Elaine King's Real Estate Blog

Since it has been 3 years since the housing crash and home foreclosure numbers are falling, Fox Business News did an interview on March 12th to see if the market is turning around. I personally consider much of the news today as talking heads; however, the person they interviewed I know personally and is honest and very ethical.   Bruce Norris is president of The Norris Group, a Riverside CA investment resource.

Please take 8 minutes and listen to this interview as Bruce mentions the problem of negative equity that cannot be solved by jobs, lenders taking back properties that sell for less than the neighbor owes on his house and strategic defaults.   It will give you something to think about and make you realize that this market will be around for awhile.

This is an update to my Beacon Economics Contra Costa blog of January 15^th.  Christopher Thornberg, founder of Beacon Economic and who accurately predicted the economic crash/recession that followed, spoke on a recent radio interview with The Norris Group, a real estate investment company & hard money lender in Riverside, California.

Christopher discussed the proposal allowing bankruptcy judges to determine what should be owed on homes.  Most people in financial trouble today are in trouble, not because they bought homes at the peak, but because they refinanced at the peak!  In this interview, he also discusses Japan’s  tight monetary policy, and if wanted to get rid of deflation, all they need to do is start printing money.

In 2009, banks changed the way they deal with distressed debt.  Banks do not need to be aggressive about how they value loans.  As long as the bank can keep the loan current, they don’t have to acknowledge the potential loss in that loan. If we forced forced banks to comply with their actual Tier 1 capital needs; there would be at least 6000 banks out of business!

The Federal Reserve has made the stance that they are anti-inflation. Christopher believes that Bernanke needs to think more realistically, because a little inflation would be a huge relief for our financial system.  When we have inflation, we usually have an increase in wages. However, wage increases do not usually occur quickly.

Thornberg feels confident about a GDP over 1%, and if  the government backs off the stimulus and allows the economy to re-grow with less consumer spending, and more exports, then we will have a great opportunity to grow as a country. The U.S. GDP growth was supported by a lot of equity extraction/cash out refinancing.  If we did not have the big equity bubble, and if we hadn’t seen an extreme increase in consumer spending, then our ability to supply would have shifted to exporting and business spending.

As for California, it has a $1.9 trillion economy & a a $20 billion deficit; its problems are political and not economic! Christopher thinks California spends its money in the wrong places and put high taxes on small tax bases. He also thinks that Prop 13 is a fiscal injustice, and we need to get people to vote against this proposition.  Finally, Christopher believes that we own China, and not the other way around!!!   Please take time to listen to this fascinating perspective from a different perspective than CNN and FOX! 

 For a link to this interview click here.

As a realtor, I get asked when will the housing market improve?  So, I find this story of interest because it could hold the answer.  PBS aired this program this week on Frontline; it is  called “The Warning”. 

Brooksley Borne (the first female President of a Sanford law class) tried to warn about the danger of over-the-counter derivatives.  Alan Greenspan, Bob Reuben (ex head of Goldman Saxs), and Larry Summers all shut her down.  The three men were pictured on TIME Magazine as “The Committee to Save the World.”  They all believed in less regulation.  Brooksley wanted to regulate the derivatives, for she could see the crisis coming.   However, the 3 men thought she would cause a financial crisis, and so they turned Congress against her!  (In 2007, the derivative market was $595 Trillion dollars and 43% annual expansion of the economy.)

Brookesley Borne went up against Alan Greenspan, who believed that even fraud did NOT need to be regulated.  Greenspan’s Libertarian hero was Ann Rynd, who also believed in an un-regulated economy. She was the author of “Atlas Shrugged”.

The worst part of this whole story is that, even now, Brooksley Borne’s words are NOT being considered.  The derivative market is STILL NOT REGULATED!  Fortunately, Alan Greenspan finally admitted before Congress that his core beliefs were wrong!  A little too late, Mr. Greenspan.  If Brooksley had been a man, would his words have been better received?

Sixty Minutes did a segment in 2008 regarding the mortgage crisis.  At that time, they stated that we were ½ way thru the bursting of the greatest asset bubble.  This segment talks about the higher quality mortgages (other than subprime) that also have issues.  I mention this video since this is the cycle that we are now experiencing.  

