Welch Twins

Alan’s July 2010 Newsletter

Jack Welch — Fri, 09 Jul 2010 22:50:07 +0000

ALAN’S JULY 2010 NEWSLETTER

All Things Real Estate June 2010

Jack Welch — Thu, 10 Jun 2010 21:32:57 +0000

Alan’s June 2010 Newsletter

Jack Welch — Thu, 10 Jun 2010 21:24:57 +0000

June 2010 Newsletter

This was a challenging month for yours truly and this monthly newsletter you have grown to tolerate. Not so much with content, that’s always a challenge, but the distribution repeatedly broke down. I think I’ve lost at least 10% of my loyal readers’ email addresses due to my lack of patience with electronic media. If you know of someone that didn’t get this issue, please forward to them and/or ask them to email me so I can get them back on the list. And if you wish to unsubscribe, please inform me by sending me an appropriate message at AlanBall2@gmail.com – so let’s get on with the show!

First of all, please stop reading the papers or listening to the economic experts, take 2 of these and you’ll feel better in the morning. Just today a radio news reporter told of the latest RealtyTrac report that had both good news and bad news. And that’s a brief summary of where we are right now; good and bad, positive and negative, yin and yang, up and down. Last week, an economist from Goldman Sachs predicted about a 3 % dip in home prices nationally over the next year. Each market has its own issues, but Santa Fe will see some fallout from the hardest hit areas, such as Las Vegas and Phoenix. We could have a stable local market and still suffer.

As the year progresses, what seemed like a nice tidy finish to the economic mess of the last few years is now going rogue. From the many economists, financial advisors and talking heads one can hear a change in tone that is not encouraging. It relates to the two types of recovery that have been discussed for the last year. Many believed we had a V shaped downturn; we already hit the bottom (and hit it hard) and are now on the way up, with the past a painful memory. Others thought we’d have a W shaped recovery; a bottom followed by a false recovery followed by another bottom, leading to an eventual recovery. In the V scenario, we could say we are past the worst and headed for the land of prosperity. Yet in the W scenario, we are only hanging near the peak, between the two bottoms, with more difficulties ahead.

No, sorry, I really don’t know what we have here and I won’t guess, but the prediction of another bottom is terrifying. Will anyone be left kicking if we have to survive another downturn as in the W shaped scenario? Maybe we should just focus on our health and our families and find a nice cozy place to live and plan on working for a long long time. You have to live somewhere, correct? It may not be a gilded palace or the statement home you might prefer, but you have to call someplace home. And if you have your health and your family around, you can support each other while finding new ways to be thrifty and still have some fun.

The shadow inventory mentioned in previous newsletters is mostly unchanged. The key thing to watch is how mortgage lenders work out problem loans with borrowers that are now unemployed or making a fraction of what they used to earn. We hear all around that the American worker has greatly increased productivity in the last couple years. We have also added the discipline of saving money (if possible) to create a buffer, just in case that ‘worst case scenario’ pops up. If you are in a mortgaged home with a loan balance higher than the value, what do you do? You could stay there and write a check each month or you could move along without selling and live with the consequences. (This is not the advice column on how to abandon a property without destroying your credit – others can tell you that) I hope, for the sake of us all, those that like or love their homes can hold on and keep paying while their home gradually regains value and “equity” makes a return appearance. How many years? I don’t know. This is the painful part of the lesson we learned; that our homes are not ATM machines. They are to live in, fix up, maintain, landscape, enjoy, entertain in and be proud of. They can be good investments too, but that would be a stroke of luck, to make money selling your home. And what is selling? Answer: homes that are perfectly decorated, uncluttered, with no defects or problems, priced aggressively. Your professional Realtor could find you one today.

In the mix of numbers on the attached Absorption Rate study, there are some bright spots. Our rate of annual sales has picked up from this time last year. When I am asked if I see any improvement in the market, my answer is yes, but a hesitant yes because we HAD TO improve over last year. We are seeing improvement; every month adds to our base for future sales and eventually shores up prices. Inventory is up as expected; still the Numero Uno issue, too much inventory. But one number you can brag about is the last 12 months of sales totals exceeded 1300 for the first time in 17 months. Bear with me, it’s a moving target. At month end, I tabulate the previous 12 months of sales totals. It was 12-31-08 when we last had this many sales for the previous year, using the entire price spectrum. In the $500K and under range, it was 9-30-08 since we last could count this high. That doesn’t mean you can take a day off, sorry. Now with a bit of momentum, maybe we can move the numbers still higher this year.

Months ago, I suggested you wait until at least mid-summer before declaring this a true recovery year or a flat (or worse) year. That’s only a few more months, so if you want to skip this newsletter until August 10^th, tune in then and see if there is a new trend. And I can’t stand the suspense! Yes, I will send again in July for those who can’t wait! Thank you for everything!

