recession

Smart Real Estate News & Commentary by Chris McLaughlin June 9, 2011

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Financial Times – return of housing optimism

As the housing market started to weaken earlier this year, analysts feared that the seasonal bump would not materialize at all – a sure sign of deepening problems that could tip the economy back into recession.  From January through to March, home prices fell so far that they are now back to levels not seen since the middle of 2002, according to the widely watched S&P/Case-Shiller Index.  Slowing job growth and declining consumer confidence added to the perception that the market was worsening.

And yet interviews with realtors in half a dozen cities around the country paint a different picture. They say that the volume of sales and prices started to strengthen in April and have continued to gain momentum through the first weeks of June.  The housing market in many US cities is performing better than recently released national data would suggest.  List prices rose in 24 of 26 cities tracked by Altos Research in May, with San Francisco, Washington and San Jose, California, showing the biggest gains.  New York and Las Vegas were the only two cities in the index where prices declined.  A separate index compiled by CoreLogic that tracks prices in 6,507 postal codes rose slightly in April compared with March – the first such increase since a homebuyer tax credit that helped prop up the market expired in April 2010.  It may well be the beginning of a reversal,” said Mark Flemming, CoreLogic’s chief economist.

No one is suggesting there is a boom under way, only that the market may not be as bad as some recent analysis has suggested.  Most predictions call for at least a 5% price decline this year and no bottom until 2012. Despite the hand-wringing, there are encouraging signs.  California, hard hit by the housing crisis, has seen a notable pick-up. “People are still unsure, because there are a lot of mixed signals,” said Jim Hamilton, the former head of the California Realtors Association. “But, overall, more buyers are coming into the market.”

Unemployment above 400,000, again

There were 427,000 initial jobless claims filed in the week ended June 4, the Labor Department said today. That was up 1,000 from the week before, and slightly worse than the 423,000 claims economists surveyed by Briefing.com had expected.  Continuing claims — which include people filing for the second week of benefits or more — edged lower to 3,676,000 in the week ended May 28, a decline of 71,000 from the week before.  The stubbornly high jobless claims data follows a recent string of other disappointing reports on the labor market. The government’s most closely-watched jobs report, released last Friday, showed that the economy gained only 54,000 jobs in May, down from 232,000 in April.  While a level below 400,000 is typically associated with payroll growth, claims have now topped this mark for the last nine weeks.

MBA – commercial/multifamily delinquency rate mixed

Delinquency rates among different commercial/multifamily mortgage investor groups were mixed in the first quarter of 2011, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report.  The delinquency rate for loans held in commercial mortgage-backed securities (CMBS) reached the highest level since the series began in 1997, but the climb was slower than in recent quarters. Delinquency rates for other groups remain below levels seen in the last major real estate downturn during the early 1990s — some by large margins.  Between the fourth quarter of 2010 and first quarter of 2011, the 90+ day delinquency rate on loans held by FDIC-insured banks and thrifts remained the same at 4.18%. The 30+ day delinquency rate on loans held in CMBS increased 0.23 percentage points to 9.18%. The 60+ day delinquency rate on loans held in life company portfolios decreased 0.05 percentage points to 0.14%. The 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae decreased 0.07 percentage points to 0.64%. The 60+ day delinquency rate on multifamily loans held or insured by Freddie Mac increased 0.10 percentage points to 0.36%. 

The first quarter 2011 delinquency rate for commercial and multifamily mortgages held by banks and thrifts was 2.40 percentage points lower than the series high (6.58%, reached in the second quarter of 1991). The rate for loans held in CMBS was a record high for the series. The delinquency rate for commercial and multifamily mortgages held in life insurance company portfolios was 7.23 percentage points lower than the series high (7.37%, reached during the fourth quarter of 1993);  the rate for multifamily loans held by Fannie Mae was 2.98 percentage points lower than the series high (3.62%, reached during the fourth quarter of 1991); and the rate for multifamily loans held by Freddie Mac was 6.45 percentage points lower than the series high (6.81%, reached in 1992).

