue to ratchet up until such a point in time when they realize it is their neck on the line and they have to do something. Then something will be accomplished.

Bruce wondered if we have to get closer in line to a balanced budget for all this to happen. Christopher said ultimately we have big problems in our budget, especially with Medicare, social security, and defense spending. This is all obvious, and most of this shows up within 10-15 years, not now by any stretch of the imagination. We would be better off if we started dealing with it now, but we probably are not. We need to start dealing with it and dealing with it at many levels now. We have not had these conversations yet; and Christopher said he can speak for one to be very frustrated with the fact that we keep ignoring the issues as obvious as they are. At the same time, we are not going to solve this with partisan lines being drawn in the sand. You have one side of the equation, the tea partiers, who are screaming all kinds of crazy things. Then on the other side you have those saying you can’t touch things like Medicare no matter what. That is not how we solve these issues.

Another issue is with state insolvency where you have Chapter 9 bankruptcy. One of the things that seem to be virtually untouchable is people’s retirement plans. At this point in time this seems to be the case. One of the reasons they can get away with it in the short-run is because of the fact that the pain has not kicked in. There will come a point in time when CalPERS becomes so underfunded that they are going to have to acknowledge that they are going to have to acknowledge the obvious and that one of two things is going to happen. They are either going to have to start passing the costs onto current employees by raising up their contributions; or they are going to send giant tax bills to state and local-level governments. This is going to create taxpayer revolts. Another option is they are going to have to figure out some way of breaking that log jam and find some legal way to reduce the benefits of people currently being paid.

Sadly, the people who are probably most to blame for this issue are the people already in retirement who will probably not even be there when we come to that point in time. This is too bad since these are the people who spike their pensions and are making ridiculous amounts for 40 years and are going to get away with it scott-free. It is going to be current-state and local employees who are going to be ultimately left holding the bag because they will be paying for years. They will not get anything close to what they were promised because it is simply not sustainable. This goes back to the argument that we need to do something about this now, but there is no possible way of doing this within this typical political climate.

We have moved incrementally in the right direction since the governor did some modest reforms. They were very small and not enough for the long-run, but at least he is moving in the right direction. Christopher said what worries him to death is we had a very similar thing happen in the early ‘90s with Pete Wilson. He understood the long-term problems and moved in aggressively to take care of them. We then had the internet boom and the big surge in revenues. Gray David came in and quite cavalierly reversed everything Pete Wilson had done and made it worse. We saw Gray Davis wondering around California like this elder statesman. Christopher said he puts the blame for our current budget situation on him almost more than any other individual in this state. It would be a sad day if he ever gets any credit for anything he did.

The worst thing you can do is have excess revenue as a government. They have tried various sorts of controls to try and stop the incentive to spend all the money immediately. Unfortunately, the very people who make the lock boxes are the very same people who want to leave a back door open so they can sneak in when they want. It becomes very complicated to set something up that would actually work.

Bruce wondered if Christopher sees any big changes to real estate coming in next few years with policy changes, specifically with mortgage deductions. Christopher said it is hard to say. He would have liked to have seen Fannie and Freddie removed from the scene, but seems to have died in the vine and it’s likely they are not going anywhere. The mortgage deductions should go away since the don’t do anything for anybody. People who gain from that are the people who own homes when the first one went into play. Otherwise, the rest of us are just paying more for the house, which is an offsetting effect. This should go away since it is a ridiculous thing to have. However, it is so fundamentally popular that he has trouble seeing it going away. Sadly enough, you are seeing securitization of mortgages starting to grow and occur again. We don’t seem to have learned much from this crisis. We want our houses to go up at all costs. It is frustrating to see that we have learned so little, but perhaps this time we will at least be able to see the signs of impending doom a little better.

