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20 million underwater mortgages by 2012?

More than 14 million borrowers were underwater as of Q110, and with a further 10.8% decline in house prices expected relative to Q409 levels, another 6 million borrowers are likely fall into negative equity by the end of 2011, according to commentary today by Deutsche Bank.  The presence of negative equity goes hand-in-hand with an increased likelihood of strategic default, as borrowers may sometimes not be willing to pay the mortgage when the house has lost substantial amounts of value.  The firm noted that, even when strategic default makes economic sense, many borrowers resist on moral and social grounds, as well as from fear of legal consequences.  The existence of recourse — when a lender is able to pursue a borrower’s other assets — also acts as a disincentive against strategic default. 

Deutsche Bank noted 11 states are considered non-recourse — though not all explicitly forbid deficiency judgments on homes or on purchase loans. Underwater borrowers are more likely to default in non-recourse states. The greater the negative equity, the higher the cumulative default rate.  “Walk away or strategic default from a house with negative equity makes economic sense, especially in locations that have less expensive rentals,” Deutsche Bank researchers said.  “Many existing academic studies model homeowners’ default decision based on the theoretical hypothesis that a borrower would exercise a default when it is in-the-money, i.e., when the borrower’s house has negative equity. Therefore, a homeowner with negative equity would default even though they can still afford to make their mortgage payments.

Final tax credit lift in prices

According to Clear Capital’s Home Data Index Market Report, July house prices gained 8.1% from the same point last year, slowing somewhat from the 8.8% growth measured in June as the effect of the homebuyer tax credit begins to fade.  July house prices increased 7.9% from the previous three months, an improvement from the 5.2% growth seen in June. Alex Villacorta, senior statistician at Clear Capital said home prices are continuing their growth from the beginning of the year.  “This trend indicates that the initial upward momentum created by the tax credit expiration is being sustained,” Villacorta said. “While quarterly gains are showing strong momentum across the country, these recent price advancements are just the latest turn in a volatile housing market that has seen ‘W’ shaped price trends over the last two years.” 

Morgan Stanley analysts warned that data from these large indices should be taken with a grain of salt as local markets can deviate from one another despite larger macro trends. Scott Sambucci, vice president of data analytics at Altos Research, brought up similar concerns when he predicted further declines through 2010.  Prices in the West have been stable compared to rest of the market, increasing 2.7% in July. It has bounced between a 1.6% drop to the latest gain in July since the start of 2010.  On the metropolitan statistical area (MSA) level, Charlotte, North Carolina demonstrated more stability than the nation, much like the West. Prices there declined only 13% since its peak in the middle of 2007, while, national prices have dropped more than 30% since its height in the middle of 2006.

Jobless claims up

The Labor Department says there were 479,000 initial jobless claims filed in the week ended July 31, up 19,000 from a upwardly revised 460,000 the previous week.  The weekly figure is the highest since April 10, when 480,000 initial claims were filed.  The number of claims was higher than the 455,000 claims expected in a consensus estimate of economists surveyed by Briefing.com.  The 4-week moving average of initial claims, which is calculated to smooth out volatility, was 458,500, up 5,250 from the previous week’s upwardly revised average of 453,250.  The government said 4,537,000 people filed continuing claims in the week ended July 24, the most recent data available. That’s down 34,000 from the preceding week’s upwardly revised 4,571,000 claims.   Economists surveyed by Briefing.com were looking for 4,530,000 ongoing claims.  The 4-week moving average for ongoing claims climbed by 25,750 to 4,575,500 from the preceding week’s upwardly revised 4,549,750.  The latest claims data has little bearing on the government’s closely watched employment report for July, due on Friday, as it falls outside the survey period.