The two mortgages causing our current mortgage problem are the Alt A’s and Option arms.  Alt A’s had teaser rates, and homeowners are now seeing their $800 mortgage payment go to $1500.  Defaults are incredibly high and no evidence that they are leveling off.  You can look back at what was written in 2005-2007, it is predicable what will happen, and is now happening.  Alt A’s & Option ARMs are just starting in 2010 and will reach their peak in 2011!  This segment states that at least 50-70% will default because most are defaulting before the teaser rate even goes up.   This news clip talks about Southern Florida, but these loans were sold all over the US; especially California.

 The housing community that is featured, talks about its sales history.  It was all about marketing and setting a “scene for these buyers to purchase”.   Without Alt A’s  & Option arms, these properties would never have sold, because buyers would not have qualified!  Bankers and brokers got money up front in fees.  They did not check documentation on buyers.  The key assumption was that home prices would go up forever.  History showed that homes had always gone up since the Depression! 

Housing is an important part of economy, and to get us back on track, we need to clear out garbage in the system.  It is expected to take another 2-5 years to work through these toxic loans.  Sadly, in the end, eight million people are expected to lose their homes.     Now if you listen to Neil Barofsky, the Special Inspector General of the Troubled Asset Relief Program, it may take longer!  He believes that current government policy  wants to keep home values as high as possible, to keep more people from bailing.  Barofsky feels we may be in store for “The Great Crisis, Part 2” aka the second bubble.

 Where does that leave you?  If you have a loan coming due with a payment you cannot afford, you need to contact a CDPE to give you advice on your options.  THE CDPE designation means a realtor has completed extensive training in foreclosure avoidance, with an emphasis on short sales.  For more information call me at 925-852-1659 and I will help answer your questions.

Do you want to purchase a home, but need to raise your credit score?  Do you want to know the tricks to raise your credit?  If so, you may want to research the website 7 STEPS TO A 720 CREDIT SCORE.

The creator of this site is Tyrone Philip , founder of the Mortgage Equity Group.  His goal is to educate borrowers and help them increase their credit scores.  Thus, they qualify for the best loan programs available!

A few years ago, you could shop for a loan, and the applicable costs/fees.  Now, 99% of loans are backed by the Federal government, so there are no different rates; everyone is basically selling the same product.  Thus, the same lending criteria!  If you don’t qualify with one lender, chances are you won’t qualify with another.  That is why a high credit score is so important.

In a recent radio interview, Tyrone stated that in 2005, 80% of people coming into his office could get a loan, now only 15% can get a loan.  WOW – that is a reduction of 65%!  Some of the reasons are lending requirements have changed, amount of money people have in savings have changed, and employment has changed.  In addition, lending guidelines are stricter.  Now, your purchase of an economy car can be enough to NOT make you eligible for a home loan.  Before, debt-to-income levels were 60% and now they are 40%!

If you have been turned down for a home loan, want to increase your credit score to afford more purchasing power or just want to know the “tricks of the trade”, you may want to consider checking out 7 STEPS TO A 720 CREDIT SCORE.   For a $29.95 investment, he guarantees to raise your score, or your money back!

Have you thought about buying Bank-Owned homes in bulk?  I thought it was an interesting topic, and decided to hear the facts from four (4) investors who have actually purchased bulk bank-owned homes.  Below are the main bullet points….

• Homes are available from brokers who hold this list.  Finding out who owns the list is part of the mystery of the business.  You need to do the leg-work with banks and lending institutions.
• Once you get that list, you must respond in 24 hours.  Usually you CANNOT cherry-pick from the list that you are given.  You do purchase them through a title company.
• You buy homes with pricing starting at $100,000 to over $1 million for a block of homes. This group basically bought homes in the $100,000 bulk range for an average of $6,000/house.
• Most of these homes have been on the market for a couple of years, so they are NOT your “Home & Gardens” variety.  Some are burnt out, vacant lots, missing plumbing/walls/wiring.
• Many have liens on them from utility bills, water bills, tax bills etc.  Not all of these liens can be found out in advance if you purchased from a state that sells tax liens.  You need to expect liens on these properties.
• Most properties are in different states.  These investors no longer buy in certain areas because of urban blight.  Your homes will not be in California and NOT all in the same state.
• These homes are not easily insured and there are liability and insurance issues on these homes.
• There are different classes of bulk properties to buy. A – being most expensive.  These investors bought mostly the C class.
• You cannot sell until you get the deed.  This can take some time, even though you “technically” own the property.  (It can take up to 2 years to unload one of these properties.)
• The exit strategy after buying these homes is to list them on the MLS or Craig’s List.  The most common way to dispose of them is by SELLER FINANCING!  (They hire a company to do the collections of the monthly mortgage and to send out notices.) They sell for 70% of property value since they are being sold in rough shape.  They do mostly land contracts.
• They recommend you purchase out of your IRA and purchase in a LLC. 
• Be prepared to have a staff of people to handle the phones and assist with the selling process.  This process is NOT for the first time investor, nor faint of heart.