One thing about having a very low interest policy is it’s great if you are a borrower, but if you are a saver it has not turned out very well. The only exception is these long-term interest rates are not a function of policy. This is nothing Obama or Bernanke did. With Quantitative Easing 1 and 2, economists say it has maybe reduced interest rates by 3-4 tenths of a percent maximum. These interest rates are low because there is a lot more supply of capital in the world today than there is demand. This is not going to change any time in the near-term. This means for those people out there thinking ahead and planning for their future, they need to understand that ultimately the best way of saving for the future is to spend less. The yields just aren’t going to be there the way they were in the past. At this point the Fed is buying a lot of the debt, about $40 billion a month. Interest rates are low again ultimately because there is a lot more supply of capital in the world today than there is demand. There is all kinds of work done showing that the actual impact the Federal Reserve can have on long-term rates is much less than what we would typically think given the tone of the news. This really is a market-driven situation.

The Norris Group would like to thank its Gold Sponsors for supporting I Survived Real Estate: Adrenaline Athletics, Coldwell Banker Pioneer Real Estate, Elite Auctions, FIBI, Inland Empire Investors Forum, Inland Valley Association of Realtors, Investor Experts Incorporated, Keller Williams of Corona, Keystone CPA, Las Brisas Escrow, Mike Cantu, Northern California Real Estate Investors Association, Northern San Diego Real Estate Investors Association, Personal Real Estate Magazine, Realty 411 Magazine, Rick and LeAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Westin South Coast Plaza. See isurvivedrealestate.com for more on the event and all of the I Survived Real Estate sponsors.

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.

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The Norris Group Real Estate News Roundup 6/27/11

Monday, June 27th, 2011

Today’s News Synopsis:

Realty Times reported mixed results for the market this month: an increase in housing starts but a 3.8% decrease in existing-home sales.  Analysts at Capital Economics found that cheaper and lower-quality homes will steadily decrease faster than homes at the higher end of the market.    The Wall Street Journal reported that more mortgage applications are being rejected due to banks being extra careful about lending.

In The News:

DS News - “Homes at Low End of Market Remain Most Vulnerable to Price Drops” (6-27-11)

“A continuation of tight credit conditions for first-time buyers and a foreclosure pipeline full of homes bought with subprime loans will mean that house prices at the low end of the market will continue to fall at a faster rate than prices at either the middle or high end, according to analysts at the research firm Capital Economics.”

The Wall Street Journal - “Tighter Lending Crimps Housing” (6-27-11)

“The percentage of mortgage applications rejected by the nation’s largest lenders increased last year, spotlighting how banks’ cautious lending practices are hampering the nascent housing market recovery. ”

Bloomberg - “Mortgage-Bond Slump in U.S. Deepening as Jumbo, Alt-A Loans Extend Losses” (6-27-11)

“U.S. mortgage bonds without government backing are extending losses as signs of a weakening U.S. economy and concern that Greece may default on its debt curb risk-taking.”

CNN Money - “The tax man doesn’t want housing to recover” (6-27-11)

“During the housing boom, governments enjoyed windfalls from property taxes tied closely to home prices. But since the real estate bubble burst, the revenue stream officials had come to rely on to help pay for everything from education to roads has dried up.”

Housing Wire - “Florida court upholds foreclosure ‘rocket docket’ system” (6-27-11)

“A Florida appellate court denied a request from the American Civil Liberties Union to keep a property seizure case out of an accelerated foreclosure system, known as the ‘rocket docket’.”

Inman - “Denver home prices steady, some sellers on sidelines” (6-27-11)

“Metro Denver heads into the prime summer season with fewer available homes on the market. The monthly inventory of unsold homes in May declined 11.1 percent year-over-year to 19,573 units.”

Realty Times - “Real Estate Outlook: Mixed News amid Rising Initial Jobless Claims” (6-27-11)

“It was mixed news this week in the real estate market. While new housing starts were up after a month of declines, existing-home sales were down 3.8 percent from April.”

San Francisco Chronicle - “More than 1 in 4 denied a mortgage” (6-27-11)

“The pendulum has swung the other way. Banks have been blamed for being too lax in their lending practices in the past, haven given mortgages to millions that couldn’t afford them and contributing to the foreclosure debacle. Now, they are being cited as being too restrictive. Their conservative approach, critics say, is hampering the housing market from finding some stable ground, as willing buyers are being denied a mortgage.”

