Justin Brennan's Blog

 Hate to play Devils Advocate: Don't Kill The Messenger

Does anyone really think that homeowners can afford to pay 60% of their income for housing? Apparently, the architects of the latest loan modification program called HAMP do. Government officials are touting that they are saving the housing industry by modifying more than 1 million loans to date, and converting 170,000 of those to "permanent" status, with many more to come. www.TheLaJollaLife.com for short sale info FAQ and more...

Those so-called "permanent modifications" cost the Borrower 31% of their income today, but the Borrower still has 60% of their income going to total debt obligations (credit card, HELOC, car payment, etc.). These statistics, known as the Back-end Debt to Income ratio, can be found on page 4 located here . Although not disclosed, we believe most of these loans exceed 100% LTV today as well. This is nothing more than a fully documented version of the same garbage that took down the banking system two years ago, and this time the Federal government rather than Countrywide and New Century are underwriting it. Almost all of these Borrowers will eventually re-default. Compare a Deed in Lieu vs Short Sale?

It is very obvious that the architects of HAMP are short-term focused, and are tricking us into thinking they are solving the problem by calling these permanent modifications. Until these loans are renamed, let's call them "Liar Loans 2," except this time the liar is the Bank of the United States rather than the Borrower because this modification is anything but "permanent". We do believe that stabilizing home prices and the banking system are critical to the recovery of the U.S. economy, but let's at least tell the truth about what is being done.

What this means for you is that the housing recovery that is being touted by elected officials is far from assured. There will be fewer homeowners thrown out on the street this month than would have occurred otherwise, but they will be tossed out later. The modification programs have helped stabilize home prices around the country, mostly because they have created so much confusion that people can live in their home for free for one year or more, and are buying time for thousands of banks to continue improving their balance sheets with earnings from good loans, while deferring the write-off of bad loans. The biggest beneficiaries of this program are the banks with the largest Home Equity Loan portfolios, which are also the banks needed to provide capital to businesses to start hiring again. Avoid Foreclosure. Get Tips and FAQ

How does this change things? We will be adding 170K additional future foreclosures to our forecast, with many more to come, and guiding our clients through these turbulent times by analyzing every indicator we can get our hands on. Despite the negative tone of this email, there are and will continue to be plenty of opportunities to make money, particularly taking advantage of the distressed selling that will go on for years, but having a long term investment horizon. Also, the national housing market is becoming more local than ever, which means those with local market knowledge, or the ability to roll up all of the local factors into a national view, will make the most money. In other words, those who do their homework will get straight A's. www.TheLaJollaLife.com for Short Sale info.

Source: John Burns Real Estate Consulting

Real Estate Highlights:
 


March Sales at 2006 Levels:  March 2010 sales were significantly higher than March 2009 sales and in fact reached near March 2006 levels.   Trends seem to indicate a very strong selling season.
 
Inventory Declining: In January and February of this year inventory was rising probably due to seasonal factors.  During the month of March inventory took a sharp decline, confirming a very strong Seller’s market. To get more info about La Jolla visit www.TheLaJollaLife.com
 
Prices Rising: According to the Case – Shiller Index, San Diego County aggregate prices continue to rise.  Prices are rising the fastest in the bottom third of the market (below $306,000) while the top third of the market (above $460,000) is essentially flat.   Note that year-over-year price levels are actually above last years prices in all price ranges.
 


Monthly Mortgage Resets: An updated version is shown (March 2010) of the Credit Suisse mortgage reset chart that usually appears in this presentation.   The original chart was generated in 2007.   For comparisons sake I tried to match the time frames between the two charts to see what has changed.   If the 2010 chart is correct it shows resets and recasts will continue well into 2012 with a peaks in the second half of 2010 and late 2011/2012.  Note that this chart projects the mortgage resets not really ending until late 2012.    A major change between the two charts appears to be the earlier chart showing these adjustments ending in early 2012.   The new chart also shows a reduced but still significant amount of resets and recasts in 2013, the previous chart showed 2013 being much lower.
 
Foreclosures Rise:  Notices of Default rose sharply last month from the previous month but remained within the past range of about 2,000 to 3,000 per month.   Interesting that the Notices of Default continue at a steady pace while inventory is shrinking.
 