Trade gap narrows

The U.S. still imports far more than it exports, but the gap between the two narrowed slightly in April, according to government data released today.  The difference between the nation’s imports and exports narrowed to a $43.7 billion deficit in April from a revised $46.8 billion in March, the Commerce Department said.  Economists surveyed by Briefing.com were expecting the deficit to grow by $48.7 billion.  Exports totaled $175.6 billion in April, a 1.3% rise from the month before.  Meanwhile, the nation imported $219.2 billion in goods and services from other countries, a 0.5% decline from imports in March.

Olick – REIT winner is storage

“Hundreds of investors in real estate investment trusts are hunkered down at the Waldorf Astoria, touting tremendous returns and talking tactics for the next great play. It’s ‘REIT Week,’ in New York, or for those of you less excited about it, it’s the annual conference of the National Association of Real Estate Investment Trusts (NAREIT).  REITs overall are on a tear, with the FTSE NAREIT All Equity REITs Index up 14.13% on a total return basis in the first five months of the year.  But when I read down the fact sheet to the winners and losers, imagine my surprise to see the least sexy of the bunch at the top of the list: Self storage.  Forget the run on multi-family in the new rental age, forget the trophy office properties in the big metro markets, it’s those giant, brightly colored, enormous metal container communities just out beyond the mall that are reaping REITs rewards.  It’s simple, and it’s about housing. As fewer people choose to buy, and more people lose their homes, that’s where all their stuff goes. It’s also a product of overall downsizing. I realize that’s not a very highbrow explanation, but it just so happens to be the case, and it’s behind an 18.4% sector gain in the first five months of the year. In the last 12 months, self storage REITs returned 29%.”

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 150 high-value, high-profit
      properties

    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     420 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!

   * In 2010, Chris’ 4 Central Florida real estate offices

      closed 2,786 sides for a closed sales volume of

      $392,912,927!  

    * 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:

Smart Real Estate News & Commentary by Chris McLaughlin March 3, 2011

Forward this e-mail to your friends! 

Then they can subscribe directly at the following link: 

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*** Join Chris’ Facebook Fan Page–> http://www.mclaughlinchris.com

*** Follow Chris on Twitter–> http://www.twitter.com/mclaughlinchris

************************************************************

Poll:  Home prices to drop 2.3%

US home sales will soon hit a wall as foreclosures are dragged out, creating a supply overhang that will push prices down 2.3% this year before beginning a slight recovery in 2012, according to the median forecast of the 26 economists who gave a price outlook in the Reuters poll.  A rise in “distressed” home sales at depressed prices has helped clear the path for a recovery. But economists doubt the bounce will last as the pace of foreclosures drags out.  By the fourth quarter of 2011, the pace of US existing home sales will only edge up to a 5.48 million annualized rate from the 5.36 million pace in January, according to the poll.  The rate has recovered from 3.86 million units in July last year, following a slump that was caused by the expiry in April of federal home buyer tax credit incentives. 

The total price drop from the peak of the housing market in 2006 will be 35%, they said.  Purchases of distressed homes from troubled borrowers, or those in or near foreclosure, are seen as an important way to absorb the almost four years’ worth of inventory that may hit the market, economists said.  Foreclosures will at least begin to subside in 2011, according to 18 who gave an outlook in the Reuters poll.  “Price expectations are probably more important than foreclosures at this time,” said Donald Ratajczak, Morgan Keegan’s Atlanta-based consulting economist.  He noted that prices are rising in San Diego, where foreclosures make up a big portion of sales, and falling in Atlanta, where foreclosures are below average. The difference, he said, is that San Diego buyers see foreclosures as an opportunity, and Atlanta buyers see them as a problem.

Jobless claims at 3 year low

There were 368,000 initial jobless claims filed in the week ended Feb. 26, the Labor Department said Thursday. That was down 20,000 from the week before, and the lowest since May 2008.  Economists surveyed by Briefing.com had expected initial claims to rise to 400,000 in the latest report.  The 4-week moving average of initial claims, which aims to smooth out volatility, also improved, falling to 388,500 from the previous week’s revised average of 401,250.  The four-week average for applications, a less volatile figure, fell last week to 388,500. That’s the lowest level since July 2008, the last time the four-week average was below 400,000.  Economists say applications that remain consistently below 375,000 tend to signal declines in the unemployment rate. Applications for benefits peaked during the recession at 651,000. 

