Mid-Day Market News & Commentary by Chris McLaughlin, October 30, 2008
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The stock market was higher today as global investors cheered the Federal Reserves' 50 basis point rate cut yesterday, sending the stock markets of many foreign countries higher in overnight trading.
Exxon Mobil posted the largest quarter profit ever on record: $14.83 billion. Net income climbed 58% to $2.86 per share. "Our integrated business portfolio, strong operational performance and financial discipline continued to allow us to capture the benefits of the commodity price environment," Exxon Mobil investor relations head David Rosenthal said during a call with analysts. "Despite recent volatility in the financial, commodity and credit markets, the fundamentals of Exxon Mobil's business remain strong," he said.
American Express announced today that it would lay off 7,000 employees, or approximately 10% of its work force, in order to save an approximate $1.8 billion in 2009. Kenneth I. Chenault, Chairman and CEO, said that "The re-engineering program we announced today will help us to manage through one of the most challenging economic environments we've seen in many decades."
Now on to our real estate investor section...
Affordable Housing Remains in High Demand
Here are a few facts from the US government... nearly 40 percent of homes were either 2nd homes, vacation homes or investment properties. That may not sound too bad until you realize over 65% of people already own their own home. Think about this a minute... if 2 out of every 3 people already own their own home, and then a LOT of those people own more than one home (and many own more than just one additional home) then it stands to reason there are a LOT of homes to choose from when it comes to finding short sale offers.
So, what about the so called housing shortage you hear the government talking about? Well, listen closely because it's always said very specifically...it's a lack of AFFORDABLE HOUSING! By now any short sale investor should be asking what qualifies as affordable housing? It's a good question that is likely to pave the road to riches for those that know how to ask the right questions and get the right answers.
First, let's discuss what affordable housing is NOT...
1. Affordable housing isn't the lowest selling price. Let's face it, a house in extremely poor condition can often cost more to repair and maintain than it saves in mortgage payments each month.
2. Affordable housing isn't the oldest home in the area. High heating, water and other costs associated with older homes can easily cost more in the long run.
3. Affordable housing isn't necessarily a mobile home. Rapid depreciation and lower appreciations combined with higher than average insurance premiums can erode long term profits and cost more.
So, now that we know what affordable housing is not, let's define what it is...
1. Affordable housing is safe, up to date, energy efficient housing that is easy to maintain and has low utility and insurance costs.
2. Affordable housing is located in a convenient area near shopping, schools and employment.
3. Affordable housing is in keeping with 25 to 35 percent of the average household income for working class laborers, renters and potential retirees.
Short sale investors don't need to search the oldest, most run down or high maintenance properties to find great - high demand properties. In fact, the most affordable housing options are often newer homes in convenient locations that allow an easy commute, future appreciation and low maintenance costs for buyers.
To find the right price for your area do the following:
1. Locate the average household income for the zip code.
2. Multiple by 3
3. Search for newer homes in convenient areas within 10 percent of the above amount.
More on Friday...
See you at the top!
Excuses Be Gone
Friday, October 31, 2008
Wednesday, October 22, 2008
How to attack a SHORT SALE and get the price you want
The stock market was lower in early afternoon trading as investors feared more bad news would come out as corporations report their earnings. At 1:35 PM EDT, the Dow Jones Industrial Average was down 410.83 to 8662.82, the NASDAQ was down 52.25 to 1,644.42 and the S&P 500 was down 44.93 to 910.12.
Wachovia reported dismal earnings this morning - a huge loss of $24 billion. Yes, that's billion, not million! Part of that loss was an $18.7 billion "goodwill impairment charge," a fancy way of writing down the company's value to prepare for the upcoming sale to Wells Fargo.
Storm related losses negatively impacted the earnings of Travelers Cos., the St. Paul, Minn. based commercial and personal property insurance company. Earnings dropped to $214 million versus $1.2 billion in the year ago period. Hurricanes Ike, Gustav, and Dolly cost the insurance company around $682 million.
