Norada Real Estate Investments

2009 Recession Ends – The Road to Real Estate Recovery

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All economists and our financial markets are betting on this quarter to produce positive GDP.  Positive GDP marks the ending of the recession. Unfortunately with low wages and high unemployment the consumer will feel less positive over the next year. Still we are marking an end to the worst recession since the Great Depression and everyone should be pleased with this.

Road to REAL ESTATE RECOVERY

Now let's talk about real estate and recovery; The regional markets that had received the highest historical appreciation rates during 2003 to 2006 also had some of the largest price adjustments over the past 36 months. States that had these incredible high real estate returns, like California and Florida, have also seen the highest incidents of foreclosures. Logic would dictate that these markets will bounce back the fastest, but unfortunately they too will recover slowly as will the rest of the nation. An economic recession takes time to unwind and buyer exuberance usually only occurs once the entire nation is certain that the real estate market can only have one trend, up.

The psychology of man dictates that a deep recession brings about caution for some time to come (probably a few years). The States that had some of the highest swings will once again have the highest appreciation. Still it is best not to hold your breath for this in areas like California and Florida until old wounds heal (likely a few more years). In the meantime, recovery is with us. Recovery means price declines stop and appreciation kicks in. We are already seeing this in the hardest hit areas with homes priced at or around mean home pricing.

The June 2009 numbers just came out for pending home sales. We had the FIFTH STRAIGHT MONTH of pending home sales increases (up 3.6% month to month) and over a 6% increase compared to June 2008. Real estate, like any form of investment, has cyclical patterns that are dependent upon supply and demand. Optimism will once again kick in and sellers, buyers, developers all become happy over time.

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Housing Numbers Err on the Bright Side

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Is it time to buy a house or ?

It Depends…

If you need a place to live and want to own a house, why not? Prices in some areas are fairly reasonable. But if you're speculating, our guess is that you'll get a better deal if you wait.

Why?  House prices may be firming in some areas – that's what the Case-Shiller numbers seem to show. But nationwide, they are probably headed down for quite a while longer.

Here are four reasons why:

First, as you know, this is a depression. It will probably be long. And deep. You wouldn't know it from looking at the stock market or reading the news. The Dow went up another 114 points yesterday. Oil rose to $71. And the dollar – anticipating inflation – fell to $1.44 per euro.

But that's what bounces are supposed to look like. They look good enough so that people mistake them for the real thing… and get suckered into more losses.

This is a depression. Depressions drag down asset prices. Typically, prices become much more reasonable. And then they reach UNREASONABLE levels. House prices have become reasonable. Now they will become unreasonably cheap…

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HUD Properties, FHA & Title Seasoning for Real Estate Investors

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With HUD properties, title seasoning, FHA loans, and short sales, have had some confusion regarding the rules.  This article will clarify all of these issues for you.

HUD is the United States Department of Housing and Urban Development, a government agency whose goal is to increase homeownership and support community development .  The Federal Housing Administration (FHA), which is part of HUD, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States.

HUD and FHA come into play in three different scenarios in the investor/foreclosure arena.

HUD Foreclosed Properties

When a person gets an FHA loan, it is funded through a private lender and the loan is insured or backed by the Federal Housing Administration.  When the loan is in default, FHA pays out the lender and take an assignment of the loan.  When the property is foreclosed, it is owned by HUD.  HUD then offers these properties for sale to both owner-occupants and investors.  The properties are offered on the local MLS computer database, but you have to submit an offer through a HUD-approved real estate broker.  The offer is made under a bid process, under which the HUD will either accept or reject your offer depending on what other offers are submitted.  An investor can buy, hold, or flip these properties if their offer is accepted.

FHA Loans and Title Seasoning

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New Dallas Investment Property

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We are pleased to announce our second offering within the great state of Texas.

Dallas-Fort Worth, Houston, San Antonio and the state capital, Austin, make up what many call the Texaplex: a densely packed triangle with each side measuring about 300 miles.  This triangle is home to roughly 80% of the state's population of 24 million people (second only to California's 37 million).  It also containing America's third-largest airport (Dallas-Fort Worth, aka DFW) and its second-busiest sea port, Houston, (despite being 50 miles inland).

Dallas offers investors a very stable housing market that has weathered the housing bubble of years past. The Case-Shiller home price index recently reported that Dallas home prices rose 1.9% between April and May 2009.  This was the second highest price increase behind Cleveland real estate market for the same period.

