Predictions

Not one to be pessimistic (after all, "optimism" is in the subtitle of my blog), I just have to comment on this article about NAR (the National Association of Realtors). I think their outlook is a bit more than optimistic. For the NAR to say the the market is on the verge of stabilizing, is a desperate attempt to speak it into being. Do they really think that saying it will make everyone believe it? "Oh, the National Association of Realtors raised their predictions for 2008 so we'd better run out and by that house now." I don't think so.

Asking NAR how it feels about the future of real estate is like asking the tobacco companies if smoking causes cancer. Or the pharmaceuticals if their drugs have dangerous side effects. All we get is spin. That's why associations like NAR exist. The leaders of that organization will never admit that agents should be looking for real jobs for a while and that real estate is bound to fall a bit more until things shake out. I don't know why the papers bother to report what NAR has to say. It's almost embarrassing to the professionals who work in the industry. While prices continue to fall and owners continue to run from their homes in droves, NAR is saying that, soon, everything will be fine again.

But, since I'm not one to focus on the negative side of things, I don't want to dwell on this too much. Unlike the naysayers out there, I, too, believe that the market will stabilize and rise again. Not in 2008, though. Probably not 2009 (although, most of the predictions fall on this year). I think it may take longer, only because it's harder for some buyers to obtain financing. So there may be a whole slew of people out there trying to buy some of the inventory, but not being able to because of the state of the lending market. Until new creative financing is developed, we may not see the light of day.

Many people are now scared--shell-shocked, so to speak--because they have either lost their homes or know someone who has. Just as we walked around in a daze after 9/11, this sickening feeling that many are experiencing now will pass. That's not a good thing. I'm sure that many have sworn to now live within their means. To save for a down payment on their next house. To buy something that they can easily afford. To cut up all of their credit cards. The intentions are good and pure. However, as a credit nation, we'll never learn the lessons taught by buying that which we can't afford.

And Realtors fuel this for a big commission check. You inquire with an agent about a $400,000 house and the next thing you know you're looking at those costing $600,000. Do we like the house for $600K better than the one for $400K? Heck, yeah! But why look at something and desire something that you know you can't afford? It's torturous. You just have to have it. And so it goes.

I would be grateful for this time in our nation, if I knew that a lesson will be learned by all. But I know just the opposite. People will waste this valuable experience by allowing history to repeat itself. That's why we can guarantee yet another bubble and another fall in the market. This country is so predictable.

Doom and Gloom Bubble Blogs

I recently found the underbelly of the real estate market downturn. No, it's not fraudulent lenders. As I've said before, I've been reading these doom and gloom bubble blogs. One is even written by a renter! This niche is new to me--really. The sad thing about these blogs is the joy in reporting how bad the market is right now. I guess they've been predicting it for quite some time and feel vindicated that it has come to fruition--which, if they had waited long enough, will always work that way. Real estate is a predictable market. But, sometimes, it's like predicting an earthquake in California. We all know it'll happen, but we don't know when and we're not certain of the amount of damage. Just that there will be damage.

So I have my bubble blogs that I read. They're all very similar. I have to say, though, that these people are very educated in real estate investment and most of the niches in the market, even the renter guy. They can write an intellectual blog about interest rates and stuff that makes my head spin. I wonder if they suffer from analysis paralysis and that's why they don't invest, if any of them do--or did. Maybe I would be a better investor if I knew the names of the CEO's for all the banks and lending institutions. Maybe I should have done a rent analysis for every location in the US when taking into consideration the rate of inflation and deflation. Do you think that I wouldn't have lost so much money in apartments if I did? Probably. Only because I wouldn't have bought anything. I'd rather take an educated (as much as possible) risk and lose, than not take a chance at all.

I am learning quite a bit by reading these blogs, but you'd have to have a die hard interest in all things real estate to get through some of them. And they are so negative. Negative, negative, negative! Ugh. What a life--to sit there in glee of others' misfortune. Oh, and, by the way, they seem to hate investors--just as much as mainstream media, if not more. Bummer. I'm so hurt. NOT! I guess their attitudes make them lots of money because they have ads all over their fancy sites. It's odd because there are ads for real estate and loans. Wait, didn't they just knock buying property, agents, lenders, and everything real estate? Yet they're promoting those things, too. Huh? Anything for a buck, I guess.

I even post comments on these blogs. Sometimes, the writer hits the nail on the head. I don't care if they hate me. I can contribute, too, you know. I can charitably disagree, or I can tell them how much I liked the post.

Here are my favorites, if you're interested:

Southern California Real Estate Bubble Crash Blog (this guy doesn't reveal his real identity)
Dr. Housing Bubble Blog
Housing Doom
The Housing Bubble Blog (this blog is HUGE)
HousingPANIC
(Beware of some of the language in the posts and comments!)

