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Wednesday, January 28, 2009
Monday, January 26, 2009
Shocking Debt to Asset Ratios
Jeremy Grantham Money Manager at GMO says,
- Supported by $25 Trillion in Debt (personal and corporate)
- 50% debt to asset ratio
- Supported by $25 Trillion in Debt
- 83% debt to asset ratio
Debt needs to be a 40% of assets…which means that we need to decrease our debt by nearly 60% or approximately $15 Trillion.
- Write Down Debt Now
- Be Like
- Inflate Our Debt
All three will require “lots of pain.”
Thursday, January 15, 2009
Short Sale or REO???
Prices continue to drop...interest rates continue to drop...people claim it is a buyers market. How come it takes SO long to get people into all of these homes?
Snapshot:
* a huge percent of the homes are the market are short sales or REOs (also known as lender owned, bank owned)
* a huge number of people can afford homes
* as long as rates stay low the buyers will remain
* as long as there is still toxic debt out there the prices will remain low (pardon me for believing that the government is ridiculous for thinking a bailout will work, oh, yeah...if it does...we will be back at the governments door in 3 years asking for a new bailout 3 times the size AND still owe for this one - was that pessimistic enough????)
(Back to the topic at hand)
Bank Owned homes:
1. Usually get answer in 24-48 hours
2. Usually has mutliple offers
3. Usually counters with "highest and best"
4. Usually can close in 30-45 days
Short Sales:
1. Usually takes 1-2 months to get an answer
2. Usually has multiple offers
3. Usually counters at market value
4. Usually does not close escrow (becomes a bank owned home) - a few months ago the stats were 4% short sales closed escrow
The last piece of information is that short sales have a HORRIBLE reputation. I speak with hundreds of people thinking about buying homes every month. Most of the time they have no idea what a short sale is (except some people think that the escrow is going to be fast - i.e. short). All they know is that short sales are evil.
Bank owned homes do not have nearly the same bad reputation...although, maybe they should. In Corona, CA, where I live and practice real estate the trend is such. Most bank owned homes sell for 2-10% over list price. They sell for this amount regardless of what the comps say. A comp is a comparable home sold in approximately the same time frame. However, short sales languish on the market because; banks do not know how to handle the huge influx in homes, the listing agent doesn't know how to process short sales, etc.
Take these two homes for example...
1447 Pinewood Dr, Corona, CA 92881
List Price - $399,000
Sold Price - $392,000
Price/Sq Ft - $120.43
Beds - 5
Baths - 4
Sq. Ft - 3,255
Lot Size - 7,405
DOM - 17
282 Mount Vernon Way, Corona, CA 92881
List Price - $399,000
Sold Price - $400,000
Price/Sq Ft - $147.11
Beds - 4
Baths - 3
Sq Ft - 2,719
Lot Size - 10,018
DOM - 98
Remember that banks set the price of bank owned homes. They set the prices low and hope that people will blindly bid against each other. They are banking on the fact that the buyers will not look at the comparable properties in the neighborhood and will only look at the current situation. Which looks like this, "we have received multiple offers, we need your highest and best". Therefore, people are willing to bid more than the property is worth (sounds a little like what happened in '05 & '06).
On the other hand short sales are starving for qualified buyers. They received multiple offers when the home comes on the market, but most of those buyers end up buying a bank owned home before the bank can approve the short sale. Often, the last offer standing (if there is one) gets the home. We saw this in the illustration above - people over paid for an older, smaller home. The Pinewood property is definitely the better home to purchase.
Eight months ago I would have told my buyers, "steer clear of short sales". However, today - the data seems to say that short sales are the better buy!
Snapshot:
* a huge percent of the homes are the market are short sales or REOs (also known as lender owned, bank owned)
* a huge number of people can afford homes
* as long as rates stay low the buyers will remain
* as long as there is still toxic debt out there the prices will remain low (pardon me for believing that the government is ridiculous for thinking a bailout will work, oh, yeah...if it does...we will be back at the governments door in 3 years asking for a new bailout 3 times the size AND still owe for this one - was that pessimistic enough????)
