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March 2010 RE Newsletter

March ’10 Newsletter “Stay In The Know …with Salee & Bo”!


Truth In The News

What coffee drinker doesn’t want to open up some market commentary and get a coupon for free coffee to their favorite brewery?  This here is a coupon that is circulating around but don’t fall for it…  This Starbucks Coupon is fraudulent.  Click on it to see it but don’t use it.


Sadly, not everything that circulates around is true.  Unfortunately many buyers and sellers in the Real Estate market will do what people who walk into Starbucks to cash in that coupon do before they find out that what’s been said is a scam.  Fortunately, the coffee drinker scenario has no risk involved in attempting to get the free coffee but in the housing market, the loss involved for listening to false news from a newscaster or famous newspaper headline is much more costly.


Let’s see some truth about the going-ons in the market this week:


In an example of being late to the party, according to a story in Reuters & Bloomberg, “Morgan Stanley told thousands of clients this week that they will not be allowed to withdraw money on their home-equity credit lines. Most of the clients had properties that have lost value, the agency reported, citing a person who declined to be identified. The second largest U.S. investment bank will review home-equity lines of credit, or HELOCs, monthly from now on, the agency said, citing the person familiar with the matter.”


As expected, the Federal Open Market Committee decided to keep its target for the federal funds rate at 2%. “Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth. Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain. Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.”


Freddie Mac lost $821 million in the 2nd quarter after taking $2.5 billion in provisions for credit losses. Revenue fell to $1.69 billion from $2.34 billion, and the loss was slightly greater than expected. They will cut their common stock dividend, but pay the full preferred dividend. In addition, “the company continues to review and consider other alternatives for managing its capital including issuing equity in amounts that could be substantial, reducing or rebalancing risk, slowing purchases into its credit guarantee portfolio, and limiting the growth or reducing the size of its retained portfolio.”


Indiana “dis-approves” 360 mortgage shops? Since July 2007 Indiana laws require mortgage brokerages to employ a principal manager who has passed a competency exam, but they have been slow to comply. So sorry.


Back to the economy and rates. Lately the ISM Non-Manufacturing Index increased to 49.5, higher than forecast, from 48.2 in June. (Non-manufacturing businesses make up almost 90 percent of the economy.) Last week mortgage applications increased from a seven year low last week by 2.8%, with refinancing +4.4% and purchases +1.8%. Demand for ARM’s fell 2.9% to make up 6.9% of the total number of applications. Note that today the Treasury will sell $17 billion of 10-year notes, up from May’s sales, and they will be auctioning off 30-yr bonds tomorrow. Let’s hope for a good 10-year auction, as we’ll need it: currently the yield is up to 4.03% and mortgage prices are worse by up to .5 versus yesterday!


An article in the Wall Street Journal highlights FirstFed Financial Corp., saying that it “is struggling with rising losses”. The bank posted a loss of nearly $70 million in the first quarter, 40% of its borrowers became at least 30 days delinquent after the payments on their adjustable-rate mortgages were recast, and the number of foreclosed homes held by the bank doubled in the second quarter from the first quarter! The article goes on to elaborate the problems with payment option ARM’s. First Fed had been doing well with this product, but in 2003 guidelines and terms relaxed and competition increased, and First Fed followed the crowd to maintain market share. (Sound familiar?) “As of the end of June, nonperforming assets climbed to 8.2% of total assets, compared with 0.85% a year earlier.” It is definitely worth a read.




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Explosion Summary for California

Explosion Summary for California


What the Media tells us (the buyers/sellers) about real estate can be true or false.  As a consumer, how do you know when to decide that the truth is being told?  It’s simple.  Instead of saying “show me the money”… say, “Show me the stats”. 