The downward trend in applications suggests that companies are easing the pace of layoffs now that the economy is gaining momentum. During the recession, companies slashed work forces, cut or froze workers’ pay and took other aggressive steps to reduce costs.  Companies are expected to increase hiring in the month ahead.  Employers probably added 175,000 new jobs in February, economists predict. That would mark an improvement from an anemic 36,000 in January when snowstorms and bad weather hurt job gains. The government releases the employment report for February on Friday.  At the same time, economists think the unemployment rate edged up to 9.1 percent in February as more jobseekers — perhaps feeling better about their prospects — stream into the labor market looking for work.

Double dip or not?

Home prices are at near their post-bust lows. January saw a double-digit dip in the number of new homes sold.  Then Robert Shiller, Yale economist and co-founder of the S&P/Case-Shiller home price indexes, dropped this bomb: “There’s a substantial risk of home prices falling another 15%, 20% or 25%,” he said.   On a national level, Shiller and other economists compare home price changes with income growth over the years. Before the bust, home prices had been outpacing earnings since the late 1990s.  Just to get that back to a normal ratio — which we last saw in 1998 — home prices would have to drop another 15%, according to Anthony Sanders, a director of Real Estate Entrepreneurship at George Mason University.  “Even after the bubble burst, the ratio of income to home prices is still way too high,” he said.  Many disagree with these assessments. Karl Case, who co-founded the home price index with doom-sayer Shiller, believes that the market will “bounce along the bottom all year.” If that’s the case, buyers who take the plunge now shouldn’t expect big profits if they sell in the next few years, but they shouldn’t have to take a major hit either. 

Besides, a home purchase is more than a potential investment, especially for families planning to stay put for a while. The big plus for them is the pleasure of living in their own homes.  “People should base their decision on affordability, lifestyle choices and home preferences, not on investment,” said Lawrence Yun, the National Association of Realtors’ chief economist.  Some stable areas, such as Texas and the Midwest, will probably not experience price plunges at all, but other markets, such as Seattle, Portland and inland California, could still fall substantially, according to Baker.  And buyers may take heart from some positive recent indicators, such as an up tick in the sales of existing homes in January; a drop in vacant rental homes; and more investors snapping up properties.  There’s also been an upswing in the number of high-end homes — those costing more than $750,000 — being sold, according to Yun. The wealthy buyers of these properties have lots of choices of where to place their money and many are investing in real estate.  “The smart money is making their move,” said Yun.

Mini-budget cuts signed

President Obama signed a budget cutting stop-gap spending bill yesterday after it was passed by the Senate by 91 votes.  The bill terminates eight government programs, for savings of $1.24 billion, while an additional $2.7 billion in earmarks are eliminated.  On the chopping block were eight programs involving broadband access in rural communities, education, highway construction and the Smithsonian Institution.  All eight had been identified by both parties as wasteful and unnecessary.  The programs that were cut fall into two umbrella categories: ineffective or duplicative.  The bill eliminated $75 million in election assistance grants, which are funds allocated to help states upgrade voting machines and voter rolls.

Since 2002, Washington has pumped $3 billion into the program, but states have only found ways to spend $2 billion.  And that rural broadband program? The Agriculture Department’s inspector general uncovered “abuses and inconsistencies” as well as “a lack of focus on the rural communities it was intended to serve.”  The four education programs total $468 million, and are being eliminated for being outdated, ineffective or duplicative.  The highway funds, $650 million in total, were originally budgeted as a one-time payment for 2010 but never cut.  The remaining $2.7 billion in cuts cover almost 50 different earmark programs that will no longer be funded because House Republicans have instituted a new rule banning that type of spending.

What penalties are coming for the mortgage mess?