Building Permits Level Off :  Across the U.S. and in San Diego County building permits appear to be slightly rising from a very low level.  This is the first uptick nationally since early 2006 and the first uptick in San Diego County since the middle of 2004.  It is too early to determine if building permits are bouncing along the bottom or are actually getting ready for sustained growth. To learn more about Justin and his La Jolla Development with family check out TheLaJollaLife.com development page.
 

Economic Highlights:
 
 Consumers continue to shed debt as this chart shows.  Note the year-over-year decline in the Financial Obligations Ratio is the largest since at least 1980.
 
Unemployment Steady:  The Unemployment Rate held steady at 9.7% and the Average Weekly Hours Worked rose from last month to 33.3 hours. Check out more market info and Short Sale FAQ at TheLaJollalife.com
 
Consumer Credit Continues to Decline:  Year-over-year consumer credit continued to decline at almost a 5% rate while year-over-year revolving credit declined at a rate of about 10%.

La Jolla Ca is such a beauitful place. La Jolla Agent Justin Brennan has created a wild 3 minute tour of La Jolla CA. If you are interested in buying or selling a home in La Jolla, CA or San Diego. Contact Justin Brennan. www.TheLaJollaLife.com

Justin uses a very unique marketing approach tarketed at the heart of emotional decision making in real estate.

"It's all about telling the story of your home. Facts tell, stories sell" Justin says.

"I have learned a lot about branding and marketing from my college dormmate and fraternity brother Madison Hildebrand from Bravo's "Million Dollar Listing. It is a true joy to help families find their dream home."

Learn more about his unique marketing approach.

So here is the deal and what a deal it is. Open the flood gate and let the stampede begin. If you live and pay CA state tax and if you are either a first time homeowner or existing homeowner and close escrow between May 1st 2010 and June 30th 2010 you may be eligible for $18,000 is tax credit rebates. Read more below. www.TheLaJollaLife.com to search San Diego Homes

WSJ:
We told you that the (financially troubled) state of California is poised to offer home buyers up to $10,000 to get off the fence and to the dotted line. The $200 million program, split between first-time buyers of existing homes and new units, should keep the Golden State’s sales moving along post spring-selling season.

But, it might not get off to a peaceful start on May 1: Get ready for a stampede early on as some buyers rush to overlap with the federal tax credit that’s dangling as much as $8,000 to buyers. (Yes, that’s up to $18,000 for buying a house.)

For the federal incentive, contracts must be inked by April 30, while closings have to happen by June 30. The California credit covers closings on existing or new homes on or after May 1, leaving a short window for double dipping. “We already anticipated increased contract activity in March and April due to the federal tax credit with scheduled closings in May and June,” writes Credit Suisse builder analyst Dan Oppenheim. “These buyers will now be eligible for both the federal and state credit and will likely consume a significant piece of the state credit given the first-come, first-serve allocation.” To seach the MLS in San Diego www.TheLaJollaLife.com

Mortgage rates are expected to rise gradually as the Federal Reserve left a key short-term interest rate untouched Tuesday, but said it would wrap up $1.25 trillion in purchases of mortgage-backed securities this month.

In a forecast published Monday, economists with the Mortgage Bankers Association predicted that mortgage rates will rise gradually for the remainder of this year, and stay on an upward trajectory in 2011 and 2012.

In a statement, the Federal Open Market Committee said its target for the federal funds overnight rate will remain in the range of zero to 0.25 percent, as inflation is likely to remain "subdued for some time."

Although household spending is expanding at a moderate rate, the committee said it remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit.

The Fed's purchases of mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac have helped keep interest rates near historic lows in the last year.

Although the committee said the Fed will wind up its MBS purchases at the end of the month as planned, it has no immediate plans to sell off the bonds it's purchased, which would put additional pressure on mortgage rates (see story).

The MBA forecasts that rates on 30-year fixed-rate mortgages will rise to an average of 5.4 percent during the second quarter and reach 5.8 percent in the final three months of the year. MBA economists expect the 30-year fixed-rate loan will average 6.2 percent in 2011 and 6.4 percent in 2012.

When mortgage rates reach 6 percent, that will "significantly slow refinance activity," MBA economists said in commentary accompanying their forecast, "but should not slow the modest housing market recovery we are forecasting."

The MBA predicts sales of existing homes will climb by nearly 4 percent this year from 2009, to 5.34 million, and reach 5.72 million in 2011. Sales of new homes are expected to bounce back from a record low of 372,000 in 2009 to 398,000 this year and 528,000 in 2011.