Boomer’s Blog

National Real Estate Investor: Bloated Condo Market Ills set to Worsen
It appears that the days of the seven-figure condo are history. Investors in residential condominiums should sell before an additional new 100,000 units join the massive national inventory later this year, analysts say. The bottom line for investors is the growing glut on the condo market likely will hit the hardest in some of the markets that saw the greatest price gains during the boom. Chicago, for example, is expected to add 16,000 condos this year; New York has 14,600 condos currently under construction and Phoenix has 13,000 condos nearing completion. These units are expected to flood the burgeoning condo marketplace, already plagued with excess inventory, high construction loan delinquency rates, rising construction costs, fewer buyers and falling prices. Even platinum markets such as San Diego, Las Vegas, San Francisco and south Florida are expected to take huge hits on condos because their only interested buyers are likely to be investors waiting for prices to hit rock-bottom. In the past month, condos in downtown Miami have gone to auction with no minimum bid requirements. Many entrepreneurs consider this to be an engraved invitation to invest. But there are as many survivors of the price drops and and painful recovery in the wake of the Resolution Trust Corp. disaster. These folks warn that investors who wait for higher prices on their condo units may be in for a long, strange trip.

CNN: Wall Street Bets on Superman to Help Builders?
This report explores the Superman-like, “Bizarro World” disparity between the losses reported by many major home builders and their earnings on Wall Street. Analysts usually advise a “buy” when earnings are expected to be low, yet many of these stocks have rallied. Are fund managers throwing caution to the wind when they bet on a rebound in this sector? According to analysts at FactSet Research, which tracks institutional investments, several funds at Fidelity, T. Rowe Price, Manning & Napier and State Street have increased their stakes in Lennar, KB Home and other home builders in Q4, 2007. Also, Citadel Investment Group, a Chicago-based hedge fund, has shown increased holdings in KB Home, Ryland Group and Toll Brothers. These data suggest that the bottom for home builders may have an upside for investors willing to risk exposure to housing market kryptonite.

Bloomberg: HUD Secretary Quits Under Fire
Targeted by a federal investigation and under fire by legislators, U.S. Housing and Urban Development (HUD) Secretary Alphonso Jackson resigned today. Jackson has no immediate replacement, and the news comes as the White House works to ease the housing crisis. As HUD Secretary, Jackson advocated an industry-led program to encourage lenders to voluntarily refinance troubled loans rather than using federal funds to tackle the mortgage crisis. He came under fire in the U.S. Senate when he refused to answer questions regarding accusations that he improperly directed his staff to steer federal housing contracts to his associates. The Justice Department is investigating whether Jackson told the truth when he denied directing federal housing contracts to friends and political allies. The National Journal reports that investigators also are probing Jackson’s ties to a golfing partner who received more than $485,000 to manage construction work in New Orleans after Hurricane Katrina in 2005. Jackson received his post in 2001, and is credited with building the FHA Secure program, which increased federal financing for sub-prime borrowers.

After escaping the daily grind of hard work and no time for his family and the pristine beaches in his Hawaiian home town, Andy Proper made his leap into the deep waters of real estate investing. “I had been working in IT for eight years and it was absolutely killing me that I was living in Hawaii and working from 8:00 a.m. to 6:00 p.m. in a cubicle every day,” Andy, the co-founder of TeamWorkLeadSystems says, “while everyone else seemed to be outside at the beach, surfing or hiking.”

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MSNBC: New Home Sales Fall into Bottomless Market
While existing home sales climbed last month, new home sales dropped 2 percent, the slowest sales pace since 1995, says the U.S. Commerce Department: Median home prices dropped to $244,100, down 3 percent from last year’s levels. This news falls on the heels of a recent S&P announcement that home prices have dropped 11 percent in 20 key markets over the past year. New York University Economist Nouriel Roubini says that declining home prices are driving down home values and squashing hope for millions of people. ”Already today, 8 million houses have negative equity. If home prices fall another 10 percent as expected, we’re going to see 16 million people with negative equity. It’s a big problem.”

Bloomberg.com: Taxpayers Stuck with Fed’s Bail-out Tab?
Even as the White House promises it wouldn’t jeopardize public funds in a bailout, taxpayers likely will foot the bill for the billions of dollars the Fed is spending to calm recent financial crises. If the past is used as a future indicator, the Fed is likely to loose a hefty slice of its investment in Bear Sterns mortgage securities. Also, the Fed’s efforts to push Fannie Mae and Freddie Mac into taking on more mortgage bonds reduces reserves while foreclosures and defaults continue to soar. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, and Charles Grassley of Iowa, the committee’s ranking Republican, have issued a March 28 deadline for JP Morgan and the Fed to describe the assets involved in the Bear Sterns transaction. “Americans are being asked to back a brand-new kind of transaction, to the tune of tens of billions of dollars,” says Bacus. “It’s the Finance Committee’s responsibility to pin down just how the government decided to front $30 billion in taxpayer dollars for the Bear Stearns deal, and to monitor the changing terms of the sale.”