DS News – “Analysis: Private Markets Key to Preventing Housing Meltdown Sequel” (6-27-11)

“According to an analysis authored by Patric H. Hendershott and Kevin Villani, responsibility for the failure of Fannie Mae and Freddie Mac falls directly on regulators and indirectly on their political overseers.”

Los Angeles Times - “Treausury bond yields rise as some investors shun new debt sale” (6-27-11)

“Some investors have lost their appetite for U.S. Treasury bonds with yields at their lowest levels since late last year.  Government bond yields rose Monday after the Treasury faced surprisingly weak demand at its auction of $35 billion in new two-year notes, the first of three note auctions this week.”

Housing Wire - “Freddie Mac economist sees sunny economy in second half” (6-27-11)

“Freddie Mac Chief Economist Frank Nothaft said the overall economy should begin to accelerate in the second half of 2011 with an improved housing market close behind.”

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.

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The Norris Group Real Estate News Roundup 6/15/11

Wednesday, June 15th, 2011

Today’s News Synopsis:

Fannie Mae announced that it will be extending its offering of money to partially cover the closing cost of a house that they earlier repossessed now back on the market.  According to Inman News, economists have adjusted their predictions of the economy, now not expecting a recorver until 2012.  The median price of homes in the Bay Area fell drastically from a year ago, according to DQ News.

In The News:

Housing Wire – “Risk retention may slow return of private-label mortgage finance” (6-15-11)

“Banking executives believe private capital will rebuild the mortgage finance market, but don’t expect non-agency funding to flood the market anytime soon, according to panelists at Standard & Poor’s recent “Housing Summit: Boom, Bust and Beyond.”

Inman – “Economists revise forecasts for real estate recovery” (6-15-11)

“In what has become a mid-year ritual, housing economists have quietly trimmed their annual forecasts after a lackluster start to the year, pushing back a housing recovery until 2012. ”

Bloomberg - “Homebuilder Confidence in U.S. Slides to Nine-Month Low on Sales Outlook” (6-15-11)

“Confidence among U.S. homebuilders slumped in June to the lowest level in nine months as executives turned more pessimistic on the outlook for sales, a sign that any pickup will take time to develop.”

DSNews - “Phoenix-Area Foreclosures Sales Drop for Third Straight Month” (6-15-11)

“Foreclosures are claiming a smaller share of the Phoenix sales market.  The ratio has dropped for three straight months, according to a new report from the W. P. Carey School of Business at Arizona State University.”

RisMedia - “HUD, VA to Provide Permanent Housing and Case Management to Homeless Veterans” (6-15-11)

“ U.S. Housing and Urban Development Secretary Shaun Donovan and U.S. Department of Veterans Affairs Secretary Eric K. Shinseki announced recently that HUD will provide $5.4 million to public housing authorities in 18 states to supply permanent housing and case management for 676 homeless Veterans in America. This is the fourth and final round of the FY 2010 Veterans Affairs Supportive Housing Program (HUD-VASH) funding to support homeless Veterans.”

Inman – “Fannie matches Freddie’s $1,200 agent bonus on REOs” (6-15-11)

“Fannie Mae is extending through October an offer to provide closing-cost assistance to buyers of homes it’s repossessed, and will also match a $1,200 bonus that rival Freddie Mac is currently paying agents who bring buyers to transactions that help reduce its real estate owned (REO) inventory.”

Housing Wire - “Shiller wants pre-planned workouts on future mortgages” (6-15-11)

“Economist Robert Shiller called the Home Affordable Modification Program a failure and said lawmakers and regulators should provide an incentive to create private mortgages with a pre-planned workout.”

The Wall Street Journal - “Pittsburgh Is Remade as Steal City” (6-15-11)

“Pittsburgh, once written off as a dying steel town, has turned into one of the most resilient office-rental markets in the U.S., prompting a flurry of building sales as some longtime owners take profits.”

