Existing home sales rise for the third straight month
Real Estate News & Commentary by Chris McLaughlin, July 23, 2009
http://www.shortsalesriches.com
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Existing home sales rise for the third straight month
According to the National Association of Realtors (NAR), existing home sales in June rose by 3.6% to an annual rate of 4.89 million, the highest since last October. Lawrence Yun, NAR chief economist, said: “The increase in existing-home sales occurred in all major regions of the country.” Analysts say that this signals moderation in housing slump.
“Market-clearing price levels are resulting from the foreclosure wave,” said John Ryding, chief economist at RDQ Economics. “This will be a protracted bottom, rather than anything that will show a quick recovery.” The national median existing-home price for all housing types was $181,800 in June, which is 15.4% below June 2008, according to the NAR. Analysts expect to see depressed home prices for many more months to come. Tax incentives and drop in interest rates have contributed to the rise in home resales. But concerns about unemployment are keeping many prospective homeowners in the sidelines.
Banks incur significant losses in commercial real estate loans
While banks, irrespective of their size are incurring losses in commercial estate loans, large banks typically have well-diversified revenue streams, protecting them from a downturn in a single sector. “For the smaller banks, the primary revenue generator is going to be the lending side of the business. That’s still a real mess out there. Particularly relating to commercial real estate, it’s getting worse, not better,” said David Twibell, president of wealth management at Colorado Capital Bank.
Morgan Stanley lost $700 million in commercial real estate last quarter while Wells Fargo reported a 69% increase in delinquent loans. Regional banks such as Key Corp and HMN Financial have reported a significant rise in commercial real estate loan losses. “Banks are writing off commercial real estate loans now at a bigger rate than in the last 20 years,” said Kathy Boyle, president of Chapin Hill Advisors. Analysts are not bullish about banks. “There are still significant problems in the commercial real estate market,” Twibell said. “We’re probably in the third or fourth inning of that, whereas in the residential side we’re in the seventh or eighth inning. There are so many problems, it’s tough for me to get excited about banks.”
Initial jobless claims rise after 2 straight weeks of decline
According to the Labor Department, initial jobless claims rose by 30,000 to 554,000 in the week ended July 18. Claims had fallen by 93,000 over the previous two weeks on account of companies such as General Motors shutting down their plants and not laying off as many workers as expected. “The level of initial claims is still consistent with deep job losses but smaller than we saw in the first months of this year,” said Zach Pandl, an economist at Nomura Securities.
Continuing claims decreased by 88,000 to 6.23 million in the week ended July 11, the week for which latest data is available. This is the lowest since April. Forty one states reported an increase in new claims while 12 reported a drop. Federal Reserve Chairman Ben Bernanke says unemployment is the “most pressing issue” for policymakers today. “Job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending,” Bernanke said in a recent testimony before Congress. “The possibility that the recent stabilization in household spending will prove transient is an important downside risk to the outlook.”
Bailing out Fannie and Freddie is proving to be expensive
Since Congress authorized the Treasury Department in provide capital to Fannie Mae and Freddie Mac last July, Fannie Mae has received $34.2 billion of direct government support while Freddie Mac has received $51.7 billion. While the amounts are lot lower than bailout funds offered to firms such as AIG and Citigroup, analysts say that Fannie Mae and Freddie Mac may require significant sums of money in future on account of their rising losses. “We’re assuming they each will cross the $100 billion mark fairly soon. They could be hitting the $200 billion barrier by the end of next year,” said Bose George, mortgage analyst at Keefe, Bruyette & Woods. From a financial perspective, investments in Fannie and Freddie may not yield much to the government.
Few expect that Fannie or Freddie will be able to pay the committed 10 to 12 % dividend on the government funds they have received, let alone return the principal. James Lockhart, director of the Federal Housing Finance Agency, says investment in Freddie and Fannie cannot be looked at just in terms of financial returns. “They really have been the backbone of the housing market throughout this period,” said Lockhart. “The money spent, we can at least say has gone to a good cause — keeping the housing market much more stable than it would have been [without the bailout].”