Tell us if you believe these 12 questions to be true or false.  So here they go:

  1. April 22nd:  The OC Register reported that Home buying demand jumps 23%.  Wave of 1st time buyers causes number of properties in escrow to soar as compared to a year ago.   True or false:  Activity is a strong hint that the county will see mathematical end to the home buying slump. 
  2. May 23rd:  The OC Register reported that Chino Hills opens a 400,000 square foot mall called The Shoppes.  The mall is 91% leased and will be surrounded by 240 units of luxury housing and 50,000 square feet of office space.  True or false:  Placing this huge mall in the heart of Chino Hills will attract new comers to the city. 
  3. May 23rd:  The OC Registered reported that Wall Street Investors sink $500 million into Standard Pacific home builders.  Marlin Patterson which oversees $9 billion in investments, will employ a series of deals to help get the builder back on trackTrue or false:  Wall Street Investors are out of their mind to sink in so much money into building more homes, they must have too much money lying around that they don’t know of a better way to get rid of it
  4. May 30th:  The OC Register reported that a 15,000 square foot home in Coto De Caza sold for $19.5 million the previous week which was a record over the previous $15 million high in 2005.  True or false:  The people who bought this Coto De Caza home are Realtors running a conspiracy to make the rest of us think the housing slump days are over. 
  5. June 1st:  The LA Times reported that sales of bank-owned properties are picking up.  REO’s in good condition and listed at $300,000 or less is drawing as many as 15-20 bids from home buyers.  True or false:  One home in LA was listed at $250,000 and it was bid up to over $500,000, which was the market price.  
  6. June 3rd: OC Register reported that the demand for OC homes NOW is topping 2006 pace.  The number of deals in escrow as of the previous Thursday was 2720, an improvement of 46% from a year ago and 4% higher than at this time in 2006.  True or false:  The index shows that it would take 5.61 months of buyers to purchase all the homes listed for sale today compares to 5.82 (two weeks ago) and 8.86 months (one year ago).   
  7. June 3rd:  OC Register reported that Economists at Global Insight and National City Bank say Orange County housing is now 5.2% undervalued.  It’s the first time this math shows local homes as relative bargains to board economics since the 2nd quarter of 2003.  It’s also the largest undervaluation since the final three months of 2002.  True or false:  This data shows that new purchase deals in the works are at a two-year high. 
  8. June 3rd:  OC Register reported that Federal Reserve Chairman Ben Bernanke said he does not believe the United States will experience the out-of-control prices seen with the 1970’s oil shock.  “We see little indication today of the beginnings of a 1970’s style wag-price spiral, in which wages and prices chased each other ever upward” Bernanke said.  True or false:  These remarks by Bernanke came just a day after he said that the Fed’s rate-cutting campaign was coming to an end because of increasing concerns of inflation
  9. June 5th:  OC Register reported that the Labor Department stated that productivity rose at an annual rate of 2.6% from January through March, faster than the government’s estimate of 2.2% a month ago.  Wage pressures eased from the final three months of last year as labor costs rose at an annual rate of 2.2% in the first quarter compared to 4.7% surge late in 2007True or false:  Rising productivity allows business to finance higher wages from increased output
  10. June 8th:  OC Register reported that the rent/buy ratio is looking better for O.C. housing.  The rent/buy ratio for orange county in the first quarter was 22.2  (down from a peak of 29.7).  True or false:  Downward slope in the rent ratios is an indication that houses are becoming more affordable to buy.  
  11. June 9th:  National Association of Realtors reported that the pending home sales index rose nationally by 6.3% to 88.2 from a reading of 83 in March.  It’s the highest index since last October, but remains 13.1% lower than April 2007 when it stood at 101.5.  In the West, the Pending home sales index rose 8.3% to 98.8 in April and is 4.0% higher than April 2007.  Lawrence Yun, NAR chief economist, says that the underlying fundamentals point to pent-up demand:  “Home sales are at a bout the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs.”  True or false:  Orange County in particular is one of the strongest real estate markets in the nation. 
  12. June 14th:  Market Trends Graph reported that as of May 30th, For Orange County, we have reached the highest number of sales since March 2007.  Sales have been trending up every month since the low of 1056 in January 2008.  (January 2008- 1056; February 2008- 1243; March 2008- 1658; April 2008- 2019; May 2008- 2210).  True or false:  As a buyer, if I am standing on the fence lines waiting to jump at the right opportunity to purchase real estate in Orange County, I should take the jump now. 



1.   TRUE

2.   TRUE

3.   FALSE

4.   FALSE

5.   TRUE

6.   TRUE

7.   TRUE

8.   TRUE

9.   TRUE

10.  TRUE

11.  TRUE

12.  TRUE


So… all of this leads me to wonder, how many investments properties should I personally jump into before year’s end?  What about you?




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