Orange County Register - “SoCal rents in biggest jump in 2 years” (6-15-11)

“Rents in Southern California rose at an annual rate of 1.7% in May — as measured by the regional Consumer Price Index.”

Mortgage Bankers Association - “Mortgage Applications Increase in Latest MBA Weekly Survey” (6-15-11)

“Mortgage applications increased 13.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending June 10, 2011.”

DQ News - “Bay Area May Home Sales, Median Price Inch Up from April; Fall below 2010″ (6-15-11)

“The Bay Area housing market in May posted modest month-to-month gains in sales and median prices, but those same measures fell sharply from year-ago levels, which had been pumped up artificially by homebuyer tax credits. Move-up buying and new-home sales were especially weak last month, while the share of sales involving distressed properties, cash buyers and investors remained far above normal, a real estate information service reported.”

Looking Back:

MDA DataQuick reported a total of 22,270 new and resale houses and condos closed escrow in Southern California the prior month. According to the NAHB, builder confidence in the market for newly built, single-family decreased in June of 2010. Having a home with a view was on the top 10 list of preferences for 44.5 percent of men. Morgan Stanley’s research lead the company to conclude that low mortgage rates would prevent a double dip in prices.

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.

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The Norris Group Real Estate News Roundup 4/20/11

Wednesday, April 20th, 2011

Today’s News Synopsis:

Mortgage application volume rose 5.3%, according to the MBA. The NAR said existing home sales increased 3.7%. Economists from CSU Fullerton believe O.C. home prices will rise by less than 5% this year.

In The News:

Bloomberg - “Meyer Interview About U.S. Housing Market” (4-20-11)

“Michelle Meyer, a senior economist at Bank of America Merrill Lynch, talks about the outlook for the U.S. housing market. Sales of U.S. previously owned homes rose in March as a mounting supply of properties in or near foreclosure lured investors.”

Mortgage Bankers Association – “Press Release – Weekly Application Survey” (4-20-11)

“mortgage loan application volume, increased 5.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 5.9 percent compared with the previous week. The Refinance Index increased 2.7 percent from the previous week.”

NAR - “Existing-Home Sales Rise in March” (4-20-11)

“Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 3.7 percent to a seasonally adjusted annual rate of 5.10 million in March from an upwardly revised 4.92 million in February, but are 6.3 percent below the 5.44 million pace in March 2010. Sales were at elevated levels from March through June of 2010 in response to the home buyer tax credit.”

Orange County Register – “CSUF: O.C. home prices to rise by less than 5%” (4-20-11)

“Business School economists at California State University, Fullerton, are sticking to their earlier forecast that Orange County home prices won’t gain much ground this year.”

DSNews - “Moody’s: Commercial Real Estate Prices Just 0.8% Above Cycle Low” (4-20-11)

“commercial real estate (CRE) prices as measured by the Moody’s/REAL Commercial Property Price Index (CPPI) fell 3.3 percent at the national level in February. The index is down 4.9 percent from 12 months earlier and only 0.8 percent above its post-peak low set in August 2010.”

Looking Back:

One year ago, 81,054 Notices of Default were recorded at county recorder offices during the January-to-March period in California. Marcus & Millichap Real Estate Investment Services claimed that the gap between monthly rents and mortgage payments was at its lowest level in almost 20 years. Cushman & Wakefield estimated the commercial real estate market would take the longest to recover. HAMP completed 230,000 permanent modifications over 12 months.

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.

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The Norris Group Real Estate News Roundup 3/29/11

Tuesday, March 29th, 2011

Today’s News Synopsis:

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.

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218-TNG Radio – Leslie Appleton-Young 3-25-11

Friday, March 25th, 2011

Leslie Appleton-Young

Vice President of C.A.R.

