Real Estate News & Commentary by Chris McLaughlin, April 29, 2009
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Economy declines 6.1%
In the first quarter of 2009, the U.S. gross domestic product shrank almost as much as it did in the fourth quarter of 2008, according to a government report today. The drop was much worse than expected. According to economists surveyed by Briefing.com, expectations were for a drop of 4.7% in gross domestic product, but the actual drop turned out to be 6.1% — the biggest drop in 26 years. The two major influences are businesses pullbacks in spending, accounting for 2.6 percentage points of the overall decline in GDP; and inventory reduction during the quarter, which contributed another 2.8 percentage points to the drop in GDP. State and local governments also cut back on spending.
Mortgage loan application volume down 18.1%
The Mortgage Bankers Association (MBA) announced that the Market Composite Index, a measure of mortgage loan application volume, decreased 18.1 percent on a seasonally adjusted basis to 960.6 from 1172.2 a week earlier. On an unadjusted basis, the Index decreased 17.4 percent compared with the previous week and increased 62.7 percent compared with the same week one year earlier. The refinance share of mortgage activity decreased to 75.3 percent of total applications from 79.7 percent the previous week, and the adjustable-rate mortgage (ARM) share of activity increased to 2.1 percent from 1.4 percent from the previous week.
Home ownership declines
According to the US Department of Commerce Census Bureau, the rate of U.S. homeownership slipped in the first quarter to the lowest level since the start of the decade. U.S. homeownership dropped to 67.5 percent from 68 percent a year earlier, driven by a sharp decline among younger buyers as well as among African-American households. Today, 74.7% of adult whites own their homes, and blacks are the smallest segment of mortgage borrowers, with only 46.1% of the population currently owning their home. Hispanics followed at 48.6%, with “all other races” experiencing a homeownership rate of 57.4%.
Six banks fail stress test
Bloomberg says that at least six of the 19 largest U.S. banks require additional capital, according to the results of the so-called “stress-tests.” Fed Chairman Ben S. Bernanke, Treasury Secretary Timothy Geithner, and other regulators are scheduled to meet this week to discuss the tests, but Geithner has suggested that the options for raising capital include converting government-held preferred shares dating from capital injections made last year, raising private funds, or getting more taxpayer cash. Bank of America and Citigroup – two of the banks in question – are currently appealing. According to an April 24 analysis by Morgan Stanley, three of the other four banks are likely to be SunTrust Banks Inc., Keycorp, and Regions Financial Corp.
Now on to our real estate investing education section…
Signs of the Times – How Short Sale Investors Can Spot the True Turn-Around
At the first sign of slowing declines and a few stocks going up in value, the media is eager to report that the worst is over. Before you run out and begin buying up stocks or bonds it might be a good idea to review the signs of a real bottom. Expect a true turn-around to take place after the following events have been established:
Debt Liquidation. While the big bank bail-outs and automobile manufacturers might seem to have drained the Federal Reserve, remember what we spoke about earlier this week…the giant derivative mess is still waiting in the sidelines with numbers that literally dwarf everything else to date. Wait until the true debt liquidation takes place before getting overly excited by the early signs of a supposed recovery.
Failures. Sooner or later the federal government will stop bailing out bad companies and instead, turn their sights on trying to preserve what is left of the American economy. In a Darwinian struggle for survival, weak companies will fail while larger companies purchase assets for pennies on the dollar. Don’t expect the government to make a major announcement restricting all the bail-outs, instead, simply keep a close eye on spending to see the signs of slowing and eventual capitulation related to the bail-outs. Plain and simple, the federal government won’t be able to afford the true cost of throwing good money at bad business.
Wall Street Woes. Short sale investors already know how fickle the media and traditional economists can be when it comes to investment advice so it should come as no surprise that they will once again be wrong when it comes to Wall Street. When you begin hearing that all stocks are now ‘worthless’ then start searching for signs of the bottom….the same way that real estate has been nearing its own bottom presently. Remember, the tendency is always toward an over-correction prior to a true turn-around.
The Big Event. Every turn around is preceded by a “big event.” While we don’t pretend to know the future, we can learn a little from the past and take an educated guess that the big event preceding the true turn around could borrow from the pages of history in the form of a major monetary policy change, national bank holiday or other watershed event that “re-sets” the currency and economic system. Already nations from around the world are calling for a new reserve currency to be issued by the International Monetary Fund while the Internet itself is rampant with reports speculating on the emergences of the Amero in much the same way Europe adopted a co-existent currency in the Euro. Whatever form the big event takes, it is certain to reduce those holding dollars, stocks and bonds to potential ruin.
Take time to review the history of other nations in the grip of economic uncertainty to determine how well real estate performed. Indeed, it is one of the few assets that lead to wealth after the true turn-around took place. Meanwhile, keep your eyes and ears open for opportunity to establish your financial future via short sale investments….the time to buy the best bargains is always on the way down – not up. That is when you will really want to sell then reap the rewards of all your hard work and determination.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com/welcome.html
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Copyright Loss Mitigation Institute 2009.
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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 flipping of distressed homes. Owns portfolio of nearly 100 high-value, high-profit properties.
* Owner and Supervising Broker 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
* On twitter: http://twitter.com/mclaughlinchris
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