The FHA not immune to defaults…FEAR on the rise.

I won’t begin to regurgitate all the details, however suffice it to say that the FHA is seeing more and more defaults on loans insured since 2008!! What? Yes, that’s right since 2008.  Review the entire article here by the way the article is well written by Keith Jurow of the Real Estate Channel.

My point is to make a claim, right now, and right here on our Market Advisors Blog…August 10,2010. “Market Momentum is still knee deep in the FEAR stage which will lead to further market price deterioration across all residential real estate markets in the US.”

Now when I deliver my seminars and workshops during the next year with Entrust and Pensco I can refer back to this published statement and say “Told You So!”

However, do not  get me wrong. I am a buyer at these “fearful” times. I have no problem investing in properties that deliver positive cash flow at over 12% return and a 5 GRM. With these real numbers I will be happy to “Buy/Hold” or “accumulate and wait”. With a less than 1% CD rate…plllleeease and thank you.

Foreclosures Good for the Economy?

Strange as it may seem there actually might be a consumer spending benefit to the economy due to increasing defaults on home mortgages.

WHAT ??!!

Yes, the latest rise in consumer spending numbers is juiced by the simple fact that as more and more Americans stop paying on their mortgage…that frees up cash which finds it way into retail coffers.

YOU HAVE GOT TO BE JOKING??!!

No, strange but true. Check out this latest report from CNBC and Realty Trac.

Though someone might seem to think this is good news, think again, Foreclosures, NODs and Short Sales are INCREASING at a record pace which is continuing in the 3rd year since the burst of the bubble. Home values continue to suffer.

Let’s not forget that the single most important asset to the average American family is the “HOME”, which is being wasted. What this country needs is a paradigm shift back to values, and Government needs to do all it can to support “HOME VALUE” by creating JOBS and stimulating (or rewarding) HOME BUYERS.

Cheap Money…Stupid Decisions

As of yesterday the latest headlines from the commercial real estate markets…”Commercial Behemoths Tishman Speyer and Blackrock WALK AWAY AND HAND OVER THE KEYS from their $5.4 BILLION 11,400 unit apartment project in Manhattan”

Yes, it is the confirmed trend, not only in residential but in major commercial to simply hand over the keys to properties, rather than fight it out.

Tishman and Blackrock paid $5.4 billion with $4.4 billion in debt for the project at the peak of the bubble. Now it is worth maybe $2 billion. The answer….walk away.

Hmmmm…now you know why BIG BANKS are not lending money. Because Creditors do not value their assets.

My question, however, is not yesterdays action by these two major developers…it is why did they buy this project in the first place at the peak of an obvious mega bubble, when all, obvious market momentum indicators were pointing to SELL SELL SELL?

The answer my friends….TOO MUCH CHEAP MONEY MAKES FOR STUPID DECISIONS.

So, here is my pitch to Tishman and Blackrock…Hire us to implement our Market Advisors Method momentum analytics for your projects. Your Investors will get the benefit of clear BUY and SELL signals which makes money for your Investors…NOT LOSE IT.

The Financial Crisis Inquiry Commission!

Did you know we have launched a commission to study just what it was that brought our financial system to its knees in 2008?  Maybe greed had something to do with it!  Anyway, I found this report in an article published last week in the UK Daily Mail.  This commission is a prototype of the Pecora Commission, the Senate committee that investigated Wall Street abuses in 1933-34.

The commission has pledged that it will make “a full and fair inquiry into what brought our financial system to its knees”.  They further say they will “explain it in a way the American people can understand”.  Now that would be a switch!  The Commission started off by interviewing high profile financial leaders such as: Goldman Sachs’ Lloyd Blankfein, J.P.Morgan Chase’s Jamie Dimon, John Mack of Morgan Stanley and Bank of America’s Brian Moynihan.  As a group these leaders all tended to apologize for their risky behavior and poor decisions during the turmoil of  2008 but to a man they all justified their current compensation decisions.

The general “party line” seems to be, as expressed by Brian Moynihan, that “the vast majority of our employees played no role in the economic crisis’ and therefore do not deserve to be penalized with lower compensation.  Of course we all know that B of A paid their Bailout money back early and most analysts believe they did that so they wouldn’t have to follow the Obama guidelines to lower high bonuses.  I for one sincerely hope this commission will uncover just how these institutions actually were able to generate the fast profits used to make their early Bailout payoffs.  If they do, I think we will all find out that it was a combination of manipulating “free” government money for high profits and implementing changes in accounting and reporting standards – to favor the banks balance sheets of course.

Anyway, you should check out this article for yourself and I will try to find out what the US media has to say about these commission hearings (if anything!) as well.  I’ll report on what I find in a future blog.

Paul Davis, Market Advisors LLC

OUTLOOK 2010

I wish everyone a very happy and successful New Year. I am excited about the potential for some very juicy acquisition opportunities coming our way in the residential real estate markets.

Here are my top 3 factors contributing to the BUY opportunity in 2010.

1. Short Sales will become even more opportunistic with the prospects of actually closing deals better than ever as Banks choose the path of a kinder, gentler approach with their troubled borrowers.
2. (2) major contributing factors to increased foreclosure activity will be Unemployment and a large volume of  “reset” or “recast” activity on existing ARM and Pay Option mortgages.
3. Feds squeezing banks by upping the ante on capital reserves will push more REO inventory out onto the marketplace.

