Real Estate News & Commentary by Chris McLaughlin, October 1, 2009
http://www.shortsalesriches.com
* Follow me on Twitter: http://www.twitter.com/mclaughlinchris
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50% of modified loans in default
The Obama administration’s plan to tackle the foreclosure crisis got off to a slow start, but as of last month, about 360,000 borrowers, or 12 percent of those eligible, have signed up for three-month trial modifications. However, the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision (where did all these “Offices” come from?) says that more than 50 percent of homeowners with loans modified in the first half of last year had missed at least two months of payments a year later. The results were better among those who saw their payments drop substantially, with only one in three borrowers whose monthly payments were reduced by 20 percent or more falling behind again within a year. The modifications are supposed to be extended for five years if the homeowners make their payments on time, but there’s no current data on redefaults within the plan. The report covers 34 million loans, representing more than 60 percent of primary home mortgages and, consistent with other reports, it showed borrowers are continuing to fall behind as job losses mount. More than 11 percent of borrowers covered by the report had missed at least one payment as of June 30, up from 10 percent in April.
Job losses up this week
The Labor Department’s weekly report claims there were 551,000 initial jobless claims filed in the week ended Sept. 26, up 17,000 from an upwardly revised 534,000 the previous week. The 4-week moving average of initial claims was 548,000, down 6,250 from the previous week’s revised average of 554,250. Ian Shepherdson of High Frequency Economics wrote in a research note that “a correction was overdue” after three consecutive declines in initial claims. “Progress is slow,” Shepherdson said. “There is still no sign of a near-term stabilization in employment.” Meanwhile, 6,090,000 people filed continuing claims in the week ended Sept. 19, the most recent data available. That was down 70,000 from the preceding week’s ongoing claims. The initial claims number identifies those filing for their first week of unemployment benefits. Continuing claims reflect people filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks. Neither of the statistics include people who have moved to state or federal extensions, nor people whose benefits have expired.
MBA supports Consumer Financial Protection Agency
In Testimony on President Obama’s proposed Consumer Financial Protection Agency, the Mortgage Bankers Association (MBA) endorsed an approach that incorporates parts of the committee’s proposals buttressed by pieces of MBA’s Mortgage Improvement and Regulatory Act (MIRA). MIRA would assign regulation of non-depository mortgage lenders and mortgage brokers and implementation of a uniform mortgage lending standard to a federal prudential regulator. MBA stressed the need for one rigorous, uniform national lending standard to eliminate the patchwork of confusing and costly state laws that do not provide consistent protection to consumers nationwide. Federal Reserve Chairman Ben Bernanke, for his part, failed to endorse the agency in a news conference in which he endorsed just about everything else in the Obama administration’s plan to overhaul the regulatory system.
Pending home sales boom
As expected because of the looming expiration of the tax credit, the August Pending Home Sales Index from the National Association of Realtors (NAR) surged in the seventh straight month-over-month improvement in the indicator, but even so, it outdid expectations considerably. A panel of analysts surveyed by Briefing.com had forecast a 1% rise, and the actual was a leap of 6.4%. Pending sales are considered a forward indicator of housing market health since contract signings precede actual closings, which typically occur two to three months later. August contract signings show up in October and November NAR statistics as existing home sales. “No doubt many first-time buyers are rushing to beat the deadline for the $8,000 tax credit, which expires at the end of next month,” said Lawrence Yun, NAR’s chief economist. One problem in extrapolating future closings from contract signings, however, is that there are continuing problems obtaining mortgages that may scuttle many deals, according to Yun. “The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales, and issues regarding complex new appraisal rules.”
Manufacturing down
Sure enough, the trend the Chicago Purchasing Managers Index warned about yesterday came true today when the Institute for Supply Management (ISM) reported that manufacturing activity fell to 52.6 in September from 52.9 in August, short of expectations. According to a Briefing.com consensus survey, economists had expected a jump to 54 from August’s 52.9. The monthly report is a national survey of ISM members, who are purchasing managers in the manufacturing field. The data track new orders, production, employment, supplier deliveries, inventories, customers’ inventories, the backlog of orders, prices, new export orders, imports, and buying policies. Index readings above 50 indicate growth, while levels below 50 signal contraction. Readings below 41.2 are associated with a recession in the broader economy. Most telling, the key new orders component fell by 4.1 percentage points in September, to 60.8. New orders are a gauge of manufacturing activity in the near future. “It appears the fundamentals for continuing recovery are still at work,” said ISM chairman Norbert Ore, in a prepared statement.
Now on to our real estate educational section…
Deflation & Short Sales – A Timeline into the Future
Economists and investors alike have been engaged in a hot debate regarding inflation versus deflation; on one side of the ring are heavy hitters like legendary Marc Faber, Peter Schiff and Kiyosaki (inflationists) while the deflationists cite the works of “Mish” Shedlock and Henry Dent. The question is of more than passing interest to every short sale investor; invest wrong and it could easily wipe-out a lifetime of earnings.
In order to summarize the major considerations of deflation versus inflation it is necessary to take a few steps back and objectively evaluate the scenario. First, real estate is a hard asset which tends to do well during periods of rapidly rising inflation however, unlike gold or other commodities, real estate does require maintenance in order to retain its value. On the other hand, when purchased at a solid “value”, real estate is able to use leverage and create a return on every dollar invested.
Few investors or economists would quibble with the fact that assets prices have currently experienced a dramatic downturn; real estate is down 25-50 percent from former highs; certainly enough to make many people give a serious look at deflationary concerns. Before writing short sale real estate off as a bad investment due to deflationary pressures, it is a good idea to consider how long the deflationary period is expected to endure. Here are a few things to keep in mind:
- Dollars are not safe. Foreign investors have recently made public remarks over their growing reluctance to continue buying American dollars and are reducing the quantity and velocity of purchases. As demand for dollars continues to wane, expect a flight to safety away from fiat currency and into hard assets or other alternative investments. Weak dollars translate into higher prices for all commodities and hard assets over the long term.
- Business is suffering. As tighter lending standards combined with rising unemployment and reduced consumer demand is putting a squeeze on small business owners as discretionary spending continues to dwindle. Experts anticipate this trend is likely to continue into the foreseeable future as manufacturer reduce capacity and inventory…eventually leading to shortages and increased prices rather than continued declines.
- Continued Printing. Uncle Sam has printed more dollars in the past year than at any time in the history of the nation. The age old relationship between supply and demand deems the more there is of something the less valuable it is – in this case, there is a lot of fiat currency floating around with very little restraint anticipated in the near future. The situation is so dire that Marc Faber recently suggested the collapse of the American economic system within 5-10 years at the same time the BRIC nations are calling for alternative index currency.
What does this mean for the average investor or short sale buyer? Simple, expect tighter lending standards to make it more difficult for households to buy a mortgage in the future, expect rising cost of materials and increased government regulations to further increase the cost of building new homes and expect the cost of all assets/investments to rise as the value of the fiat currency plummets.
The time to buy is now – people are in a “back to basics” mentality where home, family and security take precedent over flashy cars, whirlwind vacations or luxury goods. Give consumers what they need at a price you can afford – it’s a simple method tried and tested to yield impressive results over time. Find out how easy and affordable it can be to get started with short sales in your spare time by tuning in to one of the free online webinars.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com
P.S. : YOU MUST SEE THIS! The move celebrated real estate
investing movie of the year:
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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
400 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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