If You Think the Housing Meltdown Was Bad…………

I recently read an article by Doug Hornig entitled “If You Thought the Housing Meltdown Was Bad……wait until you see what’s in the cards for commercial real estate”.  Now I’ve written about the pending commercial foreclosure crisis before but I’ll have to admit, I’ve been so caught up in the residential crisis and all of its permutations that I kind of let the commercial issue slip to the back of my mind.  So, Doug’s article definitely “snapped me to attention” again.  The breadth and depth of our current economic “upheaval” is more then just a bit too complicated for most of us to understand.  But, I think we can all agree that the mortgage lending industry is at the heart of the problem.  The failures in that market segment have extended their tentacles out and have touched every other segment of our economy – impacting building, manufacturing, professional services, consumerism, and ………….

According to Hornig, the next big problem is commercial real estate.  Here are the opening couple of lines in his article: “That’s right, the next train wreck will be in commercial real estate. Couldn’t be worse than last year’s residential market crash? That remains to be seen. But it’s coming soon, probably as early as the second quarter of next year, and there’s nothing that can prevent it.” Hornig derives a lot of his information from one of the most knowledgeable commercial real estate professionals in the industry, Andy Miller.

Miller, of the Miller Fishman Group of Denver, reports that two years ago commercial real estate carried a value of about $6.5 Trillion and that real estate was supported by about $3.3 Trillion in loans.  Well today the loan amount hasn’t changed much but the value has been estimated to be about half of what it was two years ago!  Oops!  The commercial market is “under water”.  That means writing down about half to two-thirds of these loans.  Now if the banks were to have to take that hit all at once, then, according to Miller, “there won’t be any banks”.

Adding to the problem is the fact that, like residential loans, these commercial loans were also bundled into exotic financial vehicles, called commercial mortgage-backed securities, which were sold and resold on Wall Street for great profits.  And who do you think purchased most of these exotic securities?  You guessed it – the banks!

So, here is the situation as it is described by Miller:”What happens to a property when its value drops way below the loan, a seller can’t get enough money to get out, a buyer can’t raise enough money to get in, and the bank can’t afford to foreclose? Simple. It just sits there, carried along on the bank’s books at some inflated “mark to fantasy” price that makes the institution’s balance sheet look passable.”

The bottom line is our financial economy is in for another major hit that –in turn – will effect all of us.  As this commercial crisis escalates the banks will do the same thing they did last year: “run to the government palms outstretched”.  Who knows how long it will take us to recover from this new set of pressures.  One thing is for sure, you can expect real estate prices to continue to drop for the near future.  Check out this article and see what you think.

Paul Davis, Market Advisors

Over 10.5 Millions U.S. Households are Underwater!

About 23% of U.S homeowners currently owe more on their mortgages then their homes are worth!  That’s the opening statement in a recent Wall Street Journal article by Ruth Simon and James R. Hagerty.  Here is some more eye opening news from this article……recent data from First American CoreLogic of Santa Ana, California shows that over 5.3 million U.S. households are tied to mortgages that are at least 20% higher then the homes current value!

In recent blogs I have addressed this issue and I have emphasized that we can’t ignore the impact of the “Shadow Inventory” and this new wave of foreclosures on future real estate prices.  Well, here is an excerpt from this article that goes right along with what we at Market Advisors have been saying all along:

“These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn’t expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.”

Another key point to consider is that the predicted growth in foreclosures in coming months will not  be only the result of unemployment.  As Simon and Hagerty point out, about 588,000 foreclosures last year were from people that could afford to pay but had severe negative equity.  This is a growing trend that will continue to add homes to the REO pipeline.

So, as we say at Market Advisors, continue to search for sharp price imbalances in what ever market you are focused on and don’t let this historically unique opportunity to invest in real estate pass you by.

Paul Davis, Market Advisors

Loan Modifications Tell the Tale….

Big Banks reporting “re-default rates” on existing loan modifications offer surprising insight into the health of the real estate market. Just look at Citibank’s numbers released today…

% of modified loans at least 60 days past due?

Over 8% for loans modified as of June 2009 (Only 3 months)

Over 30% for loans modified as of September 2008 (Only 12 months)

See the trend?