But in a positive sign, credit markets appeared to be stabilizing today. The interbank rates continued to drop, which means that banks are lending to other banks on better terms. The London Interbank Offered Rate, also known as Libor, fell to 3.54% from 3.83%, demonstrating the credit is in fact easing.
Now on to our real estate investing educational section...
Affordability Measures & Pricing Strategies
In the past we have discussed various valuation methods above and beyond the typical "comp value" so loved and over-used by bankers and brokers throughout the nation. Today we will spend a little time covering alternative affordability measures as a basis by which to make an offer on a short sale property.
Like its cousin the comp value, determinations of affordability have typically centered on a debt-to-income ratio that makes little sense in today's market. It goes something like this...
Person X wants to buy a home and makes $150,000 per year. Their current car payments, credit cards, student loans and other obligations qualify them for a mortgage payment of $3,000 per month based upon a typical ratio of 25-35 percent.
Unfortunately, few people remain in the same job for 30 years like their parents before them and decent jobs are hard to find. The company downsizes and unemployment tops out as a miniscule fraction of their monthly income. Before long, they are behind on their mortgage. Sound familiar? It should because as a short sale investor you have probably heard this story dozens if not hundreds of times.
A common sense alternative measure of affordability is to take the "average" income for a given geographic area and correlate it to the type of earning capacity. For example, if Person X is a white collar worker located in Los Angeles their earning capacity is higher than the average earning capacity of the same job located in Boise Idaho. That does not mean individuals cannot make more money -but rather what they can expect to earn should they experience a job loss and need to replace the income. Communities and the United States government use affordability as a measure for determining whether homes are priced too high for a given area and so should you. It's a strong argument to use when working with bankers and brokers who may feel your bid offer is too low. Simply use the following steps:
1. Determine the average household income for the zip code.
2. Determine the cost of a home that would equal 25-35 percent of the average household debt at the prevailing interest rate - don't forget taxes and insurance.
3. Deduct the cost of major repairs or other required work.
4. Drop the price by 10 percent (or more) to account for reduction of anticipated fees the bank would normally incur to hold the home.
Another affordability measure that can be used to support a low bid price is rental rates. Many areas have low rental rates below the actual cost of PITI should someone opt to buy the same home. The Federal government actually uses rental rates to calculate CPI so it should come as no surprise it tends to derive a lower value.
1. Determine the average rental rates for similar homes in the area- not asking rentals but actual rentals without a vacancy.
2. Compare against the PITI, vacancy rates, repairs, HOA fees and other costs. If rental rates are lower than the cost of ownership, use the rental rate as a basis to determine the selling price.
More on Thursday!
See you at the top!
Wachovia reported dismal earnings this morning - a huge loss of $24 billion. Yes, that's billion, not million! Part of that loss was an $18.7 billion "goodwill impairment charge," a fancy way of writing down the company's value to prepare for the upcoming sale to Wells Fargo.
Storm related losses negatively impacted the earnings of Travelers Cos., the St. Paul, Minn. based commercial and personal property insurance company. Earnings dropped to $214 million versus $1.2 billion in the year ago period. Hurricanes Ike, Gustav, and Dolly cost the insurance company around $682 million.
But in a positive sign, credit markets appeared to be stabilizing today. The interbank rates continued to drop, which means that banks are lending to other banks on better terms. The London Interbank Offered Rate, also known as Libor, fell to 3.54% from 3.83%, demonstrating the credit is in fact easing.
Now on to our real estate investing educational section...
Affordability Measures & Pricing Strategies
In the past we have discussed various valuation methods above and beyond the typical "comp value" so loved and over-used by bankers and brokers throughout the nation. Today we will spend a little time covering alternative affordability measures as a basis by which to make an offer on a short sale property.
Like its cousin the comp value, determinations of affordability have typically centered on a debt-to-income ratio that makes little sense in today's market. It goes something like this...
Person X wants to buy a home and makes $150,000 per year. Their current car payments, credit cards, student loans and other obligations qualify them for a mortgage payment of $3,000 per month based upon a typical ratio of 25-35 percent.
