Positive Real Estate Professionals

It will not come as a surprise to anyone that banks all over the world have been in severe trouble as the global economic woes impact most segments of the financial industry. I have read numerous articles, and written a few myself, about when the bottom of this crisis would be reached. Back on January 9th, I happily wrote a post entitled Rebounding Markets in which I discussed the flurry of reports on the bottom of the economic markets having been reached.

Today, Wells Fargo released its first quarter numbers. The first quarter profits for Wells Fargo have surpassed all of the most optimistic Wall Street predictions. Wells Fargo’s acquisition of Wachovia last year prompted a loss of over 50% of its profits. In spite of this loss that was directly related to the large stock of delinquent home loans held by Wachovia, the home loan sector of Wells Fargo generated $100 billion worth of closed mortgages in the first quarter. Prompted in part by the lowest interest rates since 1971 (source: Board of Governors of the Federal Reserve System), President Barrack Obama said today that refinances for March rose by 88% and represent 75% of loan applications.

Still think we haven’t reached the bottom?

In my humble opinion, one of the biggest concerns in a down market is consumer confidence. In today’s economic market, the stress level is “ORANGE” and always verging on “RED”. Half the reason for this is the negative press that is always put out there. Rich Dansereau has written a great article that talks about the new “stress test” that is being conducted. Without further ado, here is the article.

Via Rich Dansereau of Rich Talks Real Estate:

Have you ever had a stress test? In a volatile economic climate like what we are currently in maybe a stress test would be a good idea. Financial regulators this week will begin administering what is being termed “stress tests” this week to the nation’s major banks. These stress tests are designed to determine if the major US bank are sufficiently capitalized to continue to weather the current economic turmoil. What these regulators find will help to determine how the federal government responds to the needs of these banks.

If some of these banks fail the stress test then the federal government it prepared to exchange cash liquidity for common preferred shares that can be converted to equity stakes as necessary over time. This could put the federal government in the driver’s seat with regard to these banks. This influence by the government is definitely a step towards nationalization of some banks. A former official at the Office of Thrift Supervision, Kevin Petrasic has said that a “temporary nationalization” (source: Bloomberg, U.S. Pledges Capital for Banks as Stress Tests Begin) may be necessary for some banks.

Towards the end of January, US Treasury Secretary Tim Geithner pledged more transparency in how government allocated bailout funds were spent. This coupled with a pledge of accountability of TARP funds has boosted my confidence in how this portion of taxpayer money is spent. While I am wary of any bank nationalization, I do understand that these infusions of cash are necessary to allow the banks to continue to lend. The money has been allocated, the pledges made, and now the American people can watch this unfold while holding our elected officials responsible.

Learning of good news that surrounds the financial crisis is a great thing. Learning of good news that surrounds the Housing market and the mortgage crisis is even better. Rich Dansereau shares an article with us that points just to that. I think that it might just brighten your day to read this article knowing that things are taking a turn for the better.

Via Rich Dansereau of Rich Talks Real Estate:

It was quite unsettling last fall when the pseudo-government entities, Fannie Mae and Freddie Mac had to be rescued by the federal government. We are, I am happy to say, quite a long way from that place today. Though there are rumblings in other segments of the economy that continue today it appears that the major impacts to the housing markets, especially the lenders, is subsiding.

This can be empirically demonstrated through several very encouraging statements from some major lenders. Take for example the recent announcement in which Bank of America refuted any notion that they would become nationalized. In fact Bank of America and Goldman Sachs said they would not go back to the government asking for anymore assistance in the form of bailout money. Goldman Sachs announced that they are looking to repay they TARP money they borrowed in the very near future. This could of course be a reaction to President Obama’s announcement that any company seeking “exceptional” assistance would be required to limit executive salary to $500k per year as a condition. I would also like to believe that at least some of these major lenders finally have come to realize that they must either operate in a fiscally responsible way or accept the conditions placed on them for seeking assistance.

A good analogy would be a parent granting trust in their child to behave with the morals and sense of fairness that they instilled in them during their early and middle formative years. Often when parents do demonstrate this trust in their child there may be one misstep in the beginning that requires correction and the child will likely be granted an exception. If however a second instance of bad judgment occurs then the reaction of the parent may be more severe including conditions on the child’s behavior until trust is regained. As a result of the limitations the child now feels because of their breaking of trust, the child will hopefully have learned the lessons of self-restraint, self-control, and responsibility. In case there is any question as to how I feel on this issue let me be clear, the growth of the lenders in this self-actualization process is great news.

Most of you know the co-owner of PREP, Rich Dansereau. Rich has been in the Real Estate industry for almost 8 years now. His knowledge of the financial sector expands beyond the housing market and his insight is deep. I am honored to bring an article that he recently wrote on Rich Talks Real Estate.  If you have not read the latest reports from NAR, then you need to read this article from Rich.

As always, if you have an question on this article or anything to do with the housing industry, please ask. That is what we are here for.

Via Rich Dansereau of Rich Talks Real Estate:

It should come a no surprise to anyone that there has been a lot of negative news regarding the housing industry since the economic volatility we find ourselves in began a couple of years ago. Today the National Association of Realtors (NAR) released some housing figures that are quite encouraging. NAR has reported that the sale of existing homes rose 6.5% last year.

What does this mean to individuals? To the economy? There are those who will take the somewhat cynical stance and say that after a 15% drop in median home prices it is logical that the sale of existing homes at bargain prices would fuel a rise in sales. While I characterize this as somewhat cynical, it is not that far off base. Though the drop in home price reflects a drop in home values and that is unfortunate for those who have been building equity in their home, the increase in sales definitely signals that many people have realized that interest rates are at historical lows and that the abundance of properties means there are good deals to be had. Do not misunderstand, you will still pay real money for a home, this is not buying for “pennies on the dollar.” This is an opportunity to buy a home at a good price with favorable terms.

As for what this means to the economy, this is in direct contradiction to many of the mainstream media reports that people want to buy homes but there is no money, a.k.a. home loans, available to be able to do so. These numbers demonstrate that home