(Full Bio)


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This week Bruce is joined again by Leslie Appleton-Young. She is the Vice President and Chief Economist for the California Association of Realtors; a statewide trade organization with over 165,000 members. Leslie directs the activities of the association’s member information groups, she oversees the analysis of housing markets and broker industry trends, member communications and member development activities.  She is well known as a speaker in the California real estate community.

UCLA’s business school has projected that California’s unemployment will remain in the double digits until 2013. This does not surprise Leslie. We are experiencing cyclical job losses, because there are few sectors that have not been impacted. To some extent, our problem is structural. Sending jobs over seas to lower wage countries has been occurring for a long time.

During the downturn of the 90s, there were job losses concentrated in California due to a loss of migration. Leslie does not believe this is our main problem though. Our biggest issues are coming from the restructuring of corporations and businesses. 70% of costs are directly tied to labor, so the easiest way to become more efficient is to use fewer workers.

Leslie is uncertain of the impact that gas prices will have on real estate. Gas affects real estate because it impacts the overall economy. High prices means there will be less discretionary income available for purchasing. The cost of gas also impacts the ability of people to move further out. The UCLA forecast assumed there would be no significant long term reductions in gas supply, and that we would be able to weather the increases, but we do not know that.

Affordability is close to an all time high. The gap between California’s affordability and the U.S.’s affordability is much closer now as well. The California median home price peaked at $594,000, and the U.S. peaked at $230,000, so we were still over twice as expensive. California’s current median is $300,000, and the U.S. median is $170,000, so there is still a big gap between the two.

Bruce believes this all time low for housing affordability is going to give us a boost in migration. The challenge will be to provide job opportunities for the migration.

In a county like Riverside, where it is common to develop 250 to 300 subdivisions every year, there is going to be a huge increase in demand. The inventory that has been bought from lower priced years will be able to increase in value. Bruce notes that Riverside has only developed 10 subdivisions this year.

There has been a significant increase in household size over the last couple years, because families have been moving in with each other to weather the bad economy. Many people who chose to move in with their family will be looking to move once the economy improves, and that will create demand.

In another five years, Leslie believes down payment requirements and interest rates will be significantly higher. Getting rid of Fannie Mae and Freddie Mac will affect us for many years. The private sector will be demanding higher risk premiums to originate.

A number of surveys from Fannie Mae and others show that many people still aspire to own a home. Leslie does not believe this will change. However, financing will become a bigger burden. Leslie does not believe 30 year mortgages will be very popular in the future. Bruce believes that we must be heading towards a lower percentage of home ownership.

In business, when you have an advertising campaign that you know will work, that is called a control piece. The only way you change that control piece is by changing one thing at a time to see if something emerges as better or worse. We had a control piece called a zero down VA loan. This program produced less than 1% foreclosures, and FHA did the same thing for a long time. Unfortunately, we changed everything about how we performed loans within 5 years, and we got a bad result. Bruce does not understand why we won’t go back to the way things were before.

In 2005, the GSE delinquency rate was 7.8%, and the private label delinquency rate was 28.6%. In 2006, GSEs had a delinquency rate of 23.3%, and the private label delinquency rate was 45.1%. For loans originated in 2007, the GSE rate was 14.9%, and the private label rate was 42%. This information must have been overlooked by the people discussing what to do with our financial system in the future. Fannie and Freddie worked until 2005 and 2006 when then decided to get into the subprime and Alt-A market. Bruce is not sure if our sufferings would have been eased much had Fannie and Freddie not gotten involved in subprime lending. If they had not touched subprime, there still would have been a large amount of inventory being overpriced because of the easy financing available at that time. What we did wrong was pretend that it was okay to loan people money based on a stated income and without a down payment.

39% of defaults between 2006 and 2008 were due to home equity borrowing. Leslie does not believe it is healthy for people, as well as the real estate market, to borrow in such a way that they owe more on their home after a year of ownership. Bruce does not totally agree with that, because in the past that behavior was not as simple. Leslie believes it is bad for people to leave themselves no cushion. Bruce agrees with this statement.