There is a fantastic 10-page special report in the July 11th, 2009 issue of The Economist. that covered the Texas market along with the many benefits it offers it's residents and businesses.  The same benefits that are attracting new migrants from all over the U.S. You can read the article online here: Texas Special Report.

Our new Dallas investment properties offer investors strong cash flow with capitalization rates from 7.5% to 9.0%.  First year ROI starts at 115%, both assuming a 20% down payment. . There is also strong appreciation potential given the dormant state the Dallas real estate market has had over the years coupled with the current growth in jobs and population.

Find out more about our current investment opportunities by clinking the links below:

Dallas Investment Property  [Single Family Homes]

Dallas Investment Property  [3-Bedroom Duplexes]

Why Housing Prices Are Essentially Meaningless

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It took the Wall Street Journal an entire survey to prove what readers of this column have known for months: The housing recovery, as it plays out, will be a localized event, varying greatly city to city, neighborhood to neighborhood, street to street.

The Journal, god bless them, compiled housing data to compare inventory changes, months supply, price drops, unemployment, and default rates across 28 US metro areas. Unsurprisingly, bubble markets like Las Vegas, Phoenix, and Miami look particularly horrid, whereas areas like Dallas (which avoided much of the housing mania) and cities like Charlotte and Seattle (which are just now seeing price declines accelerate) appear to be holding up rather nicely.

But drilling deeper into the raw data reveals a housing market that's deeply bifurcated, even within individual cities.

As low-end markets experience a sharp increase in buying activity due to supply shortages and vastly lower prices, illiquid high end markets are experiencing violent price swings — typically in the southward direction. This much is already known, and the Journal's study simply shows what we're told ad nauseam: is, in fact, local.

What's far more applicable to home buyers and sellers around the country, however, isn't what a few broad (yet important) data points show about what's happening in a few hundred neighborhoods all lumped together. Instead, it's where individual submarkets are headed. After all, owning a home is an investment in a neighborhood, a street, a community — not necessarily a metropolitan area at large.

Housing prices, by extension — when measured as broadly as a metro area — are basically meaningless.

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Commercial Real Estate – The Next Shoe to Drop

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I don't know if the real estate bubble is done popping. I suspect it is not.

If there is another shoe waiting to drop on the U.S. economy, its commercial real estate. Bloomberg reports that $165 billion in commercial real estate loans mature this year. They must be refinanced or sold. Either way, it seems like some losses must be taken.

As of July 8, 2009, $108 billion worth of properties were in default, foreclosure or bankruptcy. That's a lot. Throw in the 22-year high of vacant apartments, and you get a picture where landlords are really struggling.

Goldman Sachs took $700 million in losses from commercial real estate in the last quarter. And it did so without a hiccup. And we have the various government bailout programs to thank for that. Without the government sponsored ability to earn their way out of this mess, that $700 million could've been a much bigger deal.

The one hope regarding commercial real estate is that the problem is pretty well known. And so far, it's not moving the stock market.

Bloomberg threw out some big numbers for regional commercial real estate debt that was due in June. $463 million worth of office loans in Houston, $986 million in industrial mortgages in Portland, Oregon, $96 million in retail property in Orlando.

Was this debt paid? Was it refinanced? Is it in default? We don't yet know. And we won't know for up to 90 days, which is a typical grace period. It will be a while before we know whether these loans will become losses.

Beyond Subprime in the Mortgage Market Meltdown

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During the housing mania, it seemed that the majority of the United States suffered from a mass delusion. They believed their properties would always go up in price, but their mortgage payments wouldn't follow suit.

We have mountains of debt to work through yet. The last bubble was one for the ages. We've all heard stories of one kind or another…

There was the glass cutter who earned $5,000 per month, pretax. WaMu gave him a $615,000 home loan with payments of $3,600 per month.

There was a house – a shack, really – that appraised for $132,000 and got a mortgage of $103,000. The owner hadn't worked in 13 years. Upon foreclosure, a neighbor bought the house and paid $18,000 just to tear the thing down.

And the most eye-popping of all: A house in Fort Myers that sold for $399,600 on Dec. 29, 2005 – only to sell for $589,900 on Dec. 30, 2005.

America, it seems, just went crazy – borrowers, lenders, nearly everybody. These anecdotes and others are told in a new book titled More Mortgage Meltdown by money managers Whitney Tilson and Glenn Tongue.

But what caused the mania and how we got there is less to the point than what happens from here.

“If the problems in the mortgage market were limited to subprime loans, then the carnage would be mostly behind us,” the authors note. Subprime loans were the riskiest mortgage loans. Prime loans were where the borrower made a substantial down payment and had good credit history. Subprime loans, by contrast, were to borrowers of poor credit quality and spotty job histories.