For more information regarding this and other investing questions contact the San Jose Real Estate Investment Association.  They meet in Pleasanton the first Wednesday of each month at the Four Points Sheraton.

If you are interested in purchasing an investment property in East Contra Costa County, please give me a call at 925-852-1659.

What is happening in the real estate market?  When will home prices increase?   This is the mantra that most real estate agents in Contra Costa hear on a daily basis.  Beacon Economics wrote an interesting report addressing these issues.   Although it was presented in September 2009, the data is  still relevant.

The East Bay benefitted more than other areas in the mortgage mark-up, and thus has been hit hardest.  The author believes that now that affordability is being restored to Contra Costa, we will be able to intice workers back to buy homes.

This report states that the East Bay stopped creating jobs in August 2006!  We are now at almost 11% unemployment. WOW!  They expect another loss of 19,300 jobs by mid 2010, at which time it will reverse.  Well, let’s hope so!!!  However, this report does not mention in what sectors jobs will increase.

Beacon Economics predicts that the recovery will be on the way for the Bay Area by year end!  HAPPY NEW YEAR! For a complete look at this report, click here and go to page 79 of page 175.

To look at the presentation that was given to the San Francisco Assoc. of Realtors, click this link.  If you ever get a chance to hear Christopher Thornberg speak, don’t miss the chance.  You will not regret it!

On October 2^nd, I wrote a blog on SHADOW INVENTORY  in the California market (see archives).  An interesting update is a report conducted by First American CoreLogic .  They found that there were 1.7-million-units now in pending supply of residential housing inventory.  This is a national number; an increase from 1.1 million a year earlier!   Pending supply is known as “shadow” inventor: REO’s by banks and mortgage companies and mortgages that are at least 90 days delinquent.  Generally, shadow inventory is not included in measures of unsold inventory.  At the current sales rate, the pending supply is 3.3 months, a rise from 2.4 months a year ago, according to the report.  The months’ supply measures how quickly the inventory will deplete given the current sales rate.  To view the complete report click the link above.

If you have been an FHA Buyer in the San Francisco East Bay, looking to purchase a property the past nine months, the process for buying a home has been very difficult.  Most bank owned homes will not consider FHA offers; they are only selling to Conventional (20% down) or all cash/investor offers.  WHY?  Because they can!!!  There is so much interest in the investment community to purchase entry level homes at 1999 prices.  It is not uncommon to have 8-30 offers come in on a home.  In addition, inventory is extremely low.  (See Shadow Inventory blog below)

This blog will not offer a solution, but offering some humor. :)  The below video, although some “tongue –in-cheek” does characterize the journey of an FHA Buyer…

http://www.youtube.com/watch?v=SM7oWKgCVo4&feature=email

On September 11, 2009, I attended a fundraising event for the Susan G. Komen foundation.  The event was called “I Survived Real Estate”; hosted by TNG of Riverside CA. 

At the Nixon Library, a panel of eight (8) well- respected real estate professionals gathered to discuss the current real estate market and possible solutions to the perceived issues of the industry.  This symposium talked briefly on each of their subjects and then sparred in a lively discussion.  The team consisted on the head of the mortgage bankers association, a former NAR President, a principle at Beacon Economics, a VP of the CA Builer’s Industry, a 2008 President of the National Auctioneer’s Assoc, a VP of the Appraisal Institute and the Sr. VP of Realty Trac.

This is my second year of attending this breast cancer benefit.  I enjoyed the honest opinions of what is happening in the housing market, how they are dealing with this challenging market and how they are navigating their team of people relying on them for answers.

Please click on the link below to hear this worthwhile program.  It is in three (3) segments which will allow you to digest all the meat of the discussions.  (Allow 4 hours to hear the total event.)  IT IS WELL WORTH IT!!!!

http://www.thenorrisgroup.com/blog/video-blog/i-survived-real-estate-2009/