Disputes are emerging over how much to punish the banks as well as exactly who should benefit from a settlement.  The newly created Consumer Financial Protection Bureau is pushing for $20 billion or more in penalties, backed up by the attorneys general and the Federal Deposit Insurance Corporation.  But other regulators, including the Office of the Comptroller of the Currency, which oversees national banks, and the Federal Reserve, do not favor such a large fine, contending a small number of people were the victims of flawed foreclosure procedures.  If only victims of problems at the servicers are helped in a settlement, that would cover a small portion of homeowners who are in default and even fewer of those whose homes are valued at less than they owe.  All the regulators declined to comment publicly on just how close they are to wrapping up a global settlement that would be presented to the banks. But signs of the differences have emerged in public testimony as well as in private conversations with government officials. 

The acting comptroller of the currency, John Walsh, testified last week that while there were widespread problems with documentation and oversight of law firms and other crucial links in the foreclosure chain, only a “small number of foreclosure sales should not have proceeded.”  Despite skepticism on the part of the comptroller’s office, other regulators would like a broader plan to help pay for modifications of mortgages that are delinquent or in default, even if homeowners cannot point to a specific example of wrongdoing on the part of servicers. In other cases, the money might be used to help mortgage holders whose loan principal exceeds the home’s current value.  One possibility, industry insiders and banking lobbyists suggest, is that homeowners might deliberately become delinquent on their loans to get a principal reduction. Housing activists counter that homeowners seeking modifications are often told by their lenders to stop payments, and then end up in foreclosure.  The debate reflects some degree of weariness with foreclosure, as the administration’s signature mortgage modification program is under attack by both House Republicans and housing activists as a failure.  “There has been a tension in this country during the financial crisis,” said Michael S. Barr, a former Treasury official now at the University of Michigan Law School. “People want those who are in economic trouble to get a fair shake. But they don’t want them bailed out for making their own mistakes, like buying too big a home.”

Community banks push back on mortgage reforms

Community bank leaders warned a House Financial Services Committee yesterday about the risks their institutions face from excessive Wall Street regulation.  The Independent Community Bankers of America (ICBA)  said thousands of smaller banks could be chased out of the mortgage market if lawmakers end up redefining the qualified residential mortgage too narrowly, leaving the ball in the court of large banks.  ICBA said in a statement that “regulators should exempt portfolio loans held by banks with assets of less than $10 billion from a new requirement that first-lien mortgage lenders establish escrow accounts for the payment of taxes and insurance.” Without an exemption, it’s feared smaller banks will not have the mechanisms to compete. 

Bankers who gave testimony said increased regulation is another concern since smaller players with smaller capital reserves lack the funds to hire compliance staff for the handling of new regulations.  Rep. Blaine Luetkemeyer (R-Mo.) warned the panel that “we are regulating ourselves out of the recovery.”  Albert Kelly Jr., chairman-elect of the American Bankers Association and CEO of SpiritBank, agreed, saying “managing the anomaly of regulation” is overwhelming for a bank that has only 37 employees.

Olick – Obama defends housing bailout

“The Obama Administration is vigorously defending its mortgage bailout programs, from the Home Affordable Modification Program (HAMP) to the Neighborhood Stabilization Program to the FHA Short Refi.  They’ve taken to the blogosphere, the reporter conference call and to a hearing room in the House of Representatives, where Republicans are bent on scrapping it all.  Interestingly, the Administration also released the ‘Monthly Scorecard’ for the programs today. The HAMP in particular offered some pretty lackluster results. While totals continue to rise, the number of trial and permanent modifications made in January were fewer than the number made in December. New volume has been falling steadily.  Neil Barofsky, the Special Inspector General for the TARP, opened today’s hearing with strong criticism of the Treasury’s transparency, or lack thereof, in reporting the number of borrowers who can be helped. He called it ‘disturbing,’ ‘shameful,’ and ‘inexplicable.’  When the vote to abolish these programs was announced last week, and Administration spokesperson blasted, ‘If enacted, this legislation would close the door to struggling homeowners seeking relief in the face of the worst housing crisis in generations.’ 