I do worry about their fate when the market recovers, however. Maybe they can use some of their really old posts that warned of the impending crash, and start all over again with their predictions. Some of them act as if real estate will crumble, become worthless and never appreciate again. That no one in their right mind would buy another property--ever. Well, well, well, I guess I do know something they don't (or at least refuse to acknowledge). Unlike these bloggers, I know that it will recover. History tells me that it always has--loan fiasco or no loan fiasco. As long as there are buyers, real estate will have value.

And my personal story is so much more fascinating than the analysis of the economic impact of a 25 basis point cut in the interest rate.

Who's The Idiot This Time?

If you've read some of my earlier posts, where I explain my disappointment (to put it lightly) in our choices of property managers, you'd know that I don't think too highly of them. Frankly, most have no brains or just don't use them.

Our first apartment PM in KY was also the agent who sold us the slum. She was referred to us by another agent, who was trying to sell us a different shanty, as a good manager with lots of experience in big companies. Her professional demeanor was actually a front for her Sybil personality. She was a scary witch and dealing with her, when we were able to find her in the office, which was rare, was one of the least enjoyable episodes of my (and my husband's) life.

Two months before I fired her I received this e-mail out of the blue:

"honsetyly who cares. we did the dealit over who cares anymore, theygot stuck with them let them deal with them. whatever"

I'm not making this up. I wouldn't be capable of making it up. So, with all the sensitivity that I could muster (and those of you who know me know how sensitive I am), I wrote, "What are you talking about?"

Her reply? Forced to think quickly, she explained, "I dont have a clue. Sorry about that." Maybe it was the ole' "someone hacked into my e-mail account and sent my client an unintelligible message." Or maybe she was just drunk.

And so it went, until I released her from her contract five months early (I kept her on-site manager because he was a hard, honest worker). She was a Kentucky train wreck. A head-on collision at the derby. A horrible rotten PM. An idiot!

I currently have a PM for our Texas SFR who does a reasonably good job for us. The checks come like clockwork and I don't get dinged for silly charges too often. We have a tenant in the house whose lease expired in October, or so I thought. Last week, we received a lease extension from the PM until December.

Being the responsible investor, I e-mailed him and asked him what his strategy was to advertise the house and how much he thought the rent should be this time (we've been getting $1,550/month GSI). He never responded. It so annoys me when they do that. PM's seem to dread communicating with owners.

So, yesterday, I e-mailed him a harsher message saying that I didn't receive a response to my first inquiry and I want to know what he intends to do to rent out the place because I need to decide whether or not to retain his management company. I figured that would garner his attention.

Also, I had received the rent check for October, but my husband said that it didn't go into the account for the LLC we have for that property. Uh-oh. I don't know where the check went. Does he expect me to remember all the way back to mid-October? So, I needed to ask my PM if the check had been cashed and to what account.

This was his reply:

"Carol,

I'm not sure where you got the idea that the tenants were not renewing. They have in fact renewed and we have mailed the renewal to you for your signature. the (sic) market did not warrant an increase at this time but we are noticing an increase in demand and that our inventory level is about as low as any of us can remember. That usually translates into gradually increasing of leasing rates.

Let me know if you do not receive the renewal in the next few days and we will send another out. We sent you the original so hopefully you will get that and sign and send it back.

Thanks,"

Huh? I pulled the file and, this time, I looked closely at the expiration date on our copy of the lease extension that we just signed. Gulp! It's December, 2008. Plus, the lease doesn't expire until the end of this month. I don't know why I thought it was in October. Also, he was able to tell me that the check was cashed and gave me the account number that it was deposited into. I apologized profusely because here I was attacking this guy, when he was doing his job by the book. I'm not used to my PM's being on the ball. I'm also thrilled that we have the tenant locked in for another year!

Who do you think felt like the idiot this time around?

Our Secret's Out!

Part of the reason that I'm so optimistic after such a catastrophic financial loss is the hope that our new business brings us. I told you in an earlier post that we were designing a hot new product that the retailers are excited about. We've been marketing and selling it for a few weeks now, so I thought that it was time to let you in on it, too.

First, I want you to guess. What type of merchandise do you think the following pictures are?
No, this is not a cheap bottle of wine at an out-of-way Italian restaurant with tacky table cloth and ratty window coverings.
No, this is not a real champagne bottle. The plastic shrink wrap gives it away.
No, this is not a designer oil can.
No, this is not a fancy light bulb.

Can you guess now? Do you give up yet?




Maybe if you had some perspective on their size.

Here is the hot air balloon next to a standard computer mouse. Yes, these products are small, but there's more to them than meets the eye.

They are actually full-size adult T-shirts! Nice, thick, beefy tees. They're compressed with 50,000 pounds of pressure into virtually any shape. Each shirt has the image on the back and our "Temecula, California" logo on the front left breast. They're our best sellers. Not only do we carry what we have designed, but companies can special order anything they want in a compressed tee. They are a unique novelty (is that redundant?) item. When unwrapped they are completely wrinkled. But, just one wash cycle smooths the fabric and readies the shirt for wear.