Bloomberg.com: Housing Market Losses Imperil State Revenues
The U.S. Commerce Department reports that approximately 200,000 newly constructed single-family homes are vacant, a record high since the count began in 1973. Partially completed developments harm more than homeowners and businesses; rising foreclosures and falling property values are projected to slash tax revenues by more than $6.6 billion in 10 states, including New York, California and Florida, according to U.S. Conference of Mayors. About 370,000 new homes currently are on the market because people who had contracted to buy them bolted from the deals, finds New York-based CreditSights Inc. Meanwhile, the Commerce Department reports that an additional 216,000 homes are under construction.

Marketwatch: At Enron’s Final Wake, Citi Antes Up for its Role in Scandal, Fraud
Citibank has has been having a tough time. Entangled with tanking stocks, a global financial business with at least $18 billion in bad mortgages last quarter, more projected losses and calls for an operational break-up … another hard hit came this week. More than six years after Enron crashed amid massive scandal and fraud, Citibank today paid $1.66 billion in cash to settle the last remaining claim related to its role in the disaster. And that’s just part of the story ….

CNNMoney: Home Prices in a Downward Spiral
While existing home sales recently have seen modest market boosts, analysts say that residential real estate prices have posted record drops in the past year. The S&P Case/Shiller Home Price index of 20 key markets finds that home prices plunged 11 percent in a 12-month period that ended in January. These findings mark the lowest levels ever reported for the index, which debuted in 2000.

Marketwatch: Emerging Bargains in REO New Construction
With falling home prices and changing lending practices, a growing number of foreclosures are now available in up-scale areas at at lower price points. In one new Sacramento, Calif. suburb, changing markets mean changing demographics in once-hot sellers’ markets. The greatest deals often are found in new-construction areas that were hot in 2005-2006 when they were priced well above the median price for the greater area.

Associated Press: Fed Auctions $50 Billion in Short Term Loans
Hoping to ease the economic turmoil for credit-crunched banks, the Fed has so far offered a total of $260 billion in short-term loans via eight auctions since December. The central bank has posted results of its latest such auction where commercial banks bid for their share of $50 billion in short-term loans. Reports say this is a continuing effort to minimize the impact of the recession on the vulnerable economy.

Forbes.com: Wall Street Chaos Ups Ante on Countrywide Buy-out Rumors
Rumors about Bank of America’s latest plan to acquire Countrywide Financial hit today, indicating that Countrywide might get a better takeover deal than the $4 billion offered by the bank in January. Even then, the deal was lauded by the Fed and other regulators hoping it would stop a liquidity-constrained Countrywide from causing more trouble in markets already cramping from the credit squeeze.  Speculators today may be counting on the Fed continue bailing out financial firms who are heavily vested in subprime markets.

Forbes.com: PennyMac to Profit from Contrywide’s Blunders
As the largest mortgage lender in the United States, many believe that Countrywide Financial helped to trigger the subprime mortgage disaster with its uninhibited lending practices. Countrywide currently is under FBI scrutiny for possible securities fraud and regulatory violations. Now, a group of former Countrywide executives are looking to capitalize on their wealth of experience by purchasing distressed mortgages at low prices and re-selling them for profit. Led by former Countrywide talent, the newly formed Private National Mortgage, or PennyMac, will use private capital to invest in and service residential mortgages; it also will acquire loans from institutions seeking to reduce mortgage exposure risks. Critics claim that Countrywide executives should not be empowered to profit from the mortgage crisis they may have helped to create.

Los Angeles Times: Equity Strippers to Bear All in Court
Federal prosecutors have so far charged 19 people, mostly from Southern California, with defrauding cash-strapped homeowners using “foreclosure rescue pitches” and an equity-draining technique called “equity stripping.” Two indictments have so far been issued in relation to the $12.6 million scam. Prosecutors say that defendants could get more than 20 years in prison, if convicted.

MSNBC: Stimulus Act Offers Hidden Perks for Landlords
The new federal Economic Stimulus Act offers a provision for landlords and commercial tenants that has not yet been widely publicized. Congress has increased the amount of construction costs that can be written off in the first year for improvements on commercial or residential rental properties. With the change, landlords and commercial tenants can now write off 50 percent of “qualified leasehold improvements” in the first year alone, if the improvements are completed by the end of this year; the rest can be written off in declining increments over 15 years. In previous years, only 2.5 percent of the costs of those improvements could be written off in the first year and the declining increments spanned over three decades. The new “bonus depreciation” schedule provides faster relief by reviving the more generous depreciation rules that were in place after the turmoil that followed the terrorist attacks on Sept. 11, 2001.