FHA Commissioner David Stevens, who unfortunately had to answer for the Treasury, wouldn’t opine as to whether the government’s mortgage bailout programs were successful, but did admit, ‘the HAMP numbers have not been what they were originally forecast. We are clearly concerned.’ But he added that proprietary modifications by the big banks, while more abundant than HAMP mods, don’t reduce payments as much and have higher re-default rates.  Last week I was in Portland, OR at a Wells Fargo modification event.  The organizers had sent over three thousand letters to troubled Wells Fargo borrowers and received about 300 RSVPs.  Fewer than 300 showed up.  I was told that they usually have between a five and seven% response rate. There were at least 100 Wells agents sitting at booths, waiting to work; many of them twiddling their thumbs.  The excuse? I was told many borrowers think these events are a scam.  Reality? Many have either gone already or don’t want to go through a modification on a loan that is worth more than the home. They know they’ve got at least a year before any sheriff comes knocking.”

Now for our real estate education section…

Facebook Secrets to Real Estate Success

Okay short sale investors and agents…listen up because today we are going to end the week on a high note with some truly innovative ways to use Facebook. These are NOT your run of the mill tips but rather the same insider secrets used by the “big boys” of business but available to anyone with the wit to put it into practice.

Let’s begin with a little refresher on those “like” buttons…you know the ones with the little thumbs up that are proliferating across the web like a wild fire. Most social media users take them for granted but insiders understand the true power of these innocent little likes to radically transform the way you make contact with clients. For instance, if you have a company website then most clients will either “like” you or not…so far so good. But what if you put a “like” button on information feeds for each zip code in your area or specific types of houses, financing arrangements or other commonly sought after information. Now prospective clients can “like” different segments of your site that specifically align to their own interest areas.

Not only does this present a distinct advantage over the generalized “like” for the entire site, but it also provides a way to communicate only the most relevant information directly to the persons most likely to act on it. For example, let’s assume you have a “like” button for upcoming investment properties in a specific zip code…rather than receiving  a general update covering the entire city or county, they will only receive listings that conform to that specific area, type of building or other specified information.

Another very powerful method is to embed a “Like” button into press release(s) and other newsworthy items. Once again, it allows viewers to quickly make contact and sign up to receive additional information from a recognized source.

To get started, simply publish a “Like” button for each page of information or category on your personal website or blog by entering the admin area and indicating “Use Facebook as Page” option. Then simply post updates via the publisher like you would any other FB page. Now all news feeds will automatically display the name of each individual “Like” button along with the referring page and “via” link.

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 150 high-value, high-profit
      properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     420 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!

   * In 2010, Chris’ 4 Central Florida real estate offices

      closed 2,786 sides for a closed sales volume of

      $392,912,927!  
    * 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
–

Market News & Commentary by Chris McLaughlin, January 19, 2009
http://www.shortsalesriches.com/welcome.html

——
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 39 spots that we have left for our Tuesday webinar at 9 PM EST and 6 PM PST 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/877086531

———

Warren Buffett was interviewed on Dateline NBC last night and described the current state of the economy as an “economic Pearl Harbor” that is not as bad as the Great Depression or World War II, but still is very significant.  The Oracle of Omaha said that fear is permeating the American psyche, “which leads to people not wanting to spend and not wanting to make investments, and that leads to more fear. We’ll break out of it. It takes time.”  Buffett didn’t wish to guess when the crisis would end, but he did leave with one piece of powerful advice: “It’s never paid to bet against America…We come through things, but it’s not always a smooth ride.”

Barack Obama’s senior adviser, David Axelrod, had a message for banks: start lending or else.  Axelrod appeared on ABC’s “The Week” program on Sunday and said “I think [Obama] is going to have a strong message for the bankers. We want to see credit flowing again. We don’t want them to sit on any money that they get from taxpayers.”  Obama’s adviser hinted that the incoming President is considering establishing a government run bank that would acquire the illiquid securities that continue to plague the industry. 