(Back to the topic at hand)
Bank Owned homes:
1. Usually get answer in 24-48 hours
2. Usually has mutliple offers
3. Usually counters with "highest and best"
4. Usually can close in 30-45 days
Short Sales:
1. Usually takes 1-2 months to get an answer
2. Usually has multiple offers
3. Usually counters at market value
4. Usually does not close escrow (becomes a bank owned home) - a few months ago the stats were 4% short sales closed escrow
The last piece of information is that short sales have a HORRIBLE reputation. I speak with hundreds of people thinking about buying homes every month. Most of the time they have no idea what a short sale is (except some people think that the escrow is going to be fast - i.e. short). All they know is that short sales are evil.
Bank owned homes do not have nearly the same bad reputation...although, maybe they should. In Corona, CA, where I live and practice real estate the trend is such. Most bank owned homes sell for 2-10% over list price. They sell for this amount regardless of what the comps say. A comp is a comparable home sold in approximately the same time frame. However, short sales languish on the market because; banks do not know how to handle the huge influx in homes, the listing agent doesn't know how to process short sales, etc.
Take these two homes for example...
1447 Pinewood Dr, Corona, CA 92881
List Price - $399,000
Sold Price - $392,000
Price/Sq Ft - $120.43
Beds - 5
Baths - 4
Sq. Ft - 3,255
Lot Size - 7,405
DOM - 17
282 Mount Vernon Way, Corona, CA 92881
List Price - $399,000
Sold Price - $400,000
Price/Sq Ft - $147.11
Beds - 4
Baths - 3
Sq Ft - 2,719
Lot Size - 10,018
DOM - 98
Remember that banks set the price of bank owned homes. They set the prices low and hope that people will blindly bid against each other. They are banking on the fact that the buyers will not look at the comparable properties in the neighborhood and will only look at the current situation. Which looks like this, "we have received multiple offers, we need your highest and best". Therefore, people are willing to bid more than the property is worth (sounds a little like what happened in '05 & '06).
On the other hand short sales are starving for qualified buyers. They received multiple offers when the home comes on the market, but most of those buyers end up buying a bank owned home before the bank can approve the short sale. Often, the last offer standing (if there is one) gets the home. We saw this in the illustration above - people over paid for an older, smaller home. The Pinewood property is definitely the better home to purchase.
Eight months ago I would have told my buyers, "steer clear of short sales". However, today - the data seems to say that short sales are the better buy!
Tuesday, January 13, 2009
Tuesday, January 6, 2009
Get Started...
The statistics are overwhelming. Anecdotal evidence says that 5 out of 100 people are self sufficient in retirement and 1 of those 100 are wealthy. Alright, I meant staggering. Think about this for a second.
My buddy Mike and I have spent countless hours thinking of ways to get this story across to friends and family...and clients!!!! We have talked about the greatness of life insurance, we have compared annuities and mutual funds, we have considered the benefits of stocks.
The story is simple...people you MUST get started. There is not time to wait...check out this simple illustration.
Column A - contributes $2,000 a year for 10 years gaining 8% interest and no contributions for the next 30 years.
Column B - waits 10 years and contributes $2,000 for 30 years gaining 8% interest.
The difference is huge, not to mention that column B will NEVER catch up. Column A contributes $20,000 ($291,546.57), Column B contributes $60,000 ($226,566.42). There are a lot of points that can be made from this illustration but the most salient is the later you start the more you have to contribute.
Think about your 10 closest friends - which one will you be?
My buddy Mike and I have spent countless hours thinking of ways to get this story across to friends and family...and clients!!!! We have talked about the greatness of life insurance, we have compared annuities and mutual funds, we have considered the benefits of stocks.
The story is simple...people you MUST get started. There is not time to wait...check out this simple illustration.
| Year | A | B | ||
| 1 | 2,000 | 0 | ||
| 2 | 2,000 | 0 | ||
| 3 | 2,000 | 0 | ||
| 4 | 2,000 | 0 | ||
| 5 | 2,000 | 0 | ||
| 6 | 2,000 | 0 | ||
| 7 | 2,000 | 0 | ||
| 8 | 2,000 | 0 | ||
| 9 | 2,000 | 0 | ||
| 10 | 2,000 | 0 | ||
| 11 | 0 | 2,000 | ||
| 12 | 0 | 2,000 | ||
| 13 | 0 | 2,000 | ||
| 14 | 0 | 2,000 | ||
| 15 | 0 | 2,000 | ||
| 20 | 62,550.79 | 28,973.12 | ||
| 25 | 91,907.64 | 54,304.23 | ||
| 30 | 135,042.47 | 91,523.93 | ||
| 35 | 198,421.69 | 146,211.88 | ||
| 40 | 291,546.57 | 226,566.42 |
Column A - contributes $2,000 a year for 10 years gaining 8% interest and no contributions for the next 30 years.