Debt collectors wait for loan quality to deteriorate further
Debt collectors buy troubled loans at fire-sale prices and collect whatever is possible from borrowers in order to make profit. “Once they decide to buy the portfolios and get a sizable amount, the portfolios could be lucrative for the companies over a number of years,” says Sameer Gokhale, an analyst at Keefe, Bruyette & Woods. Given the current economic conditions, one would expect debt collectors to be busy. Not quite. It looks as though debt collectors are waiting for a further deterioration of the economy when they can buy loans cheaper. “Our strategy has been to reduce purchasing.
We are waiting for those advantageous prices,” said Rion Needs, chief executive of Asset Acceptance Capital, a debt collection firm. This is a good strategy. Buying loans for pennies on the dollar would significantly limit the downside for debt collection firms while providing a significant upside even if they manage to collect on a small number of loans. Analysts caution that debt collectors will not be able to improve their results in the near-term on account of borrowers’ poor repaying capability. “It will be unusual to see an acceleration in performance (near term) because the consumer is still so strapped,” Mark Hughes of SunTrust Robinson Humphrey.
Now on to our real estate investor education section…
Second Mortgage Financing & the Road to Real Wealth
Psssst…wanna know the secret to building real wealth? Forget everything you think you know about leverage, Forex, 401k’s or any other magical formula. It’s mere child’s play compared to how much you can pocket simply by holding a second mortgage when lining up buyers for your short sales. Before you think we have gone off the deep end, take time to crunch the numbers for yourself and see if you don’t agree – the timing is right, the numbers make sense and it’s one of the most profitable opportunities remaining for average investors.
Why Finance Second Mortgages
- Need. Plain and simple there is an ever growing need or “demand” . As banks tighten credit requirements and demand larger down payments, buyers are left trying to come up with more money than ever. Fill that gap by holding a second mortgage. Not only will you obtain top dollar for sales but a hefty return on your money.
- Profit. By far the single largest reason to finance a second mortgage is the profit potential. Let’s use a deliberately simplistic example to demonstrate….
Suppose you purchase a short sale property for $100,000 with the intent to sell at $125,000. Not bad but what if you could squeeze an extra $10,000 to $20,000 simply by holding a second mortgage. That’s wonderful and entirely possible but still doesn’t compare to the long term gain to be realized simply by holding a second mortgage in the amount of 10 to 15 or even 20 percent of the total sales price.
For example, 20 percent of $250,000 = $25,000. Financed at a mere 7 percent for 30 years $166 per month for 30 years or $1992 annually for a total of $59,760 over the life of the loan. Add that back to your original $25,000 profit simply from the anticipated increase at the original closing and you have more than tripled your original profits. Yes, it’s spread out over a long period of time but, think of the total profits to be derived from multiplying this effect over several properties. Remember, should you need more cash up front, it’s always possible to “factor” the future income earnings or sell the note to someone else.
But, let’s see what happens when using a higher interest rate such as 10 percent. Now the same $25,000 financed over 30 years turns into $219 per month or $2628 annually for an additional $79,000 over the life of the loan. Now you have transformed a $25,000 profit into over $100,000 profit simply by agreeing to finance the second mortgage.
Give it a try and see for yourself how easy it is to build a steady second income simply by holding a second mortgage on the next property your buy and sell. Best of all, properly structured it may be possible to fund a retirement account and take advantage of deferred tax rates. Take your short sales to the next level and create a long term cash cow along the way with properly structured second mortgages.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com
Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
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“Strange New Automation Strategy Closes Short Sales
Fast and Easy!”
Think of it! My new automatic system for finding and
closing short sales is letting people cut their
work-week in half… and triple their income!
If you’re ready to say good-bye to endless hours of
labor, and far too few dollars in return, find out
more for fr-ee – no cost, no obligation. Just click
the link below and join us Thursday night at 8:30 PM ET,
5:30 PM PST..
https://www2.gotomeeting.com/register/778574730
Finally, a blog for Real Estate professionals
that want up-to-the-minute news, & how it impacts
us and our market…
http://www.shortsalesriches.com/blog
About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting nearly
450 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
* Follow me on Twitter: http://twitter.com/mclaughlinchris
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