Beazer homes posts larger loss than expected

Beazer Homes USA posted a bigger-than-expected quarterly loss as the expiration of the federal homebuyer tax credit caused orders to plunge in May and June.  For the third quarter, Beazer reported a loss of $27.8 million, or 41 cents per share, compared with the loss of 25 cents per share expected by industry analysts, according to Thomson Reuters.  Last year, the company reported a loss of $28 million.  Homebuilding revenue jumped 52 percent to $339.9 million.  Analysts on average expected the company to post revenue of $325.1 million, according to Thomson Reuters.  Home closings rose 73 percent to 1,643 homes as buyers and builders alike rushed to close on home sales before the tax credit’s June 30 deadline.  But orders fell 32.5 percent to 1,037 homes.  “Homebuyers continue to be concerned about employment, the impact of additional foreclosures and general conditions in the economy,” said Chief Executive Officer Ian McCarthy. “We believe employment growth and improved consumer confidence remain the keys to a sustainable recovery in the homebuilding industry.”  Atlanta-based Beazer, the eighth-largest homebuilder in the United States, operates in 16 states.

Tax the rich?

If Congress fails to act in extending the Bush tax cuts, taxes on most Americans would go up next year — adding $1,541 to the average household payment, by one estimate.  Taking that money, a total of $135 billion, out of the pockets of consumers and small businesses could be a devastating blow to the fragile economy.  Every American who pays federal income taxes would see them increase if the tax cuts expire, according to the nonpartisan Tax Foundation. A typical middle-class family with a median income of $63,366 would pay $4,964 in taxes next year if the cuts expire, well above the $3,423 tax it would pay if cuts were extended.  President Obama and Treasury Secretary Timothy F. Geithner want to continue the tax cuts for lower income people, but have made it clear they want big tax hikes on job creators – successful investors and entrepreneurs – by letting the Bush tax cuts expire in 2011. This is despite the troubling persistence of unemployment greater than 9 percent.   

According to Caroline Baum of Bloomberg, squeezing the rich is no way to spur the economy.  “What we do know, empirically, is this: Over time, federal revenue as a share of gross domestic product has stayed fairly constant at 17.9 percent. That’s true if the top marginal tax rate is 91 percent (1950s), 50 percent (early 1980s) or 35 percent (2000s). Now the government wants to take money from the rich and give it to the poor. “They are wrong,” Laffer says. “It doesn’t work that way. The rich can change the volume, timing, composition and location of their income. Poor people can’t.” The rich have the luxury to respond to incentives, to opt for more work and less leisure when the return on work is greater. They are motivated to take risks, maybe start a business, invent something, and get even richer while giving others the opportunity, through hiring, to do the same. 

The opposite is true for low-income workers. When the government raises taxes, someone struggling to put food on the table for his family may have to go out and get a second job to maintain his level of take-home pay. For this socio-economic group, higher taxes translate to more work.  The goal should be to incentivize individuals to work hard, save and invest in the future. It’s about growing the pie.  I, for one, would like to see the debate shift from class warfare over tax rates and targeted tax relief to tax reform. Either scrap the tax code and introduce a simple flat tax with no deductions, or scrap the IRS and move to a consumption tax.  If you want to get money out of politics, there’s only one way to do it. Take the tax code out of Congress’s hands.”

Now for our real estate education section…

Crisis Control

Real estate is like any other business…sooner or later you will encounter a crisis. It may come in the form of a nationwide financial meltdown that disrupts funding for millions or something as simple as an overtly negative individual. Whatever the form, learning how to mitigate damages and restore a positive attitude is a key component to success.

1. Don’t be Defensive. Many old-timers will tell you dog can smell fear…the same applies to an audience whether it be your banker or a real estate seminar. People understand power and often turn against those that are perceived as weak or on the defensive. Remember, actions speak louder than words so guard your voice, words and body language.

2. Never Repeat a Negative Question. Rather than reinforce a negative question, try to rephrase it or move ahead. It’s better to take a small hit than give more time to an issue unless it is absolutely essential.

3. Never Blame Others. It puts you in a bad light and tends to make people distrust you…plus, it leaves people wondering what you might say about them behind their backs.

4. Don’t Argue. You might be right but the chances of convincing someone else decrease the more they defend their position to you. Instead, validate their position and explain your own thinking or simply move ahead. Not only does it conserve energy but it frees your mind from the feeling of dependence and allows you to see things from a different perspective.