Unfortunately, few people remain in the same job for 30 years like their parents before them and decent jobs are hard to find. The company downsizes and unemployment tops out as a miniscule fraction of their monthly income. Before long, they are behind on their mortgage. Sound familiar? It should because as a short sale investor you have probably heard this story dozens if not hundreds of times.
A common sense alternative measure of affordability is to take the "average" income for a given geographic area and correlate it to the type of earning capacity. For example, if Person X is a white collar worker located in Los Angeles their earning capacity is higher than the average earning capacity of the same job located in Boise Idaho. That does not mean individuals cannot make more money -but rather what they can expect to earn should they experience a job loss and need to replace the income. Communities and the United States government use affordability as a measure for determining whether homes are priced too high for a given area and so should you. It's a strong argument to use when working with bankers and brokers who may feel your bid offer is too low. Simply use the following steps:
1. Determine the average household income for the zip code.
2. Determine the cost of a home that would equal 25-35 percent of the average household debt at the prevailing interest rate - don't forget taxes and insurance.
3. Deduct the cost of major repairs or other required work.
4. Drop the price by 10 percent (or more) to account for reduction of anticipated fees the bank would normally incur to hold the home.
Another affordability measure that can be used to support a low bid price is rental rates. Many areas have low rental rates below the actual cost of PITI should someone opt to buy the same home. The Federal government actually uses rental rates to calculate CPI so it should come as no surprise it tends to derive a lower value.
1. Determine the average rental rates for similar homes in the area- not asking rentals but actual rentals without a vacancy.
2. Compare against the PITI, vacancy rates, repairs, HOA fees and other costs. If rental rates are lower than the cost of ownership, use the rental rate as a basis to determine the selling price.
More on Thursday!
See you at the top!
Wednesday, October 15, 2008
Why homes are a great investment in this rocky economic times
At midday investors continued to hold their breath, as the Dow Jones Industrial Average was down 317.24 to 8993.75. A government report released this morning showed that retail sales had dropped by 1.2 percent, which was twice as much as most analysts had been expecting. The report does not bode well for the upcoming holiday season, where many Americans are seen as tightening their belts.
JP Morgan Chase's profit dropped 84 percent to $527 million from the $3.4 billion in the year ago third quarter. "It's an unpleasant situation, and I don't want to underplay it. It's unpleasant for the country," said CEO Jamie Dimon. "I hope that the financial crisis, with the powerful moves made by governments around the world, will start to ease."
In other banking news, Wells Fargo fared much better than JP Morgan Chase. Its third quarter profit fell 25% to 1.64 billion from $2.17 billion in the year ago period. The company was successful in breaking up the proposed Citigroup-Wachovia merger and now Wells plans on merging with Wachovia. Citigroup has indicated that it will not stop the deal but does plan on extracting its pound of flesh in court for damages.
Now on to our real estate investing news arena...
Recession, Depression, Inflation, Deflation...What's it all About and How Does it Impact Real Estate?
Ronald Regan once stated "A recession is when a neighbor loses his job. A depression is when you lose yours." If we were to apply the same logic to the real estate market, then the nation has been in the midst of a recession for some time as people have been steadily losing (or walking away from) their homes. In fact, there is a great deal of recent debate on whether the nation is already in a recession and heading for a depression or whether the easy money economics of the Federal Reserve will prevent a depression at the risk of creating further inflation...or perhaps world-wide deleveraging will actually result in massive deflation instead. Let's take a few moments to examine real estate in each of the above scenarios'...
Recession. Unlike employment figures (or stocks), real estate doesn't act the same as jobs during a recession. When a worker loses a job the position may be completely eliminated (or the stock completely wiped out). When someone loses a house it reverts back to the prior owner, heirs, bank or local government. Short sale buyers realize the inherent value in the home or property and act like a middle man to obtain a percentage of that value for themselves in the form of resale, rentals or retained equity.