 Now on to our real estate education section…

Back to Basics: The Numbers and Nothing but the Numbers

When it comes to short sale investing, it’s easy to be swept away by the tide of negativity and doomsayers. They don’t call it “herd mentality” for no reason; people have a tendency to believe there is safety in numbers. While it may be true when it comes to personal safety, nothing could be farther from the truth when it comes to investing. Unfortunately, few people have the mental stamina to go against the tide even when the numbers speak for themselves.

For example, just two short years ago anyone with a pencil and paper could easily have determined the market was in a bubble and taken appropriate action to safeguard their real estate investments. So, why were the vast majority of the population taken by surprise? Simply because they expected the next guy to “know better”…after all, if everyone is doing it then it can’t be wrong- right? Wrong. Like lemmings jumping off a cliff one after another, the American public bought into the belief the market would only go up-up-up. When a correction occurred they joined the masses in surprise. On the other hand, savvy real estate investors realized a correction was in order and were ready and waiting with cash in hand to pick up one short sale bargain after another for only a fraction of the price.

Now the tides have turned with many parts of the nation showing a notable decline in sales price far beneath value of the home. Let’s use a few numbers to explain….

1. Impact fees. Depending upon the area in question, impact fees can range from a few thousand to tens of thousands of dollars. Nationwide, the average impact fee is roughly $10,000 with a low of $850 in Missouri and a high of over $26,000 in California. This is typically a one-time fee used to offset the cost of development in the area. In many parts of Florida impact fees went from less than $3,500 to $10,000 in recent years with a corresponding increase in the cost of raw land and utilities. As a result, the average cost of an improved lot has risen from $25,000 to well above $50,000 even in relatively modest areas. This means any newly built homes in the future will simply be unable to buy a raw parcel of land, pay the impact fees and install utilities for less. The result? Existing homes which were built prior to the increase in land, impact fees, utility expenses and other fees benefit from the new “bottom” price.

Tip: Calculate the replacement value of the land, impact fees, improvements, utilities and other related charges that would be required to build in the area under consideration when purchasing your next short sale. It is often possible to purchase an existing home –especially a fixer-upper – close to the cost of these calculations alone.

1. Housing Starts. Plain and simple, housing starts have turned into housing stops. While the current estimate indicates some parts of the nation have a two year inventory; it is important to keep in mind that includes every available home on the market. Not every home is equally desirable. Those in crime ridden areas in need of extensive repairs and plagued by out-of-date wiring and plumbing are certainly not equally desirable as a solid 3/2 block home in a safe, secure neighborhood.

Tip: Plan ahead by taking advantage of once in a lifetime purchasing power combined with historically low interest rates to prepare for the eventual shortage In affordable housing.

1. Printing Press Inflation. Although it won’t happen overnight, experts tend to agree there will be a price to pay for the current bail-out…a very big price. Printing money out of thin air will eventually result in monetizing the debt. In a nutshell, when there is more of something – especially when there are literally trillions upon trillions more of something – then each of the original units of exchange are worth less. Currently the decline in sales and the fearful American consumer have most investors running to a flight for safety; eventually the result is a loss of purchasing power and dramatically increased prices for basics. Combined with low/no current housing starts and declining imports of raw goods and manufacturing, expect to encounter high prices combined with low availability in coming years. Remember, this doesn’t happen over-night but when it does take place, those holding physical assets like affordable housing win big.

See you at the top!

Chris McLaughlin

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

P.S.: Be one of the 39 spots that we have left for our Saturday webinar at 9 PM EST and 6 PM PST 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/877086531

—

Mid-Day Market News & Commentary by Chris McLaughlin, December 12, 2008
http://www.shortsalesriches.com/welcome.html

——
Tired of being sick and tired of this economy and all the negative news that goes along with it?  We have an amazing recession proof investing strategy that we’ll reveal to you on our webinar that we’re hosting tomorrow, yes SATURDAY at 2 PM ET LIVE.  This is your opportunity to learn about RECESSION PROOF INVESTING.  We’re going to share with you TRUE STORIES of investors who made over $80,000 and over $115,000 using the methods we’re teaching!  Go here now, there are just 18 spots left:

https://www2.gotomeeting.com/register/788305762

——

The good news keeps coming for mortgage rates: they hit a 4 year low at 5.47% and then dropped further to 5.33% yesterday, with no points or origination fees. The new rates have encouraged fence sitters to jump off and begin making purchases, and loan officers have reported a bounce in mortgage applications as well.

