Norada Real Estate Investments

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.

[Read more…]

Foreclosures and Bank Profits

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A lot has gone right for the banks lately. Changes to accounting rules have allowed them enough breathing room to operate. Mortgage loan modifications have brought in fees. And trading activities have even helped some banks to boost profits.

Still, I believe there's another banking shoe to drop.

Foreclosure sales are the majority of home sales these days. And when a bank sells a foreclosed home, it is a realized loss. That's as opposed to a non-performing loan or a foreclosed home that has yet to be sold, which can be counted as an asset.

Further exacerbating this is that banks are not realizing as much profit on the sales of foreclosed homes as they're all flooding the market with them and thus driving down prices.

[Read more…]

Three NEW FICO Credit Scores Hit the Market

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The Fair Isaac Company have announced that they will be releasing three new credit scores based on their new FICO 08 model.

1. The FICO Mortgage Score
The FICO Mortgage Industry Score is designed to help mortgage lenders improve credit decisions for both current and future homeowners. Introduced by FICO and Equifax, the score delivers significantly greater assessment of mortgage repayment risk — up to 25% or more for key population segments, compared to the base BEACON score. The score aids servicers in earlier identification of borrowers at risk, mitigating the incidence and high cost of foreclosure.

2. The FICO Auto Score
FICO have also introduced another industry-specific credit score for the auto industry. According to Tom Quinn, vice-president of scoring at FICO, the new scoring model "will identify 5 to 15 percent more potential delinquencies… For the overwhelming majority of consumers, the auto industry score will be relatively close to the [generalized] FICO score," says Quinn. "There is a percentage of the population that will be different. And that's why lenders have opted to use the other [auto industry] score."

TransUnion has already made this score available immediately to lenders, while Experian and Equifax are planning to follow suit later in the summer.

3. The FICO Bankcard Score
The third scoring model is specifically for the credit card industry, officially named the FICO Bankcard Industry Option. This does the same kind of things are the Mortgage and Auto industry versions, by taking your credit file and first scoring it by the "broad-based" risk scorecard system, and then by one of two industry-specific overlay scorecards — one for files with derogatory information on any type of account, one for files without.  This overlay adjusts the credit bureau scores up or down. The resulting score is scaled to match the same "good versus bad" odds as the broad-based risk scores.

These three options are generally greeted with positive comments from consumer experts. The tweaking of the current "classic" FICO score can only help lenders make more informed decisions when underwriting loans.

Going Broke with Real Estate Education

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You've heard it all before: “YOU can become rich with real estate!” “Live the life you want with real estate!” “Come to my seminar on how to make money from real estate!”

It seems that when you're interested in real estate investing, you find yourself inundated by large font titles with glaring colors promising you the sun, moon and stars if you take their seminar (a bargain at $2,999), or buy their inspirational CDs (a deal at $199), or purchase their motivational DVD and book combo (practically giving them away for only $99).

When the eager investor signs up, the “guru” delivers speeches and media that are long on fantasy and short on reality. Many of these people prey on greed, pure and simple. They capture the attention of wanna-be investors who want to believe that the path to riches is easy. In reality real estate investing is paved with long, hard work — at least in the beginning.

It's certainly true that real estate investing can improve your finances and diversify your portfolio. It is also true that there are many people who are quietly building their wealth as a result of careful investing in real estate. The fact is, most of these people worked hard, gave up many luxuries and invested wisely instead of falling for claims of easy money.

What the “gurus” will do is emphasize the life you “could” have and gloss over the work real estate investing takes. They describe themselves with as many adjectives as possible instead of actually giving you verifiable information as to their competence. Often these gurus do not have first-hand knowledge of the different methods of investing. Therefore the challenges and problems common to investing are glossed over because they simply do not have the answers. They don't make money from your success. They make money when you buy their product.

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Foreclosures Rise 18%

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The epidemic of foreclosures is rising, according to newly released figures from RealtyTrac, despite a slight slowdown in activity during the month of May. Year over year foreclosures rose 18%.

Foreclosure filings, including default notices, scheduled auctions and bank repossessions were reported on 321,480 properties during the month, a decrease of 6% from April. The drop apparently developed as a result of moratoriums on foreclosures by the nation's largest banks and mortgage companies.

“While defaults and scheduled foreclosure auctions were both down from the previous month, bank repossessions, or REOs were up 2% thanks largely to substantial increases in several states, including Michigan, Arizona, Washington, Nevada, Oregon and New York,” said James Saccacio, chief executive officer of RealtyTrac. “We expect REO activity to spike in the coming months as foreclosure delays and moratoriums implemented by various state laws come to an end.”

Ten states represent 77% of foreclosure filings, according to the report. Foreclosures are forecast to rise through the remainder of the year by Housing Predictor as a result of the financial crisis and the tight money supply. Nevada continued to document the nation's highest foreclosure rate, with one in every 64 housing units receiving a foreclosure filing during the month.

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Can Government Solve the Foreclosure Problem?

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Foreclosures are up nationwide, and will continue to rise as prices continue to go down in many markets.  For some, the problem is painful.  Ask the guy down the block from you whose house is in foreclosure.