Regards,

Alan Ball PO Box 4403, Santa Fe, NM 87502 AlanBall2@gmail.com

Fool.com: Housing Market; Mortgage Buying

Jack Welch — Tue, 06 Apr 2010 21:33:39 +0000

Subject: Fool.com: Housing mkt, mtg buying
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> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
> The following was sent to you by a friend and comes from The Motley Fool’s Personal Finance and Investing website.
> We hope you enjoy the information and can take a moment to drop by the website and say hello. It’s completely FREE.
>
> http://www.fool.com/index.htm?ref=Yo
>
> ***Note – While we hope this was recommended by a friend, The Motley Fool does not verify the sender’s e-mail address. Thank you.
> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
>
> === BEGIN NOTES ===
>
> interesting , short reading…
>
> === END NOTES ===
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> In 24 hours, the Federal Reserve will stop buying mortgage-backed securities. When it does, there’s a good chance the economy will shift in big ways.
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> Here’s the deal: In late 2008, the Fed announced plans to buy up $500 billion worth of mortgage-backed securities issued or backed by Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), and Ginnie Mae. It doubled down four months later by committing another $750 billion, bringing the total to $1.25 trillion.
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> The impact has been twofold. First, buying mortgage-backed securities lowered interest rates on home mortgages. Second, it pumped $1.25 trillion of newly minted cash into the economy. This is where you often hear about “quantitative easing” — aka firing up the printing press.
>
> But with its $1.25 trillion mission nearly completed, the Fed will cease buying mortgage-backed securities tomorrow, March 31. The big question is what impact that’ll have on housing going forward.
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> The honest answer is that no one really knows. Measuring the impact the purchases had in the first place is imprecise at best, and pondering life once they stop is even more so.
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> There are some reasonable assumptions, though, so we’ll work from there. ?????????????????????????
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> Stimulus on steroids
> First, how big is $1.25 trillion? Really freakin’ big is the right answer, but in perspective: The value of all U.S. mortgages is roughly $12 trillion. Fannie and Freddie own or guarantee more than $5 trillion of mortgages. The value of all mortgage-related securities issuance in 2008 was $1.3 trillion. For $1.25 trillion, you could buy all of Coca-Cola (NYSE: KO), Boeing (NYSE: BA), Apple (NYSE: AAPL) and ExxonMobil (NYSE: XOM) and still have enough left over to write a check for $1,820 to every man, woman, and child in America.
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> So the Fed clearly wasn’t messing around here. This was, by any measure, the largest single stimulus package of the past two years. Or in history, for that matter.
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> Just after the buying began, Fed Chairman Ben Bernanke boasted that “mortgage rates dropped significantly on the announcement of this program and have fallen further since it went into operation.”
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> By how much? The Fed estimates the program lowered mortgage rates by between 25 and 100 basis points (100 basis points is 1 percentage point).
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> When the program ends, one Fed official estimates that mortgage rates will rise by 50 to 75 basis points. Private estimates call for anything between 50 basis points to as much as 200 basis points.
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> Again, no one really knows for sure. But we can take these estimates and guess what impact they might have on housing prices. ?
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> Show me the money
> When purchasing a house, buyers don’t necessarily care about sticker price; what they care about is how much house they can buy at a given monthly payment. If someone can afford a $1,500 monthly mortgage, and $1,500 will finance a $300,000 house, then that’s the person’s market. If, thanks to low interest rates and financial chicanery, $1,500 can finance a $700,000 house (as it likely could have in 2005), then that’s the person’s new price range. In either case, home prices are linked to what borrowers can buy at a given budgeted monthly payment. Many other factors are involved here, like, say, consumers’ mood, the outlook for price appreciation, and the ability to refinance. But the amount of house you can buy at a given monthly payment is a pretty good foundation to measure price sensitivity.
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> So let’s say that, after the Fed stops buying mortgage-backed securities tomorrow, 30-year, fixed-rate mortgages jump 50 basis points from 5% (where they are now) to 5.5%. Or how about to 6%, or 7%. What could happen to home prices? ?
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> Nothing good
> Assuming a 30-year, fixed-rate mortgage at today’s 5% and a 20% down payment, a $1,500 mortgage payment will buy you $350,000 worth of house. If rates jump to 5.5%, $1,500 a month gets you $331,000. At 6%, $1,500 buys you $313,000, and at 7%, just $283,000. Compared with what you can buy today, that’s a decline of 5.4%, 10.6%, and 19.1%, respectively.
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> Again, other factors are involved here. But is it possible that the end of buying mortgage-backed securities could hammer national housing prices by 5%, 10%, maybe even 20% more, all else being equal? Unless something else immediately takes its place, then yes. And it’s not just possible, but quite likely.
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> As terrible as this financial crisis has been, it’s been in an environment of falling interest rates that have significantly softened the blow. Starting tomorrow, we could get our first taste of what happens when the tide turns and interest rates really start to rise. And it could be ugly.