Bank of America announced late yesterday that it would be giving pink slips to over 35,000 employees as it finalizes its merger with Merrill Lynch.  The reduction will account for approximately 10% of the combined companies’ total employee base.  The announcement comes on the heels of a similar one from Citigroup, which announced last month that it would eliminate 52,000 jobs, or about 15% of its total workforce.

And in a sign of the greedy times on Wall Street, get this: the former Chairman of the Nadaq Stock Market was arrested for what investigators have described as a “stunning fraud that appears to be of epic proportions.” The fraud is estimated to be a “50 billion Ponzi scheme,” where the assets that Mr. Madoff would tell his investors about actually didn’t even exist.   I wonder whether Madoff will ask the Treasury for a bailout?  Think about it … banks lied about the value of their mortgage bank securities and induced people into loans they weren’t suited for, so why given them money and not Madoff?  Ok, I’m just kidding but you get the point!

And in the latest on the Big 3 Bailout, it appears that Congress hit a snag and can’t come to agreement … so the Bush Administration is reversing course and now suggests that the money might be able to come from the $700 billion TARP.  “Under normal economic conditions we would prefer that markets determine the ultimate state of private firms,” White House press secretary Dana Perino stated. “However, given the current weakened state of the US economy, we will consider other options if necessary, including use of the TARP program to prevent a collapse of troubled auto makers.”

Now, on to our topic of the day: Recession, Depression, Inflation, Deflation…What’s it all About and How Does it Impact Real Estate?

Ronald Regan once stated “A recession is when a neighbor loses his job. A depression is when you lose yours. If we were to apply the same logic to the real estate market, then the nation has been in the midst of a recession for some time as people have been steadily losing (or walking away from) their homes. In fact, there is a great deal of recent debate on whether the nation is already in a recession and heading for a depression or whether the easy money economics of the Federal Reserve will prevent a depression at the risk of creating further inflation…or perhaps world-wide deleveraging will actually result in massive deflation instead. Let’s take a few moments to examine real estate in each of the above scenarios’…

Recession. Unlike employment figures (or stocks), real estate doesn’t act the same as jobs during a recession. When a worker loses a job the position may be completely eliminated (or the stock completely wiped out). When someone loses a house it reverts back to the prior owner, heirs, bank or local government. Short sale buyers realize the inherent value in the home or property and act like a middle man to obtain a percentage of that value for themselves in the form of resale, rentals or retained equity.

Depression. During a depression the entire economy may slow down so much that little to nothing is being produced. Job loss often runs rampant as prices drop below the cost of production. Unemployment drives labor costs down – creating a downward spiral as unemployed workers are unable to afford more than the basic necessities. Again, jobs and stocks alike may all but disappear during a depression but a house remains standing. Housing is a basic necessity and tends to take top priority even during the most critical economic crisis.

Inflation. Inflation tends to drive the price of all commodities and assets higher as the replacement cost rises; real estate is no exception. With the Federal Reserve practically printing money out of thin air, the ability to own or control physical assets with a fixed rate of interest is often the best way to preserve wealth during periods of escalating inflation. On the other hand, the increased cost of production and labor often leads to more work for less pay among employees.

Deflation. Falling assets prices and world-wide deleveraging tend to drive down the price of commodities and assets including real estate. However, short sale buyers are often purchasing property at or near the fully depreciated value. Even those who experience further price drops still have other options available to bridge the gap until the market recovers; rentals, owner financing and factoring may each help raise needed capital or reduce individual debt repayments until the property has regained full value. 

More on Monday!

See you at the top!

Chris McLaughlin
http://www.shortsalesriches.com/blog

P.S.:

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P.P.S.:

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