401K

The Housing Hurricane Will Howl Again

This week I’m doing something a little different and including an article on housing by author and real estate professional, Mike Morgan. I was early to warn of housing’s collapse and I continue to see signs of danger. After all, the economy cannot stabilize until housing does.
 
We are just in the eye of the storm and the current rally should be looked upon as a gift, and used to prepare your portfolio and your finances for the rough road ahead. We will be going through many different cycles, deflation to inflation and back again, and a different approach is required for each. Plus, there are a lot of safer investments out there right now that offer great yields, so why take the risk. A buy and hold strategy is has proven ineffective and in most cases calamitous. You have to be tactical in this market. That’s why our specialized Top-Down Tactical - TDT™, has worked so well.
 
If you have any questions or even just a simple 2nd opinion, just give us a call.
 
Cheers -Keith
 
P.S. If you know of someone who has been recently laid off or left their job, let me know. I just finished and published a new Special Report Your 401k Rollover Choices Explained. It’s not on my website yet, but I’m happy to make it available.
 
 
Keith Springer
President
916-925-8900
 
The Housing Hurricane Will Howl Again
This is only a lull in the housing hurricane.
By Mike Morgan
 
WE’RE OUT OF THE EYE OF THE HURRICANE, but here comes the back half of the storm. A lot of people think that we’ve seen the worst of the housing crisis. They’re talking about green shoots and glimmers of hope, when they should be back in the storm shelter, preparing for a flood of inventory that will overwhelm the markets and produce another round of falling prices
 
For the past few months there has been a semi-moratorium on foreclosures. Most institutions with delinquent mortgages didn’t foreclose. The signs that blanket many neighborhoods have been posted by a fraction of the lenders. Now the rest of the banks are rushing to get their properties on the market. As a Florida real-estate broker who works with bank asset managers to dispose of foreclosed properties, I get a good view of this market. From December 2008 through mid-March 2009, the number of asset managers cal
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ling to discuss REO (real estate owned) properties on their client banks’ books dropped by more than 80% from the level at which it previously had been running. In the past two months, however, asset managers have been busy, with most interested in how many properties we could handle at once.
 
Law firms for banks are once again lining up to file foreclosures and to process evictions. The asset managers we work with have warned us to expect a flood of properties, beginning in early June. This will hit as the number of potential buyers continues to dwindle. Builders, traditional sellers and investors who entered too early are already loaded with REO properties.
ALL OF THE OBAMA administration’s attempts to revive, resuscitate and shock the housing markets into recovery have failed. Potential buyers can’t purchase homes when they are losing their jobs, regardless of how attractive the credits and mortgages are. The price of homes will continue to fall until the properties are affordable for potential buyers.
If an investor could purchase a home and rent it out for close to breakeven, we might be getting close to a bottom. But we are nowhere close to that level in most critical markets. Until it is approached, prices will continue to fall. In fact, the negative cash flow now evident, along with the flood of properties coming into the inventory pool, warn of lower prices.
There’s no light at the end of the tunnel yet. We’re still supporting builders through misguided programs that are only adding to the inventory woes. California decided to offer a $10,000 credit to buyers of new homes, on top of the $8,000 federal credit. But California made the $10,000 available only for new homes purchased directly from builders. That shows the power of the builders’ lobby, but it only adds to California’s housing-industry problem. It encourages builders to construct dwellings we don’t need, and it penalizes anyone else trying to sell a home.
 
Housing inventory soon will flood a market in which more than 500,000 homes are being built each year, even though the annual sales pace for new homes is closer to 300,000. We must also deal with a system clogged with impossible short sales, a surge of second and vacation homes being dumped, and third-wave flippers realizing that they entered the market too soon.
 
FOR THE BANKS, the back half of the hurricane will destroy balance sheets, unless the Obama administration comes up with another plan to mythically mark these assets on the books. Or we might see some chimerical plan to write down mortgage payments, or move toxic mortgages into a dark pool, or create some new illusion that glosses over the problem.
Our experience with banks’ selling REOs is they realize about 50%-75% of what they initially think they will get. Moreover, their expenses to bring these properties to market and manage them are growing. Court systems bogged down with foreclosures are raising fees so that they can hire additional staff. More and more homeowners being evicted are stripping homes to the bone, removing appliances, fixtures, carpet, cabinets, air handlers, motorized garage-door openers and anything else that they can carry off or sell.
Unemployment presents a two-pronged problem. If homeowners lose their jobs, they have difficulty meeting mortgage payments. And a high jobless rate forces more people to put their homes on the market.
 
During the housing bubble, many second homes were purchased with the mythical equity from primary residences. These second homes are coming onto the market at an alarming rate, as many middle- and upper-class sellers need to raise cash. In some very exclusive private communities in Florida, where home prices are in the seven figures, more than 50% of the homes are on the market. (For more on the vacation-home market, see Cover Story.)
Unfortunately, there are no signs of recovery, despite the hype and the twisting of numbers in many media reports. The end of the unofficial moratorium on foreclosures,
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combined with rising unemployment, signals that the back half of this housing hurricane is only just beginning.
 
 
KeithSpringer
President
Capital Financial Advisory Services
1383 Garden Hwy, Suite 200
Sacramento, CA 95833
www.KeithSpringer.com
Phone -916-925-8900
Fax – 916-925-8914
Providing Professional Financial Advice since 1985
 

By: Keith Springer

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President Capital Financial Advisory Services in Sacramento, CA

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