Column B - waits 10 years and contributes $2,000 for 30 years gaining 8% interest.
The difference is huge, not to mention that column B will NEVER catch up. Column A contributes $20,000 ($291,546.57), Column B contributes $60,000 ($226,566.42). There are a lot of points that can be made from this illustration but the most salient is the later you start the more you have to contribute.
Think about your 10 closest friends - which one will you be?
Monday, January 5, 2009
Sunday, January 4, 2009
Dinner on my own...
There is literally nothing I hate more than my wife and daughter leaving town. I have a hard time getting up and getting going. Before they leave, I think - "I am going to be so productive while they are gone. I am going to do this and that..." But, what ends up happening is I sit around wishing the days would go by quicker, waiting...in fact counting the minutes until they return.
So here we are on a Saturday night - the second night that they are gone (they are gone a week). Challenges while they are gone are: 1.) motivation, 2.) boredom, and 3.) eating. Motivation and boredom not a problem as I scheduled 3 appointments yesterday and another 3 today AND another tomorrow. Eating is not an issue either...because I made dinner. Here is what I made:
Baked Penne w/meat sauce
1 1/4 lbs Turkey
16 oz Penne Rigate (100% organic whole wheat)
14.5 oz Organic Diced Tomatoes with Green Chiles
4 oz Tomato Sauce
1/3 oz Shredded Cheddar Cheese
Brown the turkey. Combine the tomatoes and tomato sauce in pan. Cook pasta according to directions. Layer pasta, sauce, cheese. Cook at 375 degrees for 40 minutes.
The beauty of this meal is that it serves 6. Therefore, I get to have a good dinner that is easy to make. It will provide me 5 additional meals. AND, I eat it with a corn on the cob and my dinner has only 490 calories and 16 grams of saturated fat. Oh, and it costs $11.40!
So here we are on a Saturday night - the second night that they are gone (they are gone a week). Challenges while they are gone are: 1.) motivation, 2.) boredom, and 3.) eating. Motivation and boredom not a problem as I scheduled 3 appointments yesterday and another 3 today AND another tomorrow. Eating is not an issue either...because I made dinner. Here is what I made:
Baked Penne w/meat sauce
1 1/4 lbs Turkey
16 oz Penne Rigate (100% organic whole wheat)
14.5 oz Organic Diced Tomatoes with Green Chiles
4 oz Tomato Sauce
1/3 oz Shredded Cheddar Cheese
Brown the turkey. Combine the tomatoes and tomato sauce in pan. Cook pasta according to directions. Layer pasta, sauce, cheese. Cook at 375 degrees for 40 minutes.
The beauty of this meal is that it serves 6. Therefore, I get to have a good dinner that is easy to make. It will provide me 5 additional meals. AND, I eat it with a corn on the cob and my dinner has only 490 calories and 16 grams of saturated fat. Oh, and it costs $11.40!
Saturday, January 3, 2009
College Football
So, I take a lot heat from friends about being a loyal USC fan. I am not a bandwagon fan. I am a die hard Trojan through and through. I have lived through...
* the deplorable Paul Hackett era...I just read that a Pro team was considering hiring him as a coordinator or head coach - how exactly does he have a job?
* Curtis Conway being a coward and quitting on his team in the forgettable Freedom Bowl (Fresno St spanked SC 24-7)
* Shawn Walters being the "go to" running back
* Kyle Wachholtz/Brad Otten QB experiment
* Todd Mari"juana"vich
* Dropping 11 straight to Notre Dame
* the 90s!
But, along came Pete Carroll and his unceremonious beginning with USC. No one wanted this guy. Mike Garrett asked everyone (Dennis Erickson, Mike Riley, etc...) to come to USC, but no one wanted USC. Then the 2001 season started with a bang, 2-5. Now, Pete Carroll is the most successful college coach over the past 7 seasons. USC gets beat up from every angle - weak conference, poor schedule, losing the wrong games. Having said all of that - USC is in a class all by themselves.