New York Times: JP Morgan Feeds the Bear
JP Morgan has quintupled its offer to buy troubled investment bank Bear Stearns. The sweetened offer of about $1 billion, is intended to win over stockholders who vowed to fight the original fire-sale deal, brokered last week by the Fed. Under the new terms, JP Morgan would pay $10 a share in stock for Bear, up from its initial $2 a share — a figure that represented an estimated one-fifteenth of Bear’s going market price.

Reuters: Newly Formed Penny Mac to Feast on Distressed Mortgages
Money management firm BlackRock Inc., and hedge fund Highfields Capital Management are backing a new firm that will buy up distressed mortgages, betting that investors are ready to snap up bargains in the beaten down sector. The new company, Private National Mortgage Acceptance Company, which will be known as PennyMac, plans to raise capital from private investors and will help borrowers restructure loans to avoid foreclosure. Penny Mac will star Stanford Kurland, who spent 27 years at mortgage giant Countrywide Financial Corp., as its chief executive officer and Morgan Stanley global residential mortgage veteran David Spector as its chief investment officer.

U.S. News and World Report: Fed Frees Mac to Supersize Mortgage-Backed Value Meals
A week after restrictions were eased on Fannie Mae and Freddie Mac to allow them to gobble up a minimum of $200 billion in mortgage-backed securities, the federal home loan banks have been freed to follow suit.

Forbes.com: Bank of England Snubs Mortgage-Backed Securities from Ailing Banks
The Bank of England has rejected pressure to follow the U.S. Federal Reserve in buying beleaguered mortgage-backed securities from banks that have been hard hit by the credit crisis.

Bloomberg: Existing U.S. Home Sales Rise In February
In defiance of many analysts’ predictions, existing home sales rose in February for the first time in more than six months. For some, his unexpected spike in activity eases concerns that credit restrictions and falling prices would diminish market demand.

This time next week, I’ll be in Atlanta, meeting up with my friend Lou Brown for “Millionaire Deal Maker,” another one of his awesome seminars. You may know Lou as an expert in the structure of the deal, but I’ve known him as a friend  for years. Actually, we met at one of his events, where he confided in me his impressive story about how he achieved success in this business.

Lou started buying property in 1977, when he was a teenager! Since then, he’s invested in single-family homes, apartments, hotels, developed subdivisions and built and renovated homes and apartments. He’s bought and sold in many ways, including auctions. The wealth of knowledge he’s shared with me over the years has really broadened my horizons about how a truly creative entrepreneur can secure financing and structure dream deals.

I’m not the only one who is impressed with Lou. He’s been quoted by “The Wall Street Journal” and “Smart Money” Magazine, among others, as an expert in real estate investing, managing and financing. He also has taught me a lot about how to give back to my community. Lou is past-president and a lifetime member of the Georgia Real Estate Investor Association (GREIA). He also is the founding president of the National Real Estate Investors Association (NREIA), which works with local investor groups nationwide.

I’ll soon be sharing what I learn in Atlanta, and keep you posted on all the best events as we head into a busy season of buying, selling and training to make the most out of the next great deal. Although I’ll attend his events anywhere he holds him, I had an especially good time on one of his famous cruises … that some may consider infamous.

If any of you have attended any trainings that stick out in your mind, please share your stories.

Take this brief quiz to determine if you’re hard work to do your own marketing is leaving you — and your bank account — exhausted.

1. Are you interested in maximizing your marketing’s return on investment (ROI)?
2. Can you quantify the effectiveness of your current marketing strategies?
3. Are you overwhelmed by how to tap today’s rapidly changing markets?
4. Are you running in circles trying to make your marketing budget’s ends meet?
5. Are you overwhelmed trying to keep up with your lists and mailings?
6. Do you fear that the deals you crave are out of reach?

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Bloomberg.com: A Slice of Manhattan for a String of Beads?
Analysts say that, with the Fed-brokered purchase of Bear Stearns for about $240 million, JP Morgan stands to gain the firm’s six-year-old, 45-story office building, which currently is valued at $1.5 billion, or more than $1,200 a square foot. According to a JP Morgan spokesperson, the purchase also is prompting JP Morgan to reconsider its plans to build a $2 billion, 40-story skyscraper at the Ground Zero re-development site. Bear Stearns stands across the street from JP Morgan’s midtown Manhattan offices and offers underground access to Grand Central Terminal, where nearly 1,000,000 commuters travel daily

Reuters: Residential Rentals Soar from Grounded Markets
As the market for offices, retail space and lodging falters, and the foreclosure rate rises among homeowners, a Pricewaterhouse Coopers survey finds that demand for rental apartments is surging ahead, as a growing number of people suddenly find themselves competing for rental units.

