Tag Archives: real estate market

Good Money After Bad — Trust deed buyer

Yeah, we’re saved!  Many economists and more than a few politicians are assuring us that the U.S. is entering a recovery phase (again), with little chance for a double-dip recession.  One reason is that claims for unemployment benefits dropped to their lowest level in seven months to a seasonally adjusted rate of 388,000 people.  Never mind that the true unemployment and underemployment rates remain high, with little chance of them declining in the next several years.  The Occupy Wall Street group isn’t complaining because they have too many job offers to choose from or don’t know where to spend all of their money, are they!?!

Apparently we are also supposed to celebrate that builders broke ground for 628,000 homes last month.  Who cares if that amount is about half of what is considered normal for a healthy housing market.  And really, with the thousands of vacant houses and millions more in various stages of foreclosure, building even more houses should not be a real high priority.

The real estate market is still an absolute mess.  Housing prices are still falling and home sale remain abysmal.  About one in four homeowners with a mortgage owe more than their house is worth.  The U.S. government continually demonstrates it ineptness by wasting money on programs that don’t work.

A trust deed buyer like myself has difficult decisions to make on the type of investments to make.   On the one hand , the trust deed buyer cannot just close up shop and wait until things improve, but also cannot make overly risky investments that could fall apart when the economy crashes.

FHA Woes
Just this last week, the FHA (Federal Housing Administration) was authorized by Congress and the President to raise the conforming limit on mortgages to $729,750 in the most expensive neighborhoods.  Thus, the Feds will insure loans up to that amount, with taxpayers paying for any losses on defaults.  The FHA already offers programs with only a 3.5% down payment requirement, which is ridiculous on its face.  Of the 282,000 mortgages modified by the FHA in 2010, 30% of them defaulted within a year (down from 39% of modifications in 2009).  Just three days before the conforming debt limit was signed into law, a well-known think tank projected that the FHA will need $50-100 billion in bailouts in the very near future.

Congress and the President will keep pouring good money after bad for as long as they can.  Maintaining and even increasing spending protects their favorite interest groups and enhances their chances of getting reelected.  At some point – whether it be in a few months or a few years – this facade will come crashing down and major structural reforms will be forced upon us.  Until that time, I foresee continuing problems in both real estate and the stock market, so am investing conservatively.

Looking for Direction — Deed of trust note buyer

Did you know that regional presidents of the Federal Reserve sometimes say intelligent things with which a common-sense person can agree?  It’s true, and more Fed presidents are finally speaking out against at least some of the Fed’s policies.  Earlier this week, two Fed governors criticized the Fed announcement that they would keep rock-bottom interest rates for the next two years.  They recognized that this two-year announcement effectively limits the use of one of the Fed’s main tools for fighting inflation, plus the rest of us know that it also hurts those who want to save money.

The Dallas Fed President, Richard Fisher, went further by noting how current government policies and programs, as well as the economic unknowns, are freezing business activity.  He stated that “those with the capacity to hire American workers – small businesses as well as large, publicly traded or private – are immobilized.”  He went on that “they simply cannot budget or manage for uncertainty of fiscal and regulatory reform” (for the full speech, visit http://www.dallasfed.org/news/speeches/fisher/2011/fs110817.cfm).

He correctly stated that the debt ceiling discussions only exasperated the issue.  Everyone watching TV or reading about those discussions could see that neither Democrats nor Republicans had any idea what to do about the current crisis.  Most of the politicians were more interested in pleasing their base constituents than in actually helping the country.

Anyone running a business, regardless of size or industry, has to be nervous about the current fiscal environment.  Most of us recognize that government spending will have to decline and taxes increase, but we don’t know when or how those will happen.

Being a deed of trust note buyer, I’m in the same boat.  Like most note buyers, I use very conservative assumptions when evaluating whether or not to buy a mortgage note.  The real estate market has been hit hard and continues to fall, unemployment is still a major issue, and the government is intent on regulating everything that they can.  This combination makes it difficult to plan for the future and makes me nervous about what to do.

Recent economic news has been nearly all bad.  Even the stock market has been extra volatile and trending down.  Nothing suggests that the fiscal crisis and economy will get better in the next year, or even after the 2012 election.  The politicians don’t seem to have the backbone to make changes that will anger much of the population.

For now, I hope every month that each deed of trust note that I own continues to pay, and that being a deed of trust note buyer stays viable.  As always, I recommend to you to stay conservative with your investments, especially as they relate to real estate.  Somehow we will get through this mess, but it’s going to be a very bumpy ride.

Alan Noblitt, president of Seascape Capital, is a deed of trust note buyer in California.