Market Update...

Recently we had to postpone our tour to Antioch as the inventory is just not available. This time last year for that area there was 1200 SFH (single famiy homes) available, now it is under 300! Remember only a small portion of those fit the criteria for investors. So the big question is have we hit the bottom? Let's look at that - the foreclosure moratoriums have impacted inventory, even though it has been lifted there is a lagging effect which we are seeing now. Additionally, there are so many short sales on the market - it seems the banks are holding onto those - over the next year of two we will see those released slowly into the market increasing REO (bank owned properties) inventories, and opportunities for investors. Banks appear to be very strategic with not releasing too many REO's thereby helping prices not to tank completely. Antioch has seen great declines over the last couple of years, and it is further along in the cycle, than San Jose and the Bay area.  

If you are buying - buy based on the numbers - there is no guarantee of any appreciation for the next couple of years at a minimum - so now is a great opportunity to buy for cash-flow. We are seeing prices in some areas as low as they were in the late 1990's. Real estate is not liquid like the stock market, (and you know what can happen there), but if you buy right, you will do well over the long haul. Don't over-leverage, which is hard to do anyway right now as banks are not looking kindly on investors. We were told recently that investors could get up to ten loans, with certain conditions. However, this has not been our experience. It is a good time to buy if you can cash-flow - this is CA after-all and people want to live here and that will not change. When CA prices match prices in other states we will see an increase in migration to CA. That is another reason to buy real estate locally. Just make sure the numbers make sense...

Robert Campbell Presentation at the SJREI

I had lots of feedback on the Robert Campbell's predictions on how the market is expected to continue to deteriorate 10 -15%, and that now is not a good time to buy. Robert is a number cruncher and definitely on the more conservative side. I agree that the market is likey to decline more, but it is contingent on what will happen with REO inventories. I believe there are some sound investments in this current market place also. I like Robert's statistical analysis where he says everything reverts back to the standard deviation of the mean.

The thing to remember is that Robert has one opinion. We strive at the SJREI is to provide a myriad of opinions for you as investors, so you become educated and make your own decisions. If interest rates move up 2-3 points in the next couple of years, even if prices continue to go down, the savings will evaporate with the increase in interest rates.

Affordability has never in the history of CA been this HIGH and if you currently rent, and you can live in a house for less than your rent - with low intereste rates, and the $8000 incentive from the government, you will do fine. Further, there is a lot to be said for dollar cost averaging into the market. If everyone waits until the bottom has been advertised, then it will be too late to get a couple of houses and benefit from this cycle.

We have some great speakers scheduled for the next several months including the Chief Economist for Fannie May, Doug Douncan, and of course market timer and investor Bruce Norris. Who knows what they will say - at least you will get several perspectives. At the Mid-Peninsula meeting next week, we are hosting our own Reggie Lal who will present his insights on the Sacramento market - below I included an article from the Sacramento Bee that Reggie featured prominently in. Don;t miss this meeting - Reggie purchased over 50 homes last year.

Remember one person's opinion should not dictate your investing strategy - what this is about is becoming your own best advocate. Having said that - don't aim for perfection - buy based on the numbers; if you get a solid cash-on-cash return, and the replacement value is twice the cost - trust me you will be fine. Oh, and one last thing, don't over-leverage - that way you have lots of flexibility if rents deteriorate. I am very happy with the houses that we have purchased, and will continue to buy houses that make sense to add to our portfolio. That is it for today - make it a great week!

Some houses in Sacramento area now cost less than $25,000, sacbee.com

A New Plan to Modify 2nd Mortgages

This explains very well what is going on with second mortgages and should be helpful to those who may need some assistant with over-encumbered property. Here is the link, and the article in its entirety.

http://www.nytimes.com/2009/04/29/business/economy/29housing.html?_r=1

Published New York Times April 28, 2009

By Edmund L. Andrews

WASHINGTON — The Obama administration sought to expand its $50 billion plan to reduce home foreclosures, announcing a new program on Tuesday to help troubled homeowners modify second mortgages or piggyback loans.

Under the new plan, the Treasury Department will offer cash incentives and subsidies to lenders who agree to substantially reduce the monthly payments on second mortgages or forgive those loans entirely.

The goal of the plan is to plug a hole in the administration’s original program, which offered subsidies to lenders who agreed to modify the primary or first mortgages of homeowners who had fallen delinquent or were in danger of doing so.

But millions of homebuyers took out second mortgages to buy houses with little or no down payment or to finance home improvements and other purchases. Those second-lien mortgages have to be renegotiated separately, a step that often complicates efforts to modify the primary loans.

Analysts predict that at least 4 million homeowners will face foreclosure proceedings this year, up from about 2.2 million in 2008. Administration officials said about half of those people had second mortgages.

Under the new plan, which will be financed out of the same $50 billion set aside in March from the Troubled Asset Relief Program for homeowner bailouts, mortgage lenders that sign up for the program will agree to an automatic formula for sharply reducing payments on the second mortgage for any customers who have modified their first mortgage.

Under the original program, the Treasury offers cash incentives to lenders to reduce a borrower’s monthly payments to 38 percent of monthly income. The Treasury then shares half the cost of further reducing the payments to as low as 31 percent of the borrower’s monthly income.

Under the new program, which officials said would not get under way for at least several weeks, participating mortgage lenders would agree in advance to automatically reduce the interest rates and possibly the outstanding loan amounts for a second mortgage as soon as the first mortgage had been modified.

Lenders would be required to lower the interest rate to just 1 percent for any second mortgage in which the borrower was repaying principal as well as interest. On interest-only loans, the lender would have to reduce the rate to 2 percent. If the lender on the first mortgage agreed to forgive some of the principal loan amount, the second-tier lender would have to forgive the same share of its loan as well.

To induce mortgage lenders to participate, the Treasury is offering lenders a $500 cash incentive for each second loan they modify and additional payments of $250 a year for three years if the borrower stays current. The Treasury will also share the lenders’ cost of reducing the monthly payments.

It remains unclear whether mortgage companies will be attracted to the new offer. The second-tier lenders would be making much deeper concessions to borrowers than the first-tier lenders.

But holders of second mortgages are already junior to holders of first mortgages. In foreclosures and distressed sales of homes that have dropped in value, many holders of second mortgages recoup little or none of their money.

A version of this article appeared in print on April 29, 2009, on page B7 of the New York edition.