In 1934, FHA did 80% LTV loans with 20 year terms. Gradually we went to 30 year terms, and the down payment requirements went to 10, to 5, to even 3%.

Bruce is concerned that if we lower loan limits, it will cause a significant price drop, and then you will have a continuous negative equity position. Bruce and Leslie hopes the government does not restrict the market too much in this manner. Leslie has noticed that the government’s decisions tend to be imbalanced.

When Bruce bought his first home and mowed the grass for the first time, it made him feel like a man. Being an owner changed the way he felt about himself. It is a big deal, and it is one of the big reasons for why people come to California.

Bruce was very frustrated when the president of MERS was questioned in front of the senate, because not one of the senators read his deposition. If you are going to make a huge decision against a very influential company like MERS, why not take an hour to try and understand the problem?

CAR’s website is www.car.org

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.

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The Norris Group Real Estate News Roundup 3/23/11

Wednesday, March 23rd, 2011

Today’s News Synopsis:

The Commerce Department said single-family home sales dropped 16.9% in February. However, a survey from Bloomberg shows many economists believe home sales probably increased in February. Mortgage applications increased 2.7% last week, according to the MBA.

In The News:

MBA - “Mortgage Applications Increase in Latest MBA Weekly Survey” (3-23-11)

“Mortgage applications increased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending March 18, 2011.”

NAHB - “New-Home Sales Hit Record Low in February” (3-23-11)

“Sales of newly built, single-family homes declined 16.9 percent in February to a record-low seasonally adjusted annual rate of 250,000 units, according to figures released today by the U.S. Commerce Department.”

Bloomberg - “Sales of New U.S. Homes Probably Rose in February After Slump in January” (3-23-11)

“Purchases, tabulated when contracts are signed, climbed 2.1 percent to a 290,000 annual pace after slumping 13 percent in January, according to the median estimate in a Bloomberg News survey of 77 economists. Even with the gain, sales are close to the record-low 274,000 pace reached in August.”

Housing Wire – “Architectural design industry making slow recovery: AIA” (3-23-11)

“The Architecture Billings Index increased slightly, up to 50.6 in February from 50 in January, according to American Institute of Architects data released Wednesday.”

Bloomberg - “Foreclosure Terms May Pose ‘Moral Hazard,’ State Attorneys General Say” (3-23-11)

“The settlement offer ‘appears to reach well beyond the scope of our enforcement role, and, in some instances, far exceeds the scope of the misconduct which was the subject of our original investigation,’ according to the letter, which was verified by Brian Gottstein, a spokesman for Cuccinelli.”

Housing Wire – “SEC clears shareholder vote for foreclosure reviews at major banks” (3-23-11)

“The Securities and Exchange Commission upheld a New York City pension funds request that big bank shareholders will get to vote on whether or not those vested financial institutions conduct foreclosure reviews.”

Housing Wire – “FDIC’s Bair: Dodd-Frank will strengthen smaller banks” (3-23-11)

“Reforms under the Dodd-Frank Act will go further to benefit smaller community banks than the ineffective rules established just before the crisis, Federal Deposit Insurance Corp. Chairman Sheila Bair said before the Independent Community Bankers Association Tuesday.”

Orange County Register – “Forecast: Calif. home prices to rise 23%” (3-23-11)

“All told, Beacon is basically projecting that California home prices will jump 23% in five years ($57,800) – from a typical selling price of $256,136 in 2010 to $323,368 in 2015. Depending on one’s view, that projected 2015 pricing would be equal to the highest since 2008, back at early 2004 levels – or still 38% off the 2007 peak.”

Looking Back:

One year ago, existing home sales decreased by 0.6 percent within one month. The California senate approved of a new homebuyer tax credit. Nothaft claimed the 30-year fixed mortgage rate would reach 5.6 percent by the end of 2010. The Los Angeles-based home builder, KB Homes, experienced a profit loss beyond which was previously expected.

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.

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217-TNG Radio – Leslie Appleton-Young 3-19-11

Friday, March 18th, 2011

Leslie Appleton-Young

Vice President of C.A.R.

