Tag Archives: housing

Guessing Housing’s Next Steps – Buy Mortgage Notes

Using the word “guessing” is not something that you see among writers and commentators these days.  Most of them, using data confirming their theory and ignoring all other facts, state with conviction what will happen next with the general economy, the housing market, or most anything else.  After all, the general public doesn’t want wishy-washy “what-if” discussions – they want concrete statements that they can either agree with or else wave off as a disagreeable political statement.  Investors, in particular, want to hear the opinions of gurus so that they can grab that stock, buy mortgage notes, or purchase a house with a high degree of confidence that such actions will be profitable.

What has become apparent over the past few years is that forecasting short-term and long-term trends has become doubly difficult when the government is involved.  Using past trends to predict future occurrences is unhelpful when sailing in to uncharted territory.  From my viewpoint, Wall Street firms have done well over the past few years due largely to their close ties with D.C. politicians and their allies.  The so-called recovery has been due almost in whole by the Fed dropping loads of money into the country and U.S. politicians pretending that the country is fiscally sound.

In few cases has this been as apparent as with housing, which is particularly relevant to me as a buyer of mortgage notes.  Nationwide, housing prices are about 1/3 lower than they were at the peak.  However, real estate news over the past 2-3 years has been quite positive.  At its worst, nearly half of all home sales were foreclosure-related.  Now, that figure is down to 21% — less than one in five houses (though add another 15% for short sales).  Home prices across the country have been going up, with skyrocketing being the more descriptive word for cities like Phoenix and Las Vegas, along with much of California.  Prices in many those cities are up over 20% in the past year.  According to CEPR (5/29/13), most of those price increases are in the bottom-third of the market.  During the last three months, prices for that lower third have risen at an annual rate of 70% in Las Vegas and 50% in Phoenix.  In Los Angeles, overall housing prices are up 10% in the past year even while unemployment remains above 10% and real income has gone down.  Clearly, these types of increase are not sustainable.Arizona house

There are other concerns about housing to consider:

  • 11 million homeowners are still underwater
  • The credit-rating agency, Fitch, warns that higher interest rates and credit concerns means that gains in some markets are outpacing fundamentals
  • Housing supply is artificially low due to recent foreclosure regulations and the large number of underwater borrowers
  • A few hedge funds and investment companies, which bought a huge number of properties in recent years, are giving indications that they will start pulling back some of their cash.  If this happens on a large scale, housing prices would take a hit.

So, what to do if you’re considering buying a house either to live in or to use as an investment?  If you’re looking at price-volatile areas like those mentioned above, my advice is to stay on the sidelines due to the likelihood of a near-term stall or drop.  However, in most of the rest of the country, which has less drastic swings in in price, buying a house is still a good investment.  Yes, there are still risks but I believe them to be less than investing in the stock market, buying gold, or having them lose value in a bank savings account as inflation outpaces rates.  If you are going to buy, you may want to do it soon, as mortgage rates look like they will continue to creep up.

Commercial Note Buyer — Extend and Pretend Again

We’re bubbling over yet again!  On the surface, the economy looks reasonably strong with home prices and the stock market soaring, retail sales climbing, and unemployment slowly declining.  You and I, as people who like to peek under the media veil, know that the foundation underlying the economy could hardly be weaker.  Government spending of money that it doesn’t have is supporting a huge swath of the economy (e.g.  90% of the housing market).  We don’t know when this superficial recovery will be snuffed out and reality will return, but there is no question that it will happen.  As one author wrote “enjoy the party, but dance very close to the door.”

With housing, starts and permits are up along with home values, but a large percentage of the buyers are investors making all cash offers.  The regular Joes and Janes of the world cannot afford a house because they have no savings, low income, and too much debt.  True unemployment is not 7.7%, but closer to 15-20% when you include the long-term unemployed and part-timers wanting to work full-time.

Many economists and other so-called experts are encouraging the government to spend more now and worry about debt later.  Of course, “later” never materializes.  As I’ve stated repeatedly in these blogs, the U.S. (among many other countries) needs to get its financial house in order even though we all know that will cause some short-term pain.

