Tuesday, March 30, 2010

Double Dip Recession in U.S. Residential Housing Market Coming

The latest home price data came out today from S&P and despite small increases in housing prices overall the news was, as the report says, "mixed."

I have been saying a double dip recession is likely here in this blog for months. In fact this blog post quotes Mr. Obama agreeing with me. The current "economic recovery" is really nothing but a sick and damaged economy being supercharged by trillions of dollars in hot government spending.

It's like taking the proverbial 90-pound weakling from the old Charles Atlas ads and pumping a liter of pure adrenaline into his veins and then turning him loose on the community. He may look active but he sure isn't healthy.

Just think about all the Federal spending since the housing bubble burst.

Cash for Clunkers
First Time Homebuyer Tax Credit
Bailouts for Fannie, Freddie, AIG, Citibank, and all the rest
Mr. Obama's $737 billion economic stimulus bill

The economic fundamentals for the U.S. residential housing market are terrible. Look at supply and demand and answer one question for me.

"What catalysts lift housing prices higher?"

Sorry, there aren't any in the short term. Not until at least 2013 at the earliest, and maybe not even then.

Robert J. Abalos, Esq.


U.S. Home Prices Inch Up, but Worries Remain

Housing prices edged upward in January, according to data released Tuesday.

The Standard & Poor’s Case-Shiller Index rose 0.3 percent in January from December, seasonally adjusted, its eighth consecutive monthly increase.

But the apparent good news in the widely watched measure masked underlying troubles. David M. Blitzer, chairman of the index committee at Standard & Poor’s, called the report “mixed.”

“While we continue to see improvements in the year-over-year data for all 20 cities, the rebound in housing prices seen last fall is fading,” Mr. Blitzer said.

The seasonal adjustment of the data lifts the numbers in the soft winter months. On an unadjusted basis, the index fell 0.4 percent in January from December, extending a pattern of decline.

House sales rose in the fall as buyers and sellers eagerly did deals before the government’s $8,000 tax credit was scheduled to end Nov. 30. Congress then extended the credit until April 30, but the momentum was lost. Sales volume immediately plunged.

Other housing indexes, which use different sets of data from different communities, show that the expected ending of the credit was also hard on prices.

The First American CoreLogic Home Price Index dropped 1.9 percent in January, double its decline in December. The Federal Housing Finance Agency’s index dropped 0.6 percent in January after falling a revised 2 percent in December.

Analysts said that Case-Shiller would eventually slide as well.

“It is only a matter of time before the index records a double-dip in prices,” Paul Dales of Capital Economics said.

The housing market bottomed last winter. On an annual basis, the Case-Shiller index is now down less than 1 percent. Prices are down about 30 percent from the peak in the summer of 2006.

Twelve of the cities in the index went up in January from December. Los Angeles was the biggest gainer, up 1.7 percent. Chicago was the biggest loser, dropping 0.8 percent.

With the January 2010 data now published, it is possible to track the best and worst cities to have owned real estate over the century’s first decade.

The three best cities are no surprise: Los Angeles, New York and Washington. All are more than 70 percent above their level in January 2000.

Anyone who bought in Las Vegas would have lost a few dollars after paying their agent’s commission. But the worst-performing city in the index was Detroit, which ended the decade 28 percent below where it began.

Saturday, March 27, 2010

Most of the Investment Advice You Read on the Internet is Wrong

If you need any proof of how bad most of the investment advice you can find on the Internet really is just read this article on residential real estate markets and their outlook for 2007 from MONEY magazine. The article was written in May 2006, just as the real estate bubble was bursting.

A 3.4% loss for Las Vegas real estate in 2007???

A 21% gain for Panama City, Florida???????????

Most investment publishers like MONEY and most real estate get-rich-quick websites constantly cheerlead markets. CNBC does it too. They want you to buy into the notion that investing is easy and fun and everyone can do it in your spare time on weekends between trips to the mall and mowing the lawn.

It's not. It's hard work and risky. 80% of investors in any market lose money. Even the professionals are not immune. They lose money at the same rate as the amateurs. Successful investing requires highly specialized knowledge, detailed analysis, and most of all, the patience of a saint.