This is a patented process and these products are not accessible to just anyone off the street, or even any business owner. We sell them to retailers, wineries, and many other companies. The nicest feature about these particular shirts is that they are easy to store and stack. So the smaller retailers, who have avoided carrying apparel in the past because of the constant mess, refolding, and display cases, are eager to sell these products. We are already expanding to other areas.

I'm glad to be able to share something besides my take on interest rates today.

They're Selling For What?!

My husband and I went out to dinner last night with some friends who are moving to the Washinton, D.C. area. Big bummer for us. But the real estate situation here is a bigger bummer for them.

They live in a very nice area of Temecula called Harveston and paid $635,000 for their house a few years ago. Currently, the development is experiencing a slew of foreclosures. There was one right behind their house that is the same model as theirs (3600 square feet). It was for sale for the better part of a year or longer. There was an auction, but nobody bought it. Then the agent attached a banner to the front of the house that read "$425,000."

Wow! Talk about a fire sale! My friend had e-mailed me last week that the house sold, but she wanted to tell me the price in person so she could see the look on my face. At the restaurant, her husband blurted it out before she had a chance to build the suspense. However, this didn't compromise the shock value at all. The house sold for $395,000. She wasn't disapponted when she saw my expression. She heard that another foreclosed house is going for the low $300's.

Luckily, our friends are real estate investors, so they plan to hold on to their house after they move. They'll be fine, but it would be comforting to have better comparable sales in the area. So, for all you hardy investors out there, come and pick up these super cheap foreclosures to clear them out of the system, so prices can become steady again and then rise. (I know it's not so simple, but it's an optimisitc theory, nonetheless.)

Clarification

Here is a quick excerpt from an excellent post on http://www.doctorhousingbubble.com/. OK, so I'm far from qualifying for the "Bush Plan" (see my post below). It's better that way because I think it's a stinky idea to begin with.

This will only apply to owner occupied properties with at least a 36 month ARM reset period or less. (Mine is a 60 month reset.)

Loans must be originated between 1/1/2005 and 7/31/07. These loans must have reset dates between 1/1/08 and 7/31/10 (Nope, not this one, either.)

The loan must be current (Check)

LTV must be greater than 97 percent (Check)

The borrower must have a FICO score less than 660 (Not in my lifetime!)

The borrower’s FICO score cannot be higher than 10% since the loan's origination date (What does this mean exactly? Maybe "10% higher than at the time of loan origination.")

Each servicer must determine the owner cannot afford higher payments (Would this be the "moral suasion" part mentioned in my previous post?)

Here They Come To Save The Day

I can't let the week end without discussing this Bush deal, where he is asking lenders to work with borrowers to freeze interest rates. What is a Republican president doing by sticking the government into the private responsibility of borrowers? I don't get this. He doesn't have to worry about reelection. Maybe he thinks it will look good for the party during the primaries. I have to stress, yet again, that this is a really bad idea!

My 5-year ARM expires next year. Since when is it the duty of the federal government to pay my mortgage? Will they actually make my payment? No. However, the plan to force note holders to "modify" my loan docs will save me from having a higher payment, and will poorly impact some securities investors. They bought these loans under the provisions by which they were signed. For the government to come in and "save the day" by asking lenders to change the rules of the game midstream will wreak havoc on the investment market. And for those loans that have been chopped up and sold off, who makes the decisions? Not the servicing company who collects the payments.

I should have bought a bigger home with a loan that I could never hope to afford when the fixed period was over, so that I could sit back and let the government swoop in and try to force lenders to keep my payments down to the introductory rate. So, who will this plan help? Definitely not investors--they're excluded. Those rotten speculators must be punished!

The deal is to freeze interest rates for "distressed" borrowers living in the home as a primary residence. But, according to the CNN article, the government has defined homeowners who sound anything but distressed:

"It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months.
It also only covers borrowers with adjustable rate mortgages (ARMs) resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates.

Borrowers who can't afford the loan even at low introductory rates also will be ineligible . . "

Hey, what do you know? I qualify. Only, I'm not in fear of losing my house when my rate adjusts. However, I think that it will be a burden to have a larger mortgage payment--even if it's only $278 more. After all, we lost about $700,000 this year, and our new business is just getting started. Come to think of it, I'm SURE it will be a burden.

I don't believe that the government has a right to "bail" anyone out when it comes to the consumer's choice in buying a home and selecting a mortgage (unless fraud can be proven in the transaction) and I think the economy will suffer for it in the long run. But, if this is a plan to "save" people's homes, who are they really helping?

The best part of the "deal" is that it doesn't appear to have any teeth to it--"moral suasion," as the article calls it. However, it is the precursor to "an opportunity to call on Congress to act more expeditiously on passing mortgage relief legislation." Hopefully, like everything else in Congress, this will be stuck in committee until the market rebounds.