Real Estate Problem

The sudden halt of operations by some mortgage lenders have left many home buyers out in the dry: Some have forfeited their earnest money deposit; some are compelled to resolve the matter in court.

The mortgage industry crisis has grown to be so serious that home buyers and real estate agents should take the following precautionary measures to avoid any devastating outcome that could emerge as a result of the home buyer’s inability to secure financing: (more…)

As Californians, troubled with the possibility of Countrywide Financial going bankrupt, rush to pull money from Countrywide Bank , we hear the news that “[t]he Federal Reserve, reacting to concerns about the subprime lending crisis that’s rocked financial markets in recent weeks, Friday cut its so-called discount rate half a percentage point, to 5.75 percent.” See CNN Money.

The Fed’s action sent the Dow Jones up about 230 points. Financial stocks, including Countrywide Financial were some of the biggest gainers.

After the Fed’s move and the stock market rally of Friday, I got an e-mail from one of my best friends, whose opinion is very valuable to me. My friend is an internationally recognized and respected author, speaker and attorney. His friends on Wall Street and I have always been amazed by his vision and accurate predictions, from the stock market boom of the 1990s and crash of early 2000s to the accounting scandals and housing boom. What’s more amazing is that he is not an economist; yet he has always been correct with financial market forecasts.

Here is an excerpt from his e-mail message:

“Fools rush today. The Fed must know things are a lot worse than most people know, since they wouldn’t drop the rate a full half point just to bolster a superficial stock market indicator that hasn’t even dropped 10% from its high yet. There’s a lot deeper trouble that I’m guessing they’re trying to head off, which is not a good sign.

MY PREDICTION: DOW 11,500.”

Following the footsteps of American Home Mortgage, Aegis Mortgage Corp., once one of the nation’s top 30 largest mortgage lenders, filed for Chapter 11 Bankruptcy in Delaware last Monday, a few days after it laid off more than half of its 1,300 employees.

Since the start of this year, more than 50 mortgage lenders have sought bankruptcy protection from their creditors. (msnbc). What’s worse is that the number keeps growing with no end in sight. Now, it appears that Countrywide Financial, the largest U.S. mortgage lender, may be forced into bankruptcy, too. “There is a scenario,” wrote Paul Miller, a Friedman, Billings, Ramsey & Co. analyst, “in which the current liquidity crises last for longer than three months and Countrywide is forced into bankruptcy; it will be ugly, but it can happen!” (Yahoo! News).

Meanwhile, the Fed is silent. Let’s hope that silence is [still] golden.

A few weeks ago, the Fed chairman appeared before Congress and essentially testified to the following:

• The economic growth is slowing
• Inflation remains the primary concern of the Federal Reserve

Never mind the Bush’s most recent assessment of the “thriving” economy. His speechwriters must have forgotten to cross check the alleged information with Bernanke’s testimony given less than four weeks ago.

Well, I sidetracked a little.

So why does Mr. Bernanke hesitate to admit the fact that the economy appears to be headed into the phase of stagflation, if it hasn’t already? Is he out of touch with reality? Does he believe that the Central Bank’s monetary policy will be able to curb the stagflation? Does it have a chance? My guess is yes. And I am guessing at the cost of inflation.

Why?

Because it is particularly difficult to curb stagflation in today’s unbalanced world economy. If stagflation continues to grow in the U.S., the U.S.’s already heavily-indebted consumers will have to cut back on their spending, which, in turn, will force the rest of the world to start spending more to keep the world economy growing. There is no chance of that happening. The Fed will be too worried about stagnation to let that happen and the central banks of other countries will be too concerned about inflation in their economies to cut rates. See The Economist, May 5, 2005. Hence, many experts bet on rate cuts starting as early as at the end of this year.

But before then…

To stay liquid and to survive the credit crunch as well as the uncertainty that lies in the months ahead, the Wall Street has virtually stopped buying mortgage-backed securities in the secondary markets. As a result, the cost of financing a home purchase in many high-valued areas of the country such as California became even more expensive. This puts many potential home buyers, who require non-conforming jumbo loans, out of the market. The implications of this could put a further dent on the already-declining housing market: home values are falling at accelerating rates; mortgages, both subprime and now even prime are defaulting by rates not seen in many decades; foreclosed homes are popping up everywhere like mushrooms.

The housing market is in pain. And the worse is yet to come since current real estate and broad financial conditions point to more trouble in the months ahead. However, real estate has been regarded as one of the best hedges against inflation; therefore, my bets are on the market rebounding by mid 2008, after the Fed starts cutting rates to curb stagnation.

real estate blogs

In recent years, the rise of Web 2.0 Real Estate companies such as Zillow, Trulia, etc. has been the subject of many discussions and analyses. Does Zillow have a chance to succeed as a web 2.0 real estate business model (and as a first mover)?

Well, that remains to be seen…

Web 2.0 real estate companies, such as Zillow, have a long way to go to prove that web 2.0 real estate is the wave of the future. Maybe it is… Maybe it isn’t… Zillow, and the like, have a long way to go to prove that the model is profitable. Sure, they offer cool tools… and the public enjoys using them but generally the public is not ready to utilize the services of non-traditional brokers; at least not now. It is extremely difficult to make the public change its needs and wants. But I must say, it is not impossible.

However, if and when it becomes advantageous to be a web 2.0 real estate company, what’s going to stop traditional brokerages such as Coldwell Banker, Remax, Century 21, or Realty Counselors to establish their web 2.0 gateways and utilize their already established reputation to quickly gain market share in the new Real Estate 2.0 era? Essentially, very few, easy-to-overcome barriers. It is always better to be first in the mind than to be first in the marketplace.

real estate blogs

My friends and colleagues, here is the good news: My book, The 24 Laws of Marketing Every Real Estate Practitioner Must Know, has been released and will be available on www.Amazon.com by the end of this month.

It took me well over 12 months to finish this book (I had to juggle it with my practice) and I am thrilled that it’s finally done! Big weight off my shoulders…

In this book I share strategies and ideas that even the least business savvy real estate practitioner can utlize to take his or her business to new heights.

And, of course, autographed copies are available… along with my personal e-mail address.

629 homes had ownership transfer in May in the San Fernando Valley region of Los Angeles, CA, 26.5 percent less than during the same period a year ago, but up 15.4 percent from the total amount reported for the month of April. Condo sales droped 37.5 percent compared to a year ago. However, Condo sales rose 15.7 percent compared to April. It looks like the San Fernando Valley residential real estate market is gaining momentum. Source: SRAR

Despite the Southern California real estate market weekness, San Fernando Valley real estate market remains strong. “Reflecting ongoing demand for housing and confidence in the local economy, the median price of single-family homes hit a record high during May 2007 even as home sales continued to soften throughout the region,” reported the Southland Regional Association of Realtors.