5. Irrelevant Questions. This is perhaps one of the most frustrating situations for an investor or real estate pro to encounter…endless, tiresome and totally irrelevant questions. Unlike overly aggressive, negative or argumentative clients it’s not possible to simply “agree to disagree” and move on; instead, you must assume the person simply doesn’t understand or has a different agenda. If it’s possible to anticipate where they went wrong, try to bail them out to help them “save face”…it shows concern and sensitivity.  For those with their own agenda, try to determine if it is “helps” or “hurts” your position then act accordingly.

6. Plan for Murphy’s Law. Remember Murphy? Whatever can go wrong will go wrong so plan ahead for it. Put contingencies in place especially when it matters the most. For example, when planning an open house be sure to plan for inclement weather. Putting together a big media blitz, find another venue to publish in case the first falls through. Taking out a private loan, have a second on standby.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com (subscribe to this newsletter)

*************************************************
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 over
     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
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
–

——–

It happens tonight!  The amazing Recession Proof Real Estate Investing webinar will be held live … at 8:30 PM ET, 5:30 PM PST.   Grab a spot for yourself before they all disappear in our no-cost, no-obligation webinar right here tonight (Tuesday):

https://www2.gotomeeting.com/register/745206430

———
Housing prices fall

The S&P Case-Shiller Home Price Index, measuring housing prices in 20 representative cities across America, fell for the 30^th straight month in January, bringing house prices down to 2003 levels.  And this time it actually set a record, falling 19% from January 2008.  “There are very few bright spots that one can see in the data,” said David Blitzer, chairman of the index committee at Standard and Poor’s.  “Most of the nation appears to remain on a downward path, with…nine of the MSAs (metropolitan statistical areas) falling more than 20% in the last year.”  According to Mike Larson, a real estate analyst with Weiss Research, home prices won’t start advancing until the overall economy picks up.

Home bargains galore

In total, prices have plunged 29.1% nationally since they peaked during the second quarter of 2006, but that of course doesn’t figure in individual cities, where prices are more varied.  Dallas is the least affected at 4.9%, and Phoenix lost the most, at 48.5% from its peak.  All 20 index cities were in negative territory, but the biggest losers are Las Vegas, Miami, Phoenix, San Francisco, and San Diego — each losing more than 40%.  The bad, and good, news is that the rate of decline has picked up recently.  As Mike Larson, a real estate analyst with Weiss Research says, “”Arguably, that’s just what we need to drive up sales activity and reduce inventory.”

Big boys ready to pounce

Morgan Stanley is one of several early bird institutional investors getting ready to snap up real estate bargains — it’s close to raising $6 billion for a new global property fund:  the Morgan Stanley Real Estate Fund VII Global.  “I think these new real estate funds will look for distressed opportunities and they think they can bargain with developers who mismanage the balance sheets or have liquidity issues,” said Laure Wang, managing director of Asia Alternatives, a private equity fund of funds.  According to Paul Vosper, chief operating officer for real estate at Morgan Stanley’s Alternative Investment Partners unit, the downturn in global property markets will create a period of strong returns.

Consumer confidence down

The Conference Board, a New York-based business research group, said its Consumer Confidence Index rose to 26 in March from a revised reading of 25.3 in February, but is still hovering around all time lows.  Lynn Franco, director of the Conference Board’s consumer research center, said apprehension about the outlook for the economy, the labor market, and earnings is largely responsible for low consumer confidence.  The percentage of people who said they were going to buy a home over the next six months fell to 2.0 percent from 2.3 percent, and the auto industry doesn’t have anything to celebrate either – the percentage of people who plan to buy a new car fell to 3.9 percent from 4.7 percent.

The next wave…banks walk away?

All over the US, banks are quietly declining to take possession of properties at the end of the foreclosure process, usually because the cost — from legal fees to maintenance — exceeds the diminishing value of the real estate.  “It is what some of us think is the next wave of the crisis,” said Kermit Lind, an expert on foreclosure law at the Cleveland-Marshall College of Law.  In Buffalo, where officials said the problem had reached “epidemic” proportions in recent months, the city sued 37 banks last year for the deterioration of at least 57 abandoned homes, even though the banks had walked away from many more foreclosures.  So far, five banks have settled.  The problem is most acute at the bottom of the market — houses that were inexpensive to begin with — and with investment properties, where investors and banks want speedy closure by writing off bad loans as losses.  And we thought it couldn’t get worse…

Now on to our real estate investing education section…

Numbers to Know – Short Sale Quick Ratio or Acid Test

While many short sale investors and real estate pro’s use the current ratio on a regular basis, few take advantage of the relative benefits to be derived from making the quick ratio (aka Acid Test) readily available for review. Fortunately, the quick ratio really is quick…so take a few minutes to learn how to calculate this handy helper.

