Friday, September 26, 2008

87-TNG Radio - I Survived Real Estate 9-27-08

Part five of “I Survived Real Estate 2008” picks up with Bruce Norris introducing Tommy Williams, president of the National Auctioneers Association and co-founder of Williams and Williams Auction Company. Tommy has been involved in over 10,000 real estate transactions in his very lengthy career.

Tommy starts right away with his solution. Tommy brings to the table an idea he’s been passionate about for many years. Reality in the market place is what it is and there’s no way around it. The entire world sets prices by the auction process and not just real estate.

Instead of having a foreclosure process, Tommy suggests we skip foreclosures all together. The foreclosure process leaves an empty house and starts a very expensive process for the bank. The neighboring homes next door to the foreclosure see house values go down because of blight, the bank goes the a long and expensive process, and the foreclosed consumer leaves with damaged credit.

Tommy suggests a short sale auction hybrid. The consumer about to foreclosure would still be in the home when the auction took place and the home would be handed to someone ready to fill the home and at true market price. After the auction, the foreclosed consumer and the bank would need to deal with the deficiency but at the least the property would never be vacant.

The free market needs to work and the auction process needs to be involved. It would help us get back on track more quickly.

Bruce is the last speaker of the evening and starts talking about the cycles we go through and how we as humans often repeat the same mistakes. Solutions can also be from the past.

Bruce says that when we have a euphoric period there’s an exuberance that gets people in the market that should not be. The last to get in are usually the ones that are least capable. Emotions come into play and typically they cannot afford the home they purchased. This cycle we saw a record number of home owners but maybe we should never have got to such a high number.

Bruce shows a vacancy chart and how it climbed since 1985. Now it’s declining and rightfully so. Bruce thinks about 6% of homes will end up being vacant.

Tightening loan standards are creating issues. Bruce reads an article about lenders tightening programs. It makes it harder for people hard to qualify and refi what the already have which will make it worse.

We now have to deal with the largest foreclosure issue in history. Foreclosures are already at an all time high and will continue. These foreclosures have caused huge price erosions.

Bruce shows the audience a list of 20 homes The Norris Group purchased in the past 45 days through auction or out of the MLS and the huge price hits lenders are taking. On 20 transactions, the banks took a $4.6 million dollar loss. Bruce says he’s worried about the domino effect. Too many people owe more than their property is worth.

Bruce says there are three ways to solve a vacancy. We can tear down houses and create an artificial housing shortage. We can leave it vacant and wait for till household formation catches up with supply. Or, we could make it possible for investors to have financing to hold them.

Four solutions that are needed to get us back on track. The 203k loan program from FHA should be made available to investors. It was available to investors until 1996 and then FHA discontinued because it had done its job of getting rid of foreclosures. FHA doesn’t have a ton of foreclosures because they didn’t make a ton of loans. However, the loan program needs to be made available for investors to expedite the foreclosure problem.

Fannie and Freddie need to increase the number of loans they will give to investors. Both want to open offices in California to help unload inventory more quickly and investors are likely candidates. At the same time, they are cutting back on financing available. Both are in a dire situation. Fannie and Freddie hold a huge amount of the foreclosures.

Option Arms are the next wave and these loans represent 50% of Fannie and Freddie losses. Bruce shows the Option Arm reset chart. The chart shows the expected resets and what’s currently happening now. A huge number of these Option Arm loan holders are making teaser payments. Once the loan balance hits a certain percentage, the loan resets. 90% of the borrowers of these loans made the minimum payment. Many won’t walk until the reset because the payment is cheaper than rent.

The foreclosure process is now taking longer because the banks are so slammed but because of the new regulations as well. The bulk of these are set to land in 2009. The loan amounts were typically more than subprime and the lenders will have to recalculate what they made because of how they were writing things off.