Boston Globe: Tsunami Hits Wall Street
The Fed is scrambling to avert a total global financial crisis, but the turmoil on Wall Street already is hitting consumers, businesses and homeowners. The Standard & Poor’s 500 index is down 13.1 percent so far in 2008, and the dollar has plummeted against foreign currencies.

MarketWatch: Major Rate Cut Ahead
The Federal Reserve is expected to orchestrate a rare cut of one percentage point in interest rates before the policy-setting Federal Open Market Committee convenes amid economic turmoil on Wall Street.

Fortune: Mortgage Crisis Intensifies
A crisis that began in subprime lending is likely to continue its domino-effect, leveling markets — and the economy — until 2010, New York Times columnist and economist Paul Krugman predicts. This is likely to result in an average property value drop of 25 percent for homeowners, he says in this interview with Fortune’s Jia Lynn Yang about the economy, home prices, and the future.

MarketWatch: U.S. Home Builders’ Confidence Remains Low
The National Association of Home Builders and Wells Fargo housing market index remained at 20 in March, close to December’s all-time low of 18. Analysts say that the index shows that 20 percent of home builders have a positive outlook and that perception has held steady for nearly a year.

CNNMoney.com: Fed Strives to Neutralize Mortgage Turmoil
The Fed reports to consumer advocates that it is working to curb unfair lending practices to protect adjustable rate mortgage (ARM) holders by moving to ban lenders from issuing loans that borrowers cannot repay.

Studies: Lenders Remain Uncompromising on Mortgage Rates
Most homeowners who have trouble paying their mortgages remain unable to convince lenders to modify their loans, according to the California Reinvestment Coalition. The organization has been tracking homeowners who seek help with their mortgage problems woes, culminating in two reports: “The Chasm between Words and Deeds” and an updated version of the report titled “The Growing Chasm Between News and Deeds.” Both documents report on nonprofit home loan counseling agencies in California who are working to help families keep their homes. The latest word is that 72 percent of these agencies report that foreclosure is a very common outcome for people who seek their help, up from 57 percent in the first study.

Associated Press: Frustrated Homeowner Sells Creatively
A Colorado woman whose home has failed to sell for three consecutive Summers has decided to award her home to the winner of her essay challenge. So far, she’s made $5,000 in entry fee levies, with applicants all vying for her four-bedroom home valued at more than $169,000.

As Foreclosures Rise, Investors Pull Back: Defaults on home mortgages touched another historic high late last year as foreclosures on adjustable-rate mortgages surged, an industry group reported on Thursday.

5 Ways Real Estate is Better Than Domain Names: 1. Easy financing. 2. Title insurance.3. No “Support” middlemen. 4. Your tenants are your tenants. 5. No one is going to twist the law and steal your house.

Real estate experts say time is ripe to snap up land: While builders need to sell inventory even if it means going without a profit, they should consider buying land for the future when experts predict a shortage of available lots.

U.S. foreclosures soar as borrowers ‘give up’: U.S. mortgage foreclosures rose to an all-time high at the end of 2007 as borrowers with adjustable-rate loans walked away from properties before their payments increase.

Ahead of the Bell: Mortgage Lenders: The financial industry needs $1 trillion in permanent capital to help stabilize and improve the pricing of mortgage assets, but is unlikely to receive it.

A Different Approach to Revitalizing the Housing Market: While U.S. Federal Reserve rate cuts and the economic stimulus package are helpful, they aren´t enough to bring the economy back from the brink of recession. Some mortgage lenders´ decision to temporarily suspend the foreclosure process through “Project Lifeline” is encouraging but more drastic steps need to be taken to help a housing market that is obviously in trouble.

Crisis deepens in U.S. mortgage market: After surging in popularity during the U.S. housing boom, the risky subprime loans now are contributing to a record number of home foreclosures across the country, as many borrowers find themselves unable to pay the exorbitantly high interest rates that are starting to kick in after a few years of paying super-low “teaser” rates.

Investing: Balancing Risk And Opportunity: Prices are down. Inventory is up. And demand for new construction is withering on the vine. The days of flipping houses for a 30 percent markup, it seems, are gone for good. Yet, while some maintain that acquiring property now presents too great a risk, there are those who insist the current market correction spells opportunity for bargain hunters who are willing to wager on the long-term health of real estate.