How to Calculate

The quick ratio or acid test basically equals cash plus short-term investments plus net receivables divided by current liabilities. For example, let’s assume you have $20,000 cash in the bank, another $30,000 in savings bonds gramma gave you, $35,000 in stocks or bonds that you can cash out and $15,000 in rent payments due with total current liabilities of $90,000. The numbers would look like this…

Cash and cash equivalents + Net Receivables = $100,000/ Current liabilities $90,000 = 1.11

How to Use

The quick ratio or acid test is increasingly used by lenders and others instead of the current ratio – because the quick ratio is even more “severe” or stringent, it is a quick and dirty method to measure the short-term debt paying power of an applicant. Essentially it is another liquidity measure albeit on steroids.

The standard is 1:1 ratio…the higher above 1 the better. For those of you able to demonstrate a 1+ ratio then toot your own horn! Make a point of showing this to prospective lenders to let them know you are good bet with something to offer.

For those at or near 1:1 the quick ratio is still a strong indicator as well as goal to consider. If you are able to trim just a little to better your current liquidity standing it might make the difference between mediocre versus the VIP treatment.

Eyes Wide Open

Finally, for those well below the 1:1 ratio consider going back to the current ratio or re-examining your assumptions. Review your cash equivalents to be sure you have the staying power in the event of an emergency or unexpected delay in funding or cash flow.

One of the few areas likely to cause a savvy short sale investor to falter is not the lack of profit but rather lack of readily available cash on hand or liquidity. In fact, this is a common problem that plagues investors and business owners at all levels; unfortunately, the average short sale investor does not have the benefit of a wide open federal window ready and waiting to hand over temporary loans to keep you in operation. The acid test provides a firm footing to keep you in the black and away from the risk associated with a liquidity crunch.

See you at the top!

Chris McLaughlin

http://www.shortsalesriches.com/welcome.html  

P.S.

Don’t miss out webinar tonight at 8:30 PM ET, 5:30 PM PST:

https://www2.gotomeeting.com/register/745206430

Copyright Loss Mitigation Institute 2009.
All Rights Reserved.

http://www.shortsalescoach.com
http://www.shortsalesriches.com
http://www.reomillionaireclub.com 
http://www.sixfigurebpo.com *************************************************
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 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
     * On facebook: http://www.facebook.com/addfriend.php?id=709199143

—

——
This is your year, right??  Let’s make it happen!  Forget the headlines, forget all the negativity, and forget all the turmoil.  More millionaires are created during times like these than any other time … so are you ready to make it happen?  If so, be one of the 34 spots that we have left for our Tuesday night webinar entitled “Recession Proof Real Estate Investing: How to Buy Property with no out of pocket costs!”

The link is right here, so jump on this now:

https://www2.gotomeeting.com/register/655619177

——

Citigroup and Morgan Stanley were in talks over the weekend about combining their brokerage division.  The Associated Press reported that Morgan Stanley may pay up to $3 billion for a 51% stake in Smith Barney, and then Morgan Stanley would be given five years to buy the rest of the brokerage firm.   This wouldn’t be the only change for brokerage firms lately, as Merrill Lynch sold to Bank of America amid all of the turmoil in the banking world.

In bailout news, the U.S. Senate may be voting this week to authorize the incoming Obama administration to tap the remaining $350 billion in TARP funds.  But the outgoing President was a bit defensive about the criticism of his administration’s handling of the event, and said that wouldn’t be asking Congress for it unless Obama wanted him to do so.  Bush noted: “I readily concede I chunked aside some of my free market principles when I was told by chief economic advisers that the situation we were facing could be worse than the Great Depression.”