Bruce says a due on sale moratorium would make it possible for investors to buy properties that would undoubtedly become foreclosures, it would allow Realtors and auctioneers to make commission on properties with no equity but favorable financing, allow a consumer to move on with credit intact, and improve liquidity in the system.

In the 1980s, foreclosures exploded but price deterioration wasn’t bad. Assumptions of loans saved the market. When interest rates were 17%, people were able to assume better financing. It saved the system.

Bruce also suggests the 90 day seasoning period on properties to be removed so investors can fix houses and sell them more quickly. More to come next week. Thenorrisgroup.com

Special thanks to the following partners and sponsors without whom the event would not have been possible:

Platinum Sponsors:
The San Diego Creative Investors Association (SDCIA): sdcia.com
Investors Workshops: investorsworkshops.com
Frye Wiles: fryewiles.com
Proxibid: proxibid.com
White House Catering: whcatering.com
MVT Productions: mvtproductions.tv
Pechanga Resort and Casino: pechanga.com
The Denver Nuggets: nba.com nuggets
The Chicago Bulls: nba.com bulls
The Cleveland Cavaliers: nba.com cavaliers

Gold Sponsors:
7 Steps to a 720 Credit Score and Philip X. Tirone - 7stepsto720.com
Chicago Title - ctic.com
Elite Auctions - sellwithauction.com
Foreclosure Trackers - foreclosuretrackers.com
Investors Resource Center of America LA and Steve and Robyn Love - irca-losangeles.com
Las Brisas Escrow - lasbrisasescrow.com
National Club of Real Estate Investors and Sam Saddat - ncrei.com
Northern California Real Estate Investors Association (Norcalreia) and David Granzella - norcalreia.com
North San Diego Real Estate Investors and Linda Wessels - nsdrei.org
RealtyTrac - realtytrac.com
RE Ventures and Michael Pines - reventuresrealty.com
Real Estate Investors Club of Los Angeles and Phyllis Rockower - realestateclubla.com
Real Wealth Investor and Scott Whaley - realwealthinvestor.com
Saddleback Valley Communities - svc4.com
Silverstar Finance and Janet French - silverstarfinance.com
Sunset Hills Memorial Park and Mortuary - sunsethills.cc
The Mission Inn - missioninn.com
The Mortgage Equity Group - http: themeg.net
The Naked Real Estate Investor Club - Rosie Nieto - nakedrealestateinvestorsclub.com
The Short Sale Processor and Nick Manfredi - theshortsaleprocessor.com
Virtual Real Estate Tour and Layla Tusko - 1wealthcreation.com
Wholesale Capital Corporation - wccmtg.com

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Friday, September 19, 2008

86-TNG Radio - I Survived Real Estate 9-20-08

Part four of “I Survived Real Estate 2008” picks up with Bruce Norris introducing CEO of the California Builders Industry Association of the Southern California, Richard Lambros. There’s a little repeat from last week to get the show going.

Richard discusses real estate as a speculative investment and the cycles. Richard warns us not to think of it as a cycle because that means we can have no influence over the outcome. Total new home production is down and will produce the lowest number of homes in history. In the building industry, they say it’s a building depression. In three years, production has been cut to one third. 2009 is not looking very good. Riverside and San Bernardino account for much of the cuts.

The economic impact of less building is very important. Just in Southern California, the building industry created $48 million of economic activity in 2005. In 2008, reaching $18 billion

Homes today are no longer shelter, they are infrastructure. Energy efficiency in California is already cutting edge and new guidelines are making them even tougher. New homes are unfairly being forced to make up for the 99% of retail homes that aren’t energy efficient. This inequality is difficult for builders to manage at times as costs and regulations add not only costs but time.

At the same time, a new home is a “Prius” and an old home is the “Hummers.” New homes have come a long way in building standards and built-in efficiencies. Buying a home today is very different than buying

New home projects are difficult to get approved. He speaks on residual land value and how builders figure price for a project. Builders work from comparables down to land price and not the other way around. Valuing land right now is too difficult and no one wants to loan on it right now. Builders are focusing on costs control and concerned about anything that adds time or costs to a project.