The bigger problem is that the mortgage bubble infected a number of areas beyond just subprime. The subprime crisis was the first to drop, like a marathon dancer that falls to the floor exhausted. But there are still other dancers on the floor ready to topple over too.

Take a look at this next chart, which has gained some currency in the worried circles of financial people. It's worth a bit of study. It shows you the other dancers on the floor.

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Why Real Estate is Still a Good Investment

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Now that the housing bubble has crashed, a growing number of academics, journalists, and financial gurus are trying to reassess the value of real estate as a long-term investment class.

There is a growing — and much needed — consensus that much of the conventional wisdom about real estate as a “great investment” is over-hyped and oversold by the National Association of Realtors who also happen to be a powerful lobbying group, dictating our national housing policy.

The Wall Street Journal's Cheapskate columnist looks at housing and reaches a good conclusion (subscription required), explaining that the real financial return of homeownership comes from not having to pay rent: “That's why you should buy as much home as you need — but no more. A bigger home than you need isn't an investment — it's an extravagance, the equivalent of renting a bigger apartment than you need. You may choose to do so, but that doesn't make it a smart move financially.”

Unfortunately though, Cheapskate also makes a key math error in calculating the return on his over the years: “When I constructed a very basic cash-flow model for our home-buying history-selling price minus purchase price, renovations and repairs — it showed a roughly 3.5% annualized return on investment, from 1991 through the summer of last year.”

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Investing in a Real Estate Attorney

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When looking to invest in real estate everyone is looking for a good deal. Whether you are looking for land to purchase and raise a family or looking to flip real estate and make a profit, you will want an attorney that understands all the ins and outs of real estate. The last thing you want is to put in time and effort believing you are getting a great deal just to find out you have been deceived.

The greatest benefit in hiring a real estate attorney is having them review everything before you sign on the dotted line. They are trained professionals who read complicated contracts every day. The terminology may be confusing to you and I, but having the attorney there going over every line of the contract can save you from signing a document you may regret.

In choosing a real estate attorney there are three factors that I believe are most imperative:

First, make sure the attorney is experienced and has proper credentials. If the lawyer has no experience they may not know exactly what wording needs to be in the contract. Yes, they have had more schooling than you or I, but they still lack practical application.

Second, make sure the attorney has a good attitude. If they appear as if they do not want to be working with you, you probably do not want to be working with them. People who do not enjoy their job are less likely to perform at a high rate than those who do enjoy their job.

Finally, be sure to find a real estate attorney that has a set fee. Costs can quickly rise when using an attorney. Be sure to clearly understand the attorney’s fee schedule before hiring them.

Remember, when investing in real estate for whatever the reason; also invest wisely in a real estate attorney.

False Housing Bottom

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Everyone is awaiting the miracle signal of a housing bottom. False media-hyped-market-predictions are certain to play an important role in each of our lives. Listed below are a few of the recent indicators that present opportunities for newscasters to call a market improvement or decline.

  1. May annualized sales pace of home resales expected by NAR are 4.8 million, down 33% from our 2005 peak.
  2. Annualized new home sales expected for 2009 are 360,000, down 72% from our 2005 peak.
  3. Depending on your location, average mean home prices are down by 5% to 38% from the 2005/2006 peaks. May 2008 to May 2009 has the worst statistic with a decline of 14.9% on average.
  4. Commerce Department reported a sales drop of 0.6 percent in new home sales in May.
  5. Sales of existing home sales rose by 2.4 % from April to May 2009. This represents the third monthly increase this year.
  6. The number of unsold homes inventory fell 3.5% in May. This means there is a 9.6 month supply of property at the current sales pace. Normal market is 6 months or fewer, however the 3.5% improvement shows signs of market turnaround.
  7. The worst hit markets are showing inventory improvements. For instance, California has market supply of inventory for average priced homes at a 6 month level. These levels signify a market bottom.

Enough of statistics, the numbers confuse the best economists, let alone you. The bottom line is that real estate has market cycles. What goes up, has its time to go down, and then to stabilize. For those of you who enjoy analogies, we are in the 9th inning of this market downturn. Our next game is market stabilization (usually a 3 year time period). This means prices are somewhat flat while demand and supply equalize.

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Norada Real Estate Investments 30251 Golden Lantern, Suite E-261 Laguna Niguel, CA 92677

(949) 218-6668
(800) 611-3060
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