And in welcome news to those Realtors and investors that are driving clients around looking for short sales and foreclosures, oil fell below $38 a barrel.  The continued slide is due to weak earnings from corporate America as well as concerns about macroeconomic issues that will reduce demand for oil and gas.

Now on to real estate investor education …

Short Sale Real Estate Versus Municipal Bonds

Outside of federal bonds, municipal bonds have historically been considered one of the safest places to park your cash especially in preparation for retirement; but, are they really as safe as they appear? If 2008 didn’t convince you of the futility of holding paper instruments or glorified promissory notes rather than hard assets, then perhaps a cold-hard look at the number may. 

Let’s examine muni bonds compared to real estate; how much cash flow can you realistically expect to generate from each? There was a time not all that long ago when financial advisors would pull out fancy charts showing how your retirement account would grow by 10 percent annually and viola’ …you would be wealthy and well established once retirement age arrived simply by contributing to your 401-K or setting aside a relatively modest fund each month.

Over the years those 10 percent returns were replaced with 8 percent returns on the charts but still a relatively robust expectation. As of 2008 the analysts and financial advisors are more likely to hide those charts or spend an extensive period of time talking about “historic norms” since the returns are elusive and principle loss is the name of the game for 2008 and beyond.  The fact is, today the average muni investor is happy to squeeze out 3 percent returns from those “safe” bond portfolio’s or dividend accounts.

Think about it…at 3 percent you aren’t even keeping pace with the government estimated rate of inflation…and you can expect to be “locked in” to that rate for 5, 10 or even 20 – 40 years. With the current rate of economic stimulus being pumped into the economy, few experts believe the rate of inflation will remain at the current “low” of 5 percent.

Now let’s compare cash flow – after all, the numbers are what really matter. To generate $1,500 per month income from  muni bonds at the current rate you would need to have invested $600,000; it’s worse for dividend paying stock since taxes would be required….plus, stocks are subject to dramatic increases and decreases putting your principle at risk should you be required to liquidate. On the other hand, short sale investors could easily generate $1,500 of income per month with as little as ONE paid in full piece of property used as a rental to generate retirement income. In fact, by investing the same $600,000 into short sale real estate rather than muni bonds or dividend paying stock a real estate investor could realistically expect triple, quadruple or even greater returns than those allotted by bonds.

The benefits don’t stop there! In addition to easily outperforming bonds, short sale real estate provides tremendous tax advantages over the life of the home and future price appreciation that keeps pace with inflation. As tangible assets, real estate can be used as collateral for other loans or expenses, increases net worth, generate monthly income in the form of rental real estate plus much more. Now as yourself, which makes more sense: $600,000 investment to generate $1,500 per month return or buying short sale real estate capable of producing multiples of that amount each and every month?

As tough economic times continue into 2009 and beyond, investors from all walks of life need to take steps to protect their own financial interests. Don’t leave your hard earned money in the hands of the same people that created this crisis; instead, crunch the numbers and find ways to grown your own income. One of the advantages of investing in short sale real estate is the ability to begin with next to nothing; you don’t need to have $600,000 sitting around in a bank account…in fact, millions of people have learned how to start small with just one or two homes and build a satisfying 2^nd income, retirement account or long term portfolio in their spare time.

——-

See you at the top!

Chris McLaughlin

http://www.shortsalesriches.com/blog

P.S.: Don’t miss out on our upcoming webinar on Recession Proof investing this Tuesday at 9 PM ET!  There’s only 34 spots left, so jump on this now:

https://www2.gotomeeting.com/register/655619177

P.P.S.: If you wanted to get in on the Seven Figure REO product, sorry we’re SOLD OUT!  Congrats to the lucky folks who jumped on it when we told them to!

But there is a launch by our friend Mike Collins..get information on what he’s doing before that goes away too!

https://rehablist.infusionsoft.com/go/tvsmash/NJur1

—

Well you don’t have to worry about AIG bringing down the Dow Jones Industrial Average anymore…the Ritz cracker just ate AIG.  Yep, Kraft Foods will replace AIG in the Dow Jones next week.  We’ve gone from insurance to mac and cheese.  At least my 3 kids, all under the age of 4, will be happy.