Central bankers in the U.S. and Europe have done almost everything wrong in their efforts to prop up the economies and leave the clean-up to future generations.  To paraphrase a list from “Sovereign Man”, the central bankers can check off all of the below items even though common sense says that they should have done none of them.

  • set interest rates to near zero
  • stimulate consumption at the expense of savers
  • put too much focus on getting the stock markets to all-time highs
  • keep lending money to shaky entities
  • prevent banks from having to fix the problems that they helped to create
  • drive the currency down

In the U.S., the Fed keeps filling up the punchbowl so that we can stay drunk and happy.  Once they run out of intoxicating cash injections, make sure that you’re ready to hit the exits.  A good start would be to make sure that you have an ample amount of gold, silver, and other precious metals in your portfolio.

Alan Noblitt is a California commercial note buyer based in San Diego.  As a commercial note buyer, his company can buy notes on office buildings, restaurants, vacant lots with improvement, and a whole host of other property types.

A Massive Financial Cliff-California mortgage buyer

On New Year’s Eve this coming December, there are extra reasons for you to imbibe heavily to escape reality.  Fed head honcho Bernanke tells us (correctly, for once) that the U.S. economy could fall over a “massive financial cliff” on January 1, 2013.  That day marks the end of the Bush-era tax cuts and the security payroll tax cuts, as well as the activation of the Congressionally-mandated $1.2 trillion in spending cuts and the kicking in of a whole new set of fees and taxes related to Obamacare.  A “perfect storm” has been a vastly overused term, but would apply in this case, as a number of markets could be hard hit.  Of course, since politicians are generally more interested in appeasing their constituents than in doing the right thing, it is almost a certainly that most or all of those policies will change (except the Obamacare fees).

I, like some others, have written at length about the need to accept some short-term pain to our economy and lifestyles in order to ensure long-term viability of the country, yet our problems only get worse as the government runs up the credit cards.  The public debt has doubled from $5 trillion to $10 trillion over the past few years, yet the government’s annual interest payments have hardly budged.  This is due to interest rates continually being manipulated down, as T-bill rates are less than half of what they were at the end of 2006 (source: 2/27/2012 New York Times).  When (not if) interest rates rise, the fiscal picture will get even uglier.

Of course, it could be worse, as we could be in Stockton, California.  The city of Stockton is on the verge of bankruptcy, as it spent like a drunken sailor in the glory days and has since been hit by some of the highest foreclosure and unemployment rates around.  An example of this excessive spending is that Stockton has twice as many retirees with annual pensions above $100,000 as do comparably sized cities in the state.  Employees who worked for the city for only a month could get city-paid retiree health care benefits for them and their spouse for life (source: 2/29/2012 Bloomberg).  I can’t even imagine what city leaders were thinking when they created those policies, but am guessing that they did not do well in basic math during their younger years.

Meanwhile, we are again being assured that the housing market has hit bottom and is now in recovery mode.  Some “experts” have called the housing market bottom every year for the past four years.  Someday they will be right and be lauded as geniuses!  In guru-land, you only have to be right once, and all of your past mistakes will be forgotten.

My local newspaper in San Diego proclaims a housing recovery nearly every week, and even Warren Buffett now loves real estate.  Buffett is brilliant when it comes to picking stocks but I think that he should be careful with real estate.  Despite superficial gains in the stock market and consumer confidence, the fundamentals of the economy and real estate remain weak.  FHA (Federal Housing Administration) loan delinquencies have gone up for nine months in a row.  Housing sales, permits, and construction are all in the basement, with little hope of recovering soon.  The recent bumps in housing have been more due to warmer weather across the country than anything else.  There are still millions of homes in some level of distress, wages and employment remain down, and a large percentage of states and municipalities have fiscal crises of their own.

At the same time, Obama is taking credit for an economic “recovery” and will carry that message into November, Republicans are attacking each other over issues, and Congress has never been more polarized.  Sounds like just the right formula for the getting the country back on track, right??

Alan Noblitt is a California mortgage buyer and licensed real estate broker in San Diego.  A California mortgage buyer buys mortgage notes and deed of trust notes across the U.S.