* 7 BCS games with a 6-1 record
* 7 straight Pac-10 titles
* 7 straight top 4 finishes
* 3 Heisman trophies in 7 years
* No losses by more than 7 points in 7 years
I have to admit that I am loving Ole Miss dismantling Texas Tech (fraud) and 'Bama getting trounced by Utah (the only undefeated team 13-0) - it shows that the SEC isn't all that great. The only teams that can hang with USC are Florida and LSU (however they got BLOWN OUT twice this year). Don't tell me Texas or Oklahoma - the Big XII is a fraud (they play no defense - and this year they have no Vince Young to save them). Scott Van Pelt of ESPN said it best, "Oklahoma and Oklahoma St scored 10 touchdowns in the second half on Saturday, who is to say that either of these schools could score on SC's defense?" Penn St found out how hard it is to move the ball on USC's defense. The 38-24 score was not indicative of how much USC dominated. Penn St racked up 200 yards of offense and 17 points after this thing was over - in the 4th quarter.
In the end we are left with routing Big Ten teams (sweet poetry would be Ohio St beating Texas) and the Pac-10 completing a 5-0 bowl season. And, of course, Pete Carroll's words, "With all due respect, those are two great programs (Oklahoma and Florida), I don't think anybody can beat the Trojans."
He just might be right!
* the deplorable Paul Hackett era...I just read that a Pro team was considering hiring him as a coordinator or head coach - how exactly does he have a job?
* Curtis Conway being a coward and quitting on his team in the forgettable Freedom Bowl (Fresno St spanked SC 24-7)
* Shawn Walters being the "go to" running back
* Kyle Wachholtz/Brad Otten QB experiment
* Todd Mari"juana"vich
* Dropping 11 straight to Notre Dame
* the 90s!
But, along came Pete Carroll and his unceremonious beginning with USC. No one wanted this guy. Mike Garrett asked everyone (Dennis Erickson, Mike Riley, etc...) to come to USC, but no one wanted USC. Then the 2001 season started with a bang, 2-5. Now, Pete Carroll is the most successful college coach over the past 7 seasons. USC gets beat up from every angle - weak conference, poor schedule, losing the wrong games. Having said all of that - USC is in a class all by themselves.
* 7 BCS games with a 6-1 record
* 7 straight Pac-10 titles
* 7 straight top 4 finishes
* 3 Heisman trophies in 7 years
* No losses by more than 7 points in 7 years
I have to admit that I am loving Ole Miss dismantling Texas Tech (fraud) and 'Bama getting trounced by Utah (the only undefeated team 13-0) - it shows that the SEC isn't all that great. The only teams that can hang with USC are Florida and LSU (however they got BLOWN OUT twice this year). Don't tell me Texas or Oklahoma - the Big XII is a fraud (they play no defense - and this year they have no Vince Young to save them). Scott Van Pelt of ESPN said it best, "Oklahoma and Oklahoma St scored 10 touchdowns in the second half on Saturday, who is to say that either of these schools could score on SC's defense?" Penn St found out how hard it is to move the ball on USC's defense. The 38-24 score was not indicative of how much USC dominated. Penn St racked up 200 yards of offense and 17 points after this thing was over - in the 4th quarter.
In the end we are left with routing Big Ten teams (sweet poetry would be Ohio St beating Texas) and the Pac-10 completing a 5-0 bowl season. And, of course, Pete Carroll's words, "With all due respect, those are two great programs (Oklahoma and Florida), I don't think anybody can beat the Trojans."
He just might be right!
Thursday, January 1, 2009
Multiple Offers
"We have received multiple offers on the above referenced property. Please submit your highest and best offer," says the fax that comes into my office.
This fax is not an aberration. Quite the contrary - it is the norm. We are not living in a buyers market in Riverside County. We are experiencing something quite the contrary. Housing prices continue to sag because the inventory is through the rough and because mortgage rates are low. Therefore, we are in a hybrid market.
This article on Inman confirms what we have been telling our buyers for months. When you are buying a home you need to be patient. You need to bring your best offer. That appears to be the only way to get a home these days.
This fax is not an aberration. Quite the contrary - it is the norm. We are not living in a buyers market in Riverside County. We are experiencing something quite the contrary. Housing prices continue to sag because the inventory is through the rough and because mortgage rates are low. Therefore, we are in a hybrid market.
This article on Inman confirms what we have been telling our buyers for months. When you are buying a home you need to be patient. You need to bring your best offer. That appears to be the only way to get a home these days.
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