Some pundits think the rising foreclosures will bankrupt our economy, causing pain for people who lose their business or job as a ripple effect of all these foreclosures.  Others think that the rise in foreclosures is a healthy adjustment to the end of a long real estate boom, and is nature's way of taking care of a free-market economic cycle.

Who's right?  Time will tell, but it's alarming to see politicians trying to fix this problem.  Here are some of their solutions:

Give People Money

Tax the rich, give to the poor.  The federal government now wants to fund programs to help people stay in their homes.

A new bill in the Senate proposes giving money to people who can't pay their loans.  We taxpayers are confused.  If these people are in trouble because they never should have been given such a loan, why should taxpayer money be used to keep them in their homes that they could not otherwise afford?

Maybe someone in Washington has the answer to that question?

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Grow Your Real Estate Business With Independent Contractors

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Seven Reasons You Want to Use Independent Contractors To Grow Your Business

There are dozens, maybe hundreds, of strategies that we've used successfully over the years to save our clients taxes. One such strategy is to use Independent Contractors to build your business. I'm going to cut right to chase here and just jump into this.

Reason #1: It's easier to ramp up your business

You can contract with Independent Contractors (ICs) for short term, month-to-month work or just by project. You don't have to worry about training them or providing tools for them to work with.

There is an assumption that they can hit the ground running. If they can't, the worst case is you've tried it out for only 30 days. You didn't have to invest time in training them and providing salary & benefits during this time. They either can perform, or not. If they don't, they're gone.

Reason #2: It's easier to change the business model if you need to change quickly

If your real estate investing business goes down, it's a lot easier to stop using an IC than it is letting an employee go. Besides the emotional issues of letting go an employee who depends on you completely for their income, there are also legal and benefit issues. You might be forced to cover the employees under the new COBRA laws. Your unemployment rates will go up. [Read more…]

Existing Homes Sales Rise, While Mortgage Applications Fall

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According to the National Association of Realtors, the number of sales of previously owned homes in the U.S. rose by 2.9% in April to an annualized pace of 4.68 million. The gain, the second in three months, was spurred by foreclosure auctions and cheaper prices which attracted bargain hunters. Distressed properties accounted for 45% of all existing home sales and the median price of a home fell 15% from a year earlier. The number of houses on the market climbed 8.8% to 3.97 million in April, and at the current rate of sales, it would take 10.2 months to sell all those homes, Bloomberg reports.

At the same time, the Mortgage Bankers Association's index of mortgage applications decreased 14.2% in the week ended May 22. The share of applicants seeking to refinance existing loans fell to 69.3%, from 73.6% in the prior week, as the average rate on a 30-year fixed-rate loan rose by 12 basis points (bps) to 4.81%, the highest level in more than two months. The average rate on 15-year fixed-rate and one-year adjustable mortgages rose by one basis point to 4.44% and 17 bps to 6.55%, respectively, Bloomberg reports.

How to Keep a Positive Perspective in a Negative Market

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I am sure you've heard the expression, “Attitude is everything.”  This is very true. Right now, it's simply your attitude and mentality that will give you the edge over others who are trying to invest in real estate in this highly volatile market.

You've undoubtedly heard the importance of thinking positive and having the right attitude.  Most people are intelligent enough to know that this statement is true.  Some people reading this will argue that a positive attitude doesn't always work.  Well, maybe not, but I know one thing for sure – negative thinking and a negative attitude NEVER works!  So your only choice and your only chance for success in this market are to pick the positive things in life and maintain a positive attitude at all times.

I once read a fortune cookie that said, “An optimist is someone who tells you to cheer up when things are going his way”.  I know that if you are reading this article, times may be difficult and you need serious answers to your burning questions such as, “How do I profit in a slow market?”  There are many answers to this question, but first I need to impart to you some relative perspective.

A History Lesson on Real Estate Cycles

About every ten to twelve years, as an average, real estate values tend to double in most major metropolitan areas.  For example, in the 1920's, the original colonial homes sold for just under $2,500 in Long Island, New York.  Since then, real estate prices have doubled almost eight times over the last 80 years.  That averages out to a 100% increase approximately every ten years.  An interesting note to this is that about every ten to twelve years, real estate values must correct before they enter their next “doubling cycle”.    [Read more…]

Greenspan Chimes In on Bank Stress Tests

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One of the architect's of the financial crisis issued a warning that banks still have unfunded liabilities that were not properly accounted for by the Treasury Department's “stress tests.”

Yesterday evening, Alan Greenspan also said that “…until the price of homes flattens out we still have a very serious potential mortgage crisis.”

Lest we forget, it was the maestro's absurd interest rate policy earlier this decade that helped fuel the housing market bubble in the first place. And his comment that systemic risk was balanced across the globe through the use of derivatives (like credit default swaps) gave tacit approval to practices that have proved to be absolutely disastrous.

Personally, if I were Greenspan, I'd keep my mouth shut and ride off into the sunset. I wouldn't want to call attention to just how badly I misjudged the economy at the end of my term. But maybe that's just me…

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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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