(Full Bio)


 streamitunesdownloadrss

This week Bruce is joined by Leslie Appleton-Young. She is the Vice President and Chief Economist for the California Association of Realtors; a statewide trade organization with over 165,000 members. Leslie directs the activities of the association’s member information groups, she oversees the analysis of housing markets and broker industry trends, member communications and member development activities.  She is well known as a speaker in the California real estate community.

Leslie started with CAR in 1984. At that time, California was in the middle of a bad cycle. The biggest difference between our recent downturn and downturns of the past was the change in median home prices. In the early 80s, the median home price flattened when transactions dropped over 60%. In the early 90s, the market contracted 25% and home prices did drop, but the biggest single annual decline was less than 5%. In our recent downturn, the statewide median home price dropped 59% within one year.

In earlier cycles, sellers had equity, so if the market was doing poorly, they would rely on their equity to help them through the bad times. This time around, the flood of non-discretionary sellers overwhelmed the market, and caused the sharp descent in prices.

Surveys from ThinkTank and Fannie Mae show that homeownership is still sought after. The demand for housing from first time buyers and investors is still robust. The idea of owning a home has not been too badly damaged, however, the buyer’s ability to gauge market timing has. People are too worried that prices have not bottomed, so they are waiting until prices stabilize. Leslie also thinks people now realize that buying a home is not going to make them rich quickly.

In 2006, a lot of people were buying homes because they wanted more room, nicer neighborhood, and better school districts. Leslie believes most home buyers are not buying for these reasons any more.

1 in 4 mortgages are underwater today. Leslie believes this will impact the strength of the housing market over the next couple years.

In 2005, net cash to seller was a median of $220,000. Last year it was $35,000. In the distressed sales market, the net cash to seller was around negative $143,000. This means many of those people will not have the necessary cash to buy a home in the near future. A survey showed that only 33% of sellers were planning on re-buying a home in the near future.

When we released 500,000 home sales in 2010, that means we have to manufacture 250,000 buyers that aren’t showing up out of natural causes. Leslie is very glad we have investors to help create buyers for those sales.

Approximately 23% of California home sales are bought for cash. In the luxury markets, those numbers are significantly higher. Bruce read a survey stating that 60% of Beverly Hills homebuyers use all cash in their purchase. Many of the people buying in that area are global home buying clients, and California looks very attractive and affordable to them.

Leslie believes the homebuyer tax credits were the most beneficial of the real estate programs to come from the government. The $8,000 tax credit was very effective at encouraging buyers to enter the market. It also encouraged investors to get their properties ready for potential buyers.

Leslie believes the home market will not receive much federal aid in 2011. Also, the reduction in the $729,000 loan limit will occur this year. She believes the government will go back to a $625,000 loan limit. The government’s efforts to wind-down Fannie and Freddie means financing will be more expensive. However, Fannie and Freddie are not currently expected to be taken away quickly, because the government believes that would negatively impact the economy. Because financing will become more expensive once Fannie and Freddie leave, people will be encouraged to buy sooner rather than later.

Leslie cannot imagine a scenario where interest rates will ever be lower than they are now. Bruce does not think monthly payments for housing will ever be lower. Down payment requirements are going up as well as credit score requirements. This should make people rush to buy.

In January of 2011, there was a 6.7 months supply of homes in the California market. This means that at the pace in which homes were selling during January, it would take over six months to get rid of the entire inventory. The typical average for inventory supply is 6 and 7 months, so that is actually fairly balanced. However, when you break the inventory down by price category, properties priced above 1 million have a 13.8 months supply, $750,000 to $1 million properties have a 9 month supply, $500 to $750 properties have a 7 month supply, $300 to $500 properties have a 6.5 month supply, and under $300,000 is 6.3 months supply. This is a critical piece of information for buyers and sellers.

The most expensive prices have the most discretionary sellers. The more expensive the home, and the more expensive the community, the lower number of distressed sales there will be. Many higher priced sellers also have a lot of equity in their home.