And President Bush attempted to calm markets as well and indicated that the government bailouts of Fannie Mae, Freddie Mac, and AIG were essential to keep the economy sound. “These actions are necessary and important, and the markets are adjusting to them,” the President noted.

Adjusting? Panicking seems more like it, huh?

Washington Mutual continued to find itself a suitor today, but The Wall Street Journal reported that Citigroup didn’t want to get engaged just yet.  Morgan Stanley is rumored to have been thinking about dating and possibly proposing to Wachovia Bank, but a few Asian banks—and perhaps that Chinese government itself, might come to the rescue of the firm.

Politics took center stage today as well.  Republican Presidential candidate John McCain, seeking to put some distance between him and President Bush, said he would fire Securities and Exchange Commissioner Christopher Cox.  The chairman of the SEC serves at the appointment of the president and in my view has betrayed the public’s trust,” McCain stated. “If I were President today, I would fire him.”

How does this affect Main Street?  Well money markets are getting a little jittery these days.  These funds invest in short-term corporate and government bonds, but they have taken a hit as of late due to significant redemptions.  The Primary Fund RFIXX went below a benchmark of $1, which meant that if someone held money in these funds they would actually lost money, not make money.  The Primary Fund had around $40 billion in withdrawals since last Friday.  And Putnam Investments said it was now closing its $15 billion Prime  

What good news was out there?  In a move reminiscent of the Resolution Trust Corporation (remember the good ole’ days of the S&L Crisis), US Treasury Secretary Henry Paulson is developing up a plan to take the bad debts from banks and investment houses and package them up for an orderly sale.  That sent stocks higher today, with the Dow Jones finishing the day up over 400 points. 

So let’s get this straight.  Mom and Pop don’t have much money anymore, but what little money they do have is now losing money in what some folks thought was risk free, a money market fund, for the first time ever.  Major financial institutions like Morgan Stanley and AIG are teetering.  Credit has tightened beyond all recognition and the thought of getting a loan that isn’t government backed is laughable.

But I still here from some Realtors that foreclosures are just gonna be here for just another year.  Well, if you think they aren’t here for the next 3 years, in this economy with this type of financial turmoil, you might as well grab some of those Ritz crackers and have a pity party now, because it isn’t going to happen.

But it is the single biggest gift many of us will ever be given in our lifetime.  Wherever the public runs one way, I say run the other.  And I have made a lot of money because of it.  When a sink hole drained a local lake in my hometown, where all the fancy houses were located, I made a low ball offer on a house a few days later when everyone was freaking out thinking the lake would be a swamp.  As I type this, I’m staring over a beautiful lake with a magnificent view of the water.   The story is true, by the way… just Google the words “sinkhole McLaughlin buy dry sell high” for a funny story on it.

So remember … in this market, you can now buy low, and not sell high, but sell fast.  And that means less risk, less holding costs, and money in the bank.  But you have to do more than read this and agree … you need to take action, too.

I’m loving this market more and more each day.  The real estate market, that is.

Chris McLaughlin

Web: http://www.shortsalesriches.com/welcome

e-mail: info@shortsalesriches.com

Phone: (800) 452-7627

P.S.: P.P.S.: Nathan just told me he will be closing 20 homes within the next 30 days.  Not bad for a kid that was home schooled with no formal education, huh?  All the guys with the fancy education work(ed) at Lehman, Bear Stearns, AIG, Fannie, Freddie, and other banks .. hmm… kinda ironic ain’t it?  Check his secrets out at: http://www.shortsalesriches.com/welcome

P.P.S.: Want to comment on this article?  Go to the blog!  It is located at http://www.shortsalesriches.com/blog. 

And I know what you’re thinking.  “What’s it going take to fix this mess?”

I have the answer … and if you’re reading this, you are probably part of the solution.  Read on …because the answer might surprise you!

But first, let’s recap.  The Dow Jones Industrial Average tanked again today.  It wasn’t pretty.  It lost 449 points, or 4.09% of its value.  And Uncle Sam came to the rescue again.