Loans have to be current for the first 3 months or be dropped from the program…so as the time passes 3 to 6 to 12 months the amount of defaults grows.

One culprit…unemployment. But, unemployment should not shoulder all the blame. ( I mean even with a 17% shadow unemployment rate it doesn’t add up that Citi would have over 30% of their loan mod portfolio in default after 12 months.)

The other culprit…”perceived loss of value” which means homeowners (borrowers) feel that their home is just not worth making a mortgage payment on, and therefore would rather pay nothing and eventually walk away.

This attitude towards value will feed this foreclosure market for the next 2 years, until employment picks up and then more “Buyers” will return to the market. This is why we at Market Advisors are buying real estate at these low foreclosure prices today and holding our portfolio for the next 5 to 7 years.

Read about Citibanks re-default report from Diana Glick of CNBC.

Why are we not maximizing our retirement portfolios?

I came across this article addressing the facts that most working Americans, especially ages 50 plus, have still not maximized their retirement savings to a level where they can simply “retire”.

In fact read the article here, before I go on.

The above mentioned article was derived from a survey Wells Fargo conducted targeting the health of retirement portfolios for workers ages 50-59. The results are staggering and I would hope for those of you who still feel “underfunded” to achieve a successful retirement…sobering.

Blame poor planning, late to the game, market fluctuations, or certainly bad investments such as mutual funds, ETF’s, etc. Regardless, the result is a large population of our country entering their “60s” with a definite need to continue working well into their 70s and beyond. I shudder to think about the economics of sustaining and providing, as an employer, for a significant workforce that is aged 60 and above.

At MyMarketAdvisors we strive to educate our clients, subscribers, and friends, to take ACTION NOW! Take control of your retirement portfolio and maximize its potential so you can ENJOY a real and sustained retirement on your own terms. BELIEVE IT!

California….Best Bet.

I want to share the latest TIME magazine cover article…

“Despite Its Woes, California’s Dream Still Lives”

by Michael Grunwald, October 23,2009.

Please read Mr. Grunwald’s article, you will be able to understand why Market Advisors is currently building its residential investment portfolio in select communities in California.

“It’s still a dream state. In fact, the pioneering megastate that gave us microchips, freeways, blue jeans, tax revolts, extreme sports, energy efficiency, health clubs, Google searches, Craigslist, iPhones and the Hollywood vision of success is still the cutting edge of the American future — economically, environmentally, demographically, culturally and maybe politically. It’s the greenest and most diverse state, the most globalized in general and most Asia-oriented in particular at a time when the world is heading in all those directions. It’s also an unparalleled engine of innovation, the mecca of high tech, biotech and now clean tech. In 2008, California’s wipeout economy attracted more venture capital than the rest of the nation combined. Somehow its supposedly hostile business climate has nurtured Google, Apple, Hewlett-Packard, Facebook, Twitter, Disney, Cisco, Intel, eBay, YouTube, MySpace, the Gap and countless other companies that drive the way we live.”

Read On !

Tsunami of Home Foreclosures to Hit US: Economist

By: Robin Knight
Assistant Web Producer
CNBC

I really like this title “Tsunami”

“A tsunami of home foreclosures is set to hit the US as banks are unable to keep bailing out tenants that can’t afford their rent and struggling home owners show their anger at the financial crisis by giving up on their mortgage, David Karsbøl, chief economist at Saxo Bank, told CNBC.

“I believe we are about to see a tsunami of foreclosures in the US,” Karsbøl said.

“A lot of homes have been held back because if the banks are foreclosing on them they will have to do a writedown on the mortgages they have on their balance (sheets),” he said. “That’s why they have been reluctant to do so,” he added.

There is also a growing anger in the US population about the bailouts and excessive bonuses on Wall Street, according to Karsbøl.

Meanwhile, “the fact that many homeowners are allowed to stay in their houses without paying on their mortgages begs the question: Why should you pay on your mortgage when your neighbor doesn’t?” Karsbøl said.

Karsbøl added that the notion that unemployment in the US is declining is not true because of a sharp fall in the participation rate.

