Friday, October 10, 2008

91-TNG Radio - I Survived Real Estate 10-11-08

Part nine of “I Survived Real Estate 2008” is the final portion of the radio segments for the event. The show picks up with a bit of a rerun from last week. All new discussions around minute 14.

We pick up where Tommy Williams chimes in and says there are other states that had the same inventory for half the price of the states that got overheated. Overheated states have to come back to “normal.”

Bruce says he agrees but says that’s part of the reason he loves California real estate. California wins so many tie breakers. There’s exciting volatility you don’t get in other states.

Bruce talks about Fannie and Freddie and if we’ll see them stay in private ownership.

Christopher Thornberg says they are clearly insolvent and he doesn’t know what they will do or how they will react. Typically they overact.

Bruce asks the panel if the government writing these big checks will increase inflation and if we’ll see much different interest rates three years from now.

Christopher describes the two ways our government pays the bills; issue debt or printing money. Christopher says our government assumes that investors have confidence in the system. If investors see the bottom drop out of the public bond market and the treasuries go crazy then there’s a problem but he says we’re far from that. Christopher says interest rates are now adjusting for the increased risk. Eventually they’ll come down when this crisis passes.

Bruce talks about when he became an investor he refinanced his house at 17% interest. Many people were telling him at the time he’d never see single digit interest rates again. Bruce says interest rates can be very high as long as the income to median price ratio makes sense. There could still be a healthy market.

Rick talks about market psychology and how nervous buyers and lenders are at the moment.

Bruce talks about the velocity of price drops in the market being historical and some are unaware. 35-50% price declines are shocking.

Joel discusses a Zillow study where 7 out of 10 people thought their home was still appreciating. Christopher Thornberg calls that homo-illucination and what it stands for.

Bruce asks Phil Tirone if lenders are skewing too conservative and not making loans at all. The automated underwriting was such a blessing at the time because it made things ease and now it’s making it worse. Phil describes people putting 50% down and he still can’t get financing because his client’s credit score is low.

Christopher says those automated systems were a disaster and that lenders knew how to manipulate the systems. Philip says these systems did help cause the problem. Christopher says once the price gets down low everyone will qualify.

Bruce touches on affordability. Bruce describes affordability and what it solves and does not solve. He describes past cycles and what he looks for in a turned around market. Bruce looks for migration coming back as the true indicator as the decline for foreclosures. We’ve gone from 16 months of inventory to under 7 months but sees it as a false indicator. Those that didn’t have to sell left the market.

Joel Singer disagrees. He’s assuming 85% of homes are owner occupied. He doesn’t see too many rentals occurring for those pulling out of the market since they don’t have to sell, especially in coastal regions. Inland Empire is where most of the vacancies are occurring. He agrees that people who don’t have to sell don’t and pull out of the market. He said it was like this in the 90s. Affordability tells you about first time buyers but not the trade up market. We still have to consider unemployment rate. Affordability is not perfect but decent indicator of first time buyers. Psychology is important too.

Joel says 50% more sales are occurring on top of tight lending so things could be changing. He thinks more investors are going to be needed for a certain period of time. He thinks a few of Bruce’s ideas could be sold but others could not. He does think from a policy point of view that affordability going up is a good thing.

The vacancy rate is getting close to the national average but it’s always different here in California. Joel thinks the loan assumptions idea won’t work. 90 day seasoning period for investors should be able to work with some sort of certification that the repairs have been done.

Bruce asks Christopher which chart he’s looking at for an end of the downturn. He says when prices stop dropping. Joel says that seasonally prices are sure to fall in the coming months as they typically do. Christopher rephrases his original comment to seasonally adjusted.

Joel feels prices in some areas are already improving and multiple bidding is occurring. Joel feels a bottom floor is starting to appear in some areas. The overall economy will be important in deciding the outcome as will the outcome for Fannie and Freddie.

Christopher says we have way too many 4,000 square foot houses. He also brings up unemployment so there are still other things to consider before he calls it over.

Joel reminds the audience that markets are local and that San Bernardino and South Bay are very different. He says most people will miss the bottom.

Bruce beings up the list of properties the Norris Group purchased. Homes The Norris Group purchased for $110k are now being bought for $85k. These properties often also have multiple bids but our offers are stronger. Bruce is worried about twice as many trustees deeds then sales in Riverside County. That ratio is much worse then last time.

Joel says statewide though it’s different and there’s still more sales than foreclosures. He’s actually surprised. If you go up to 400,000 foreclosures then there’s a much more serious problem.

Philip says there are portfolio lenders that are stepping up with non-owner occupied with low 7%-high 6%, 30% down, with no limit for investors. So there is financing out there.

Bruce thanks the panel and the evening ends. See also the video on YouTube or Google video.

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: mvtpro.com
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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