Depression. During a depression the entire economy may slow down so much that little to nothing is being produced. Job loss often runs rampant as prices drop below the cost of production. Unemployment drives labor costs down - creating a downward spiral as unemployed workers are unable to afford more than the basic necessities. Again, jobs and stocks alike may all but disappear during a depression but a house remains standing. Housing is a basic necessity and tends to take top priority even during the most critical economic crisis.
Inflation. Inflation tends to drive the price of all commodities and assets higher as the replacement cost rises; real estate is no exception. With the Federal Reserve practically printing money out of thin air, the ability to own or control physical assets with a fixed rate of interest is often the best way to preserve wealth during periods of escalating inflation. On the other hand, the increased cost of production and labor often leads to more work for less pay among employees.
Deflation. Falling assets prices and world-wide deleveraging tend to drive down the price of commodities and assets including real estate. However, short sale buyers are often purchasing property at or near the fully depreciated value. Even those who experience further price drops still have other options available to bridge the gap until the market recovers; rentals, owner financing and factoring may each help raise needed capital or reduce individual debt repayments until the property has regained full value.
More on Thursday...
See you at the top!
P.S.:
Join us for our fr'ee Webinar this coming Thursday at 9 PM EST/ 6 PM PST that will reveal the Top 12 Strategies on Getting Rich with Short Sales:
https://www2.gotomeeting.com/register/945219328
P.P.S.: If you really want to get started building your wealth, now that recognize that your 401(k) isn't going to do it, what are you waiting for? Take action today! A journey of a thousand miles begins with a single step. Take that step right now by clicking here:
http://www.shortsalesriches.com/welcome.html
Loss Mitigation Training Institute LLC
JP Morgan Chase's profit dropped 84 percent to $527 million from the $3.4 billion in the year ago third quarter. "It's an unpleasant situation, and I don't want to underplay it. It's unpleasant for the country," said CEO Jamie Dimon. "I hope that the financial crisis, with the powerful moves made by governments around the world, will start to ease."
In other banking news, Wells Fargo fared much better than JP Morgan Chase. Its third quarter profit fell 25% to 1.64 billion from $2.17 billion in the year ago period. The company was successful in breaking up the proposed Citigroup-Wachovia merger and now Wells plans on merging with Wachovia. Citigroup has indicated that it will not stop the deal but does plan on extracting its pound of flesh in court for damages.
Now on to our real estate investing news arena...
Recession, Depression, Inflation, Deflation...What's it all About and How Does it Impact Real Estate?
Ronald Regan once stated "A recession is when a neighbor loses his job. A depression is when you lose yours." If we were to apply the same logic to the real estate market, then the nation has been in the midst of a recession for some time as people have been steadily losing (or walking away from) their homes. In fact, there is a great deal of recent debate on whether the nation is already in a recession and heading for a depression or whether the easy money economics of the Federal Reserve will prevent a depression at the risk of creating further inflation...or perhaps world-wide deleveraging will actually result in massive deflation instead. Let's take a few moments to examine real estate in each of the above scenarios'...
Recession. Unlike employment figures (or stocks), real estate doesn't act the same as jobs during a recession. When a worker loses a job the position may be completely eliminated (or the stock completely wiped out). When someone loses a house it reverts back to the prior owner, heirs, bank or local government. Short sale buyers realize the inherent value in the home or property and act like a middle man to obtain a percentage of that value for themselves in the form of resale, rentals or retained equity.
Depression. During a depression the entire economy may slow down so much that little to nothing is being produced. Job loss often runs rampant as prices drop below the cost of production. Unemployment drives labor costs down - creating a downward spiral as unemployed workers are unable to afford more than the basic necessities. Again, jobs and stocks alike may all but disappear during a depression but a house remains standing. Housing is a basic necessity and tends to take top priority even during the most critical economic crisis.
Inflation. Inflation tends to drive the price of all commodities and assets higher as the replacement cost rises; real estate is no exception. With the Federal Reserve practically printing money out of thin air, the ability to own or control physical assets with a fixed rate of interest is often the best way to preserve wealth during periods of escalating inflation. On the other hand, the increased cost of production and labor often leads to more work for less pay among employees.