Our portfolio for Market Advisors Real Estate Fund LP  is anticipating acquisitions with upwards of 18% cash on cash ROI. For January I am releasing only 20 units to Investors at $25,000 each. These won’t last long, reserve yours today. You may contact me by e-mail john@mymarketadvisors.com

Thank You Mr. Obama! Both Freddie Mac and Fannie Mae Receive an Early Christmas!

Last Thursday the Treasury Department and the Administration announced that they would back both of these beleaguered government sponsored agencies for the next three years no matter how big their losses.  Wow, so our Government stands ready to take over all segments of the economy that are in trouble because of previous government intervention!  Corbett Daly reported on this announcement in Reuters last Thursday December 24th – an early Christmas present for sure.  It makes you wonder if the $200 Billion line of credit already established for these two agencies will be enough.  They have already used over $111 Billion of that and according to Corbett each company currently holds assets in the high $700 Billion range.  Here’s how Corbett describes the function of these two agencies:  Fannie Mae and Freddie Mac are congressionally chartered companies that buy up mortgages from banks and other originators to keep mortgage markets liquid.  Some of the debt is repackaged as securities and sold off to investors, and the government has been buying an increasing share. That’s where most of the $111 Billion has gone so far.

The bottom line is that housing in this country still needs a life-line and will this new policy be enough to provide it?  This reprieve was designed in part to avoid putting an added strain on the housing sector as the Treasury and Federal Reserve wrap up programs to purchase mortgage-related debt.  Will it work?  Who knows and as long as government keeps trying to manipulate recovery we might not ever know.

And right on the heals of this great news both Freddie Mac and Fannie Mae  announced $6 Million and $4 Million bonuses respectively for their illustrious CEO’s!  So, how was your Christmas?  I know I’m being a bit sarcastic here but can you blame me?  I suggest you hang onto your hat because we are in for a wild ride in 2010.  Check out all of Corbett’s article here.

Paul Davis, Market Advisors, LLC

TARP Money is Being Paid Back Early!

First it was Bank of America and then both Citi Bank and Well’s jumped onto the band wagon.  Now the latest among the list of TARP repayment companies is GM (yes, that’s Government Motors!).  Does this make any of you wonder what’s really going on here.  From my perspective this story has the smell of fish!  Where will these firms get that much money?  It will not likely come from eager investors.  Is it possible that the Fed is “buying” the new securities with taxpayers’ money?  If so, it is a bookkeeping trick to take the heat off Congress and the banks. You see the legislators want all this money for new spending projects instead of returning it to taxpayers.

This week I came across and excellent article by Kevin Hall in the Miami Herald entitles “GM Joins Rush to Repay Bailout Funds”.  Hall does a nice job of summarizing what all of these repayments mean and believe me it doesn’t mean that banks will now be lending more money.  In fact Hall points out that it probably means they will actually be lending less.  Here is an except from this article – it should give you pause to think:

So if companies are repaying TARP money, does it mean all is well and that lending will resume soon?

“I don’t view the TARP repayment as evidence that banks are healthier and now can do it,” said Vincent Reinhart, a former top economist at the Federal Reserve. “It’s rather that banks have an incentive to do it now because they see the stigma associated as even more significant than they had thought previously.”

Banks are still under severe stress, he said.

And what about those “toxic Assets” that the TARP Funds were supposed to resolve?  Well as Hall explains, they are still on the banks books but because of a relaxation of accounting rules (can we change the accounting rules in our businesses?) banks can now value those assets at their “expected future value” (what ever value they want!!) so they don’t have to book any loss based on current value.  This makes their balance sheets look a lot better and guess what – they are using their balance sheets, in part, to pay off this TARP money.  Are they healthier for it…….it’s not likely.  Stay tuned because we are going to keep following this process to see just how much it ends up helping (or hurting) the average citizen.

Paul Davis, Market Advisors LLC

Holiday Cheer ?

I always enjoy keeping in touch with Diana Olick’s Blog (CNBC Realty Check). This time Diana offers a right-on perspective of Big Bank foreclosure activity for the Holidays and 1st Qtr 2010.

“Beware Holiday Foreclosure Moratoria”

Check it out here.

Short Sales Beginning To Make Sense?

It seems that I am reading that the volume in successful short sale transactions are picking up in volume. I certainly hope that this is the case, as the portfolio manager for Market Advisors Real Estate Fund LP, I am particularly interested in negotiating short sale transactions.

Apparently, Banks are becoming more responsive and have finally “seen the light” that short sales can be a win win for everyone involved. Part of this development is the pressure that the Obama administration is putting on Lenders to workout their defaulted assets , rather than foreclose, therefore short sales are a remedy that satisfies the Feds.

I like short sale deals…what is your opinion?

Do you know who Meredith Whitney is? You should…

Meredith Whitney is the CEO Of Meredith Whitney Advisory Group, and is considered “The Analyst” to call the banking debacle before the meltdown in September 2008. If you don’t know her, you should, and take stock in her opinion and analysis of the direction of our nation’s banking system.

Check out her latest comments here.

I applaud Meredith, her astute and forthright analysis that the current Big Bank system and its business behavior is counter productive to a meaningful recovery. Just more evidence that 2010 will be “the best year ever” for buying real estate. After all one should be buying low and selling high…right?