Don't just take what you read on the Internet with a grain of salt. Understand that most of what you read is being written by people that want to sell you something. There is nothing fundamentally wrong with that. I have a website for that purpose too. But what is important is whether they are trying to give you the truth along with that magazine subscription or home study course---or just sell you the course alone by any means necessary.

MONEY Magazine should actually do a full issue where it does nothing but explain its bad investment calls. It would be about 7,000 pages long and that would just cover the last five years.

Robert J. Abalos, Esq.

Friday, March 26, 2010

MUST READ BOOK: The 1% Windfall by Rafi Mohammed

THE 1% WINDFALL by author Rafi Mohammed is by far the best book I have ever read on the subject of pricing products and services and how just a simple 1% increase in price can yield huge gains in operating profits.

While this book hardly mentions real estate at all, the importance of the author's analysis is so profound for rental property owners and investors it staggers the imagination.

Most real estate investors focus on "market" prices. What is the comp for that property? How much is a two-bedroom with 1 1/2 baths going for in a certain neighborhood?

As I have said many times, these are DUMB questions. Real estate investors can speak of "average" prices, but market prices are a whole other matter. This whole reasoning is beside the critical notion of intrinsic value, which is an investment valuation and not an accounting concept at all.

This book got my mind racing so fast on the subject of pricing in the area of real estate investment and development I may write an entire book on this subject.

In the meantime, this book by Rafi Mohammed is a great start. His analysis of pricing models is flawless and just plain brilliant. I can't recommend this book more highly to you. If you are a small business owner that sells a product or service you can put the ideas offered in this book to work immediately.

For the record, I do not know Mr. Mohammed or have any financial stake in the sales of his book. I'm recommending it to you because it is a must read book.

Robert J. Abalos, Esq.

Sunday, March 21, 2010

Should You Buy or Should You Rent Your New Home?

I have been making the case for many years in my newsletter and blogs that there really is no longer a strong case for buying a home---unless your circumstances are truly unique, for example, you plan to live in your home at least ten years, or you were getting a massive discount on the original purchase, say 30% or more below the actual intrinsic value of the home, which is NOT its current or former market price.

Here is an excellent article from YAHOO! Real Estate that makes my very point. The prices of most homes are still ridiculously overvalued compared to the rents being offered by some landlords desperate to fill vacancies. In some areas, like my own in downtown Seattle, lessors are offering one, two, even three months free rent on a single 12-month year lease.

Try getting that sort of a deal from your mortgage lender.

Plus keeping the difference between your rental payment and potential mortgage payment in cash is the cornerstone of liquidity, something you better have in this unstable employment environment.

With the residential real estate market still very unstable and the risks of a double-dip recession very likely there is no logical case that can be made for buying over renting UNLESS your circumstances are truly special and rare.

This same analysis applies to all those investors scooping up all those foreclosures for cash. WHY? Residential real estate returns will be negative or flat for a generation to come. There is no urgency here to buy. Do you REALLY want to play landlord in this market? What incentives can you offer a tenant that the major players can't?

If more people had listened to me starting in 2004 when I was warning about the absurd prices of homes and condos from Seattle to Miami a lot fewer people would be doing short-sales today.

Robert J. Abalos, Esq.

Wednesday, March 17, 2010

Tony Hoffman and Hal Morris Located? Gurus of the Past Alert

Months ago I asked in this blog whatever happened to 1980s-era get-rich-quick creative real estate gurus Tony Hoffman and Hal Morris. I had a personal reason for asking.

Some of my many loyal readers have come up with the answer.

Apparently both live in Rancho Mirage, California. Tony Hoffman I'm told now runs an Internet gambling website operating out of Costa Rica.

One blog reader actually gave me his home address.

All this has not been confirmed. I haven't knocked on Hoffman's door to see if he answers. But to see him still committed to brazen, cutting edge entrepreneurism is an example for us all.

Well, maybe not.

Hoffman, after all, was the producer of the notorious "O.J. Simpson is Innocent" video. I find it illustrative of the get-rich-quick-in-real-estate industry's low ethics and despicable moral standards that Hoffman could easily move from real estate guru to ally of double murderer O.J. Simpson.

All this aside, does anyone know why these two gurus of all places on Earth would settle in Rancho Mirage, California? Is there a Retired Real Estate Guru Nursing Home there?

Thanks to all who have responded to my question. Keep your answers coming on those gurus of the past.

Robert J. Abalos, Esq.