Deflation. Falling assets prices and world-wide deleveraging tend to drive down the price of commodities and assets including real estate. However, short sale buyers are often purchasing property at or near the fully depreciated value. Even those who experience further price drops still have other options available to bridge the gap until the market recovers; rentals, owner financing and factoring may each help raise needed capital or reduce individual debt repayments until the property has regained full value.
More on Thursday...
See you at the top!
P.S.:
Join us for our fr'ee Webinar this coming Thursday at 9 PM EST/ 6 PM PST that will reveal the Top 12 Strategies on Getting Rich with Short Sales:
https://www2.gotomeeting.com/register/945219328
P.P.S.: If you really want to get started building your wealth, now that recognize that your 401(k) isn't going to do it, what are you waiting for? Take action today! A journey of a thousand miles begins with a single step. Take that step right now by clicking here:
http://www.shortsalesriches.com/welcome.html
Loss Mitigation Training Institute LLC
Tuesday, October 7, 2008
We're back in 1999 now. Read why and why people are turning to hard assets.
We're back to 1999. Remember that year? Bill Clinton was President. All the wealth in the Dow Jones Industrial Average has been wiped out since then. As of 1 PM ET, the Dow had dropped nearly 300 points to the 9600 level. What will happen next? My bet: investors will head back to hard assets like gold...and real estate! Just watch as money begins to flow again as investors bargain shop among the short sales, REOs, and distressed properties available for purchase. And what if lenders reduce rates even more? Read on...
Fed Chairman Ben Bernanke hinted that a rate cut might be in the cards now that oil and commodity prices have eased (because of fears of recession, which would reduce demand). "In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate," Bernanke said. The Fed Chief further stated that economic recovery is likely to be prolonged given the recent turmoil and that the Fed planned to use the "tools at its disposal to improve market functioning and liquidity."
In other real estate related news, Bank of America announced just plain awful earnings yesterday and also slashed its dividend in half to shareholders. Net income slid by 68% to $1.18 billion from the $3.7 billion a year ago. Kenneth Lewis, the CEO and a veteran of the banking industry, summed it up: "These are the most difficult times for financial institutions that I have experienced in my 39 years in banking." Investors believed him, with the stock down over 20% after lunchtime today.
So what bank will go belly up next? Some are wondering whether National City can make it as the stock has taken an absolute beating recently as many believe it could become the next Indy Mac and fell over 25% Monday. Fitch Ratings led the drumbeat against the bank, saying that the Cleveland-based bank "has been battling asset-quality issues in its mortgage and home-equity portfolios for over a year."
Of course one silver lining in this for Realtors and investors is that gas will be a little cheaper when you drive around and look at properties--nationwide gas is just under $3.50/gallon.
Fed Chairman Ben Bernanke hinted that a rate cut might be in the cards now that oil and commodity prices have eased (because of fears of recession, which would reduce demand). "In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate," Bernanke said. The Fed Chief further stated that economic recovery is likely to be prolonged given the recent turmoil and that the Fed planned to use the "tools at its disposal to improve market functioning and liquidity."
In other real estate related news, Bank of America announced just plain awful earnings yesterday and also slashed its dividend in half to shareholders. Net income slid by 68% to $1.18 billion from the $3.7 billion a year ago. Kenneth Lewis, the CEO and a veteran of the banking industry, summed it up: "These are the most difficult times for financial institutions that I have experienced in my 39 years in banking." Investors believed him, with the stock down over 20% after lunchtime today.
So what bank will go belly up next? Some are wondering whether National City can make it as the stock has taken an absolute beating recently as many believe it could become the next Indy Mac and fell over 25% Monday. Fitch Ratings led the drumbeat against the bank, saying that the Cleveland-based bank "has been battling asset-quality issues in its mortgage and home-equity portfolios for over a year."
Of course one silver lining in this for Realtors and investors is that gas will be a little cheaper when you drive around and look at properties--nationwide gas is just under $3.50/gallon.
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