If sellers are discretionary then they are not being forced out of their home. Short sales are considered to be non-discretionary sales. That category is expected to grow considerably. Realtors are hoping lenders will be encouraged to look at short sales in a more positive light. Lenders typically get a higher price for short sales than if the sale goes through foreclosure.

The 6.7 months of inventory does not account for inventory that should be on the market but is not. We have a large number of delinquent properties that should be in foreclosure and entering the market, but are not.

Leslie’s website is www.car.org

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.

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The Norris Group Real Estate News Roundup 3/9/11

Wednesday, March 9th, 2011

Today’s News Synopsis:

Mortgage applications increased 15.5% last week, according to the MBA. UCLA economists predict California’s unemployment rate will remain above 10% until 2013. Freddie Mac’s level of REO properties has grown 145.7% over the past two years. Obama threatened to veto bills terminating the Federal Housing Administration’s Short Refi and the Department of Housing and Urban Development’s Emergency Homeowner Loan Program.

In The News:

Mortgage Bankers Association – “Mortgage Applications Increase in Latest MBA Weekly Survey” (3-9-11)

“Mortgage applications increased 15.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending March 4, 2011.”

Los Angeles Times – “California labor market recovery to go more slowly than predicted, report says” (3-9-11)

“The state’s unemployment rate will remain in double digits until early 2013, according to a report slated for release Wednesday by UCLA’s Anderson School of Management . That’s three months later than the university’s economists forecast in December, as California’s weak housing market continues to weigh on the region’s recovery.”

Housing Wire – “AARP sues HUD over reverse mortgage foreclosures” (3-9-11)

“A reverse or Home Equity Conversion Mortgage allows the borrower, who must be at least 62 years old, to convert a portion of the equity in the home for cash. No repayment is required until the borrower no longer uses the home as a principal residence or does not meet the obligations of the loan, often in the event of death.”

Housing Wire – “Cleveland Fed economist calls for toxic asset bad bank” (3-9-11)

“James Thomson, vice president and financial economist for the Federal Reserve Bank of Cleveland, believes regulators can ease the pain of future financial meltdowns by creating a bad bank to acquire all toxic assets, including underperforming mortgages.”

Housing Wire – “Freddie Mac implores mortgage servicers to reach borrowers early” (3-9-11)

“Freddie announced it will use a new scorecard to measure how its mortgage servicers perform beginning in the third quarter. The change is part of a wider revamp of how Freddie will manage its 1,400 servicing companies and monitor how they put troubled mortgages through the loss mitigation process.”

Housing Wire – “Freddie Mac hires two REO servicers to help handle rising inventory” (3-9-11)

“The partnership is designed to manage expected increases in REO inventory, Freddie Mac said. At the end of February, the GSE said,the level of its REO properties grew 145.7% in just two years. In 2008, REO inventory was 29,346 compared to 72,093 homes in 2010.”

Housing Wire – “Obama threatens to veto bills killing foreclosure programs” (3-9-11)

“The House Financial Services Committee voted last week approving two bills that would terminate the Federal Housing Administration’s Short Refi and the Department of Housing and Urban Development’s Emergency Homeowner Loan Program.”

Bloomberg - “Hotel Purchases Will Soar on Rising Room Rates, Jones Lang LaSalle Says” (3-9-11)

“Hotel rates will gain this year as a recovery in business travel fills more rooms, lodging companies including Marriott International Inc., the biggest hotelier in the U.S., said yesterday in Berlin. Leisure travel is also rebounding after consumers trimmed spending during the recession. Revenue per room in the hotel industry rose worldwide in 2010, according to researcher STR Global.”

Looking Back:

Capital Economics claims that U.S. home values are 20 percent undervalued. Yields on Fannie Mae and Freddie Mac mortgage securities fell to record lows. Trulia reports that 19 percent of homes had a price reduction last month. Real estate appraisers claim that Obama’s new foreclosure program encourages fraud.

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.

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