This time, however, it is serious.  Helping Bear Stearns out was one thing.  Giving investor confidence to Fannie and Freddie was another.  But all of a sudden, the perfect storm developed and Merrill Lynch and Lehman Brothers were is trouble.  The bull lost its horns and is now a cow, out to greener pasture somewhere…with plenty of foreclosures around the farm to boot.

Merrill was saved by Bank of America, but Lehman is done and sold some assets to Barclays today.  Now the bloody streets get even worse … Morgan Stanley tanked 25% today.  Goldman Sachs plunged 17% today.  All my buddies from Georgetown are crying.

Why?  Well, the AIG mess is quite a mess.  We’re talking over $1 trillion in assets that almost went on the auction block for pennies on the dollar.  That would spell financial ruin the likes we haven’t seen in a century.  It would make AIG’s 74 million clients a little panicky, too, don’t you think?  AIG still will be selling its assets, but in this case they’ll be doing so to pay Uncle Sam back, rather that giving folks a free to all in a liquidation.   So thanks, USA, for backing AIG with $85 billion.

What happened in real estate today (of course everything that’s happening is related to real estate).  Housing starts for August dropped to 17 ½ year low the U.S. Commerce Department reported today.  The seasonally adjusted annual rate was 895,000, which is off from the estimated 950,000 and represents a 6.2% drop.

But, as long as you are not a homebuilder, we in the real estate world know that this is actually a good sign… meaning that in order to recover, this is the medicine we need.  We need less new home inventory so that we can move more of the existing inventory we have, and to create an equilibrium of supply and demand.  A new house just isn’t going to compete against a bank-owned 2007 or 2006 house that is 30% less than the cost of construction.   Starts on single family homes were 33% below August 2007 levels at 630,000.

Ok, but Chris … you’re the guy that’s screaming that this is the biggest opportunity ever.  So where’s the silver lining you ask?

The Mortgage Banker’s Association reported that loan applications jumped 33.4% to 661.7 just last week, its highest level since May 9, 2008.  This shouldn’t be too much of a surprise because the government bailout of Fannie and Freddie gave more confidence to the market for mortgage backed securities.  So rates dropped.  This is good news for Realtors, good news for lenders…and perhaps good news for new home builders going forward.

And guess what?  When equity markets are awful, and investors are looking for hard assets, where do you think they are going?   Well, precious metals that’s for sure (gold had its best day ever today, up 11% to $80/ounce).  But don’t forget about bricks and mortar.  Some investor pulls out $500,000, does a self-directed IRA into real estate, and gets a 10% return on the cash just based on rents alone.  Then they get the upside.

I’m telling you.  Read me loud and clear: when financial markets plunge, the real estate market will be the beneficiary.  Just watch.  Or better yet, start taking action!

So who gets us out of this mess?  You do.  If you’re reading this, you’re probably a real estate agent or investor.  Once you get going, and do your thing, and start telling people that the real estate market is A LOT more stable than the stock market, you’ll begin to make sense.

And guess what else?  Banks are tanking.  They have to unload nonperforming assets. So short sales will become easier.  REO’s will become plentiful.  And realtor bank accounts will start filling up, not depleting.

So hang in there.  Sure it is painful for your 401(k), but you better be able to make it back in spades with the opportunity you’ve got in front of you.

Go for it!

Chris McLaughlin
Web: http://www.shortsalesriches.com/welcome
(800) 452-7627

P.S.: Thanks to many of you who have e-mailed us giving glowing reviews for including the CDs in the Short Sales Riches packet you recently got.  Yep, we threw that in at no extra cost because we want you to be able to not only read it, but live it.  And when you hear Nathan and I talking about how to make money in this market it all starts coming together, doesn’t it.

P.P.S.: Nathan just told me he thinks he’ll make $160,000+ this month.  Not bad for a kid that was home schooled with no formal education, huh?  All the guys with the fancy education work(ed) at Lehman, Bear Stearns, AIG, Fannie, Freddie, and other banks .. hmm… kinda ironic ain’t it?  Check him out at: http://www.shortsalesriches.com/welcome