Real strength will return to building when strength returns to all the other sectors. The state needs jobs and economic growth for builders to thrive.

Bruce Norris then introduces Joel Singer, Executive VP for the California Association of Realtors. Joel discusses the myth versus the reality of the market place. As a former CAR economist Joel has experience after being through other downturns. This downturn is definitely different. It’s unique in that price decline is really steep.

The adjustment process we can’t look at past cycles because the adjustment of each cycle is different. Joel gets asked often “When is bottom.” Joel does not know. Joel is looking at activity picking up and feels we’ve hit bottom.

Joel is aware it feels bad because price is down so much. New builders and the civilian sellers have been squeezed out. The market is full of short sales and foreclosures; all have-to-sell inventory. Roughly 2 out of 3 of all sales are distressed transactions. Joel does agree 2009 will be bad and thinks foreclosures will continue but not sure what will happen beyond 2009.

Unemployment is a problem. A bigger wild card is the notion that Fannie Mae and Freddie Mac are dead. They are insolvent. (At this point in time, Fannie and Freddie were not government controlled). One they are nationalized, Joel expects a further jolt to the marketplace. Fannie and Freddie account for 90% (with FHA) of all loans in the market place.

Affordability has improved and the number of first time buyers will be 50% of the market place. It will be the highest level in three years. Three years ago, any idiot could be a successful investor. In today’s market, good investors will make a difference. The opportunities will be risky, look at the opportunities but don’t assume explosive growth. Assume the property makes economic sense. It will be challenging but the pros will be very successful.

Bruce Norris then announces Tommy Williams, president of the national Auctioneers Association and co-founder of Williams and Williams Auction Company. Conversation to resume next week.


Special thanks to the following partners and sponsors without whom the event would not have been possible:

Platinum Sponsors:
The San Diego Creative Investors Association (SDCIA): sdcia.com
Investors Workshops: investorsworkshops.com
Frye Wiles: fryewiles.com
Proxibid: proxibid.com
White House Catering: whcatering.com
MVT Productions: mvtproductions.tv
Pechanga Resort and Casino: pechanga.com
The Denver Nuggets: nba.com nuggets
The Chicago Bulls: nba.com bulls
The Cleveland Cavaliers: nba.com cavaliers

Gold Sponsors:
7 Steps to a 720 Credit Score and Philip X. Tirone - 7stepsto720.com
Chicago Title - ctic.com
Elite Auctions - sellwithauction.com
Foreclosure Trackers - foreclosuretrackers.com
Investors Resource Center of America LA and Steve and Robyn Love - irca-losangeles.com
Las Brisas Escrow - lasbrisasescrow.com
National Club of Real Estate Investors and Sam Saddat - ncrei.com
Northern California Real Estate Investors Association (Norcalreia) and David Granzella - norcalreia.com
North San Diego Real Estate Investors and Linda Wessels - nsdrei.org
RealtyTrac - realtytrac.com
RE Ventures and Michael Pines - reventuresrealty.com
Real Estate Investors Club of Los Angeles and Phyllis Rockower - realestateclubla.com
Real Wealth Investor and Scott Whaley - realwealthinvestor.com
Saddleback Valley Communities - svc4.com
Silverstar Finance and Janet French - silverstarfinance.com
Sunset Hills Memorial Park and Mortuary - sunsethills.cc
The Mission Inn - missioninn.com
The Mortgage Equity Group - http: themeg.net
The Naked Real Estate Investor Club - Rosie Nieto - nakedrealestateinvestorsclub.com
The Short Sale Processor and Nick Manfredi - theshortsaleprocessor.com
Virtual Real Estate Tour and Layla Tusko - 1wealthcreation.com
Wholesale Capital Corporation - wccmtg.com

Play Now