Karsbøl said that the surge in foreclosures should sideswipe any rally in stocks before long.”

I know we have been talking about this next wave for awhile now. “Tsunami is just an excellent metaphor”.

Opportunity, Opportunity, Opportunity.

Home Foreclosures Set Another Record in July

Discover the SOLO (K) PLAN

This Blog is from information I learned and gleaned from the PENSCO Trust Co. Symposium in San Diego. No attempt is made to write my own interpretation. I want you all to have the straight scoop from PENSCO.

Every Self Employed Individual who wants to build up their Retirement Account balances as quickly as possible should open a SOLO (K).

Why you say?

Revamped and dramatically improved by tax rules that took effect in January 2006. The SOLO (K) is a 401(K) plan designed for the self employed , with all the advantages of a ROTH IRA – and then some! The SOLO (K) is a retirement plan for sole proprietors or small business owners with no employees (the exception is your spouse!). It combines salary deferral and profit-sharing components, and allows participants to make after-tax  (ROTH) contributions that grow – and may also be withdrawn – tax free.

Why all the hype?

This unique plan combines the best attributes of the hugely popular 401(K) plan , with the much-coveted tax-free earning capability of the ROTH IRA, which until now, was reserved only for those earning less than the imposed AGI limit

• Contributions – Pre Tax, After Tax, Rollovers and Profit-Sharing
• Tax-deferred and tax free earnings…and no tax on leveraged income property
• No ERISA rules
• Almost unlimited investment options

Want more?

OK then lets get more, how about…

• Larger Contribution Limits
• “ROTH” component grows tax free
• No Income restrictions for ROTH component contributions
• Borrow from the SOLO (K) Plan
• Purchase Leveraged Real Estate …without UDFI or UBIT taxes (exempt)
• Invest in S-Corp Stock…unlike other plans

At Market Advisors we are here to help you understand the benefits of the SOLO (K) Plan. We have a select group of preferred experts that can help you with your questions. Please feel free to contact us.

June Unemployment inches up to 9.5% – or is it really 16.5% – what will you give me for 20.6%!

I don’t want this to seem like over-kill but I really believe it is important in light of our last blog.  If you have been following our program at all then you know that we are pretty conservative when it comes to evaluating this market.  You also know that we believe we are on the verge of another large wave of foreclosures that will hit at the end of this year and throughout 2010.  A key driver of that foreclosure wave will be unemployment.  But, you say, unemployment is showing signs of slowing down – is it really? 

That all depends on what numbers you really want to believe.  You see the government has changed the way it calculates unemployment over the years.  It’s really hard to know exactly what part of the unemployed sector is included in the calculations.  For instance the current number does not include “discouraged workers” who are unemployed.  What is a discouraged worker?  It is an unemployed person who has given up looking because they have not found anything for the last 6 months.

If you include that sector which is called the “U-6” measure of unemployment, then the June number of 9.5% jumps to 16.5%!  Also this number does not take into consideration those who have been out of work for longer then six months.  If you include all who have been out for at least 12 months then the June number jumps to 20.6%.   Check out this blog in Investment Watch for more details.

Oh yes, and I forgot to mention that our current numbers only account for those laid off from jobs but does not account for people who have lost work because their own businesses have failed or had to be closed down.

The bottom line is, any way you cut the number, its bad!  And this is a big part of what will fuel this pending foreclosure surge.  That’s why we are buyers in this market – don’t sit and watch it – come join us!

Jobs and Real Estate

I have commented on this topic several times and for those of you who follow Market Advisors you know that we believe that unemployment as an indicator is one of the most important for determining, or predicting real estate values.

So what do the latest numbers tell us?

That the numbers are still negative…meaning that job losses continue to rise. That the positive adjustment to the nation’s unemployment was only due to a revision in May and June numbers. hardly a reason to stand up and cheer.

Plus, take a look at the sectors. Construction shed another 76,000 jobs in July. Now ain’t that a b*?&h.

So from a real estate value prediction perspective….markets are in for more bad news until we see a positive hiring number for construction for one, and a positive number to job growth overall.

Simply put we are not there yet folks…as far as meaningful real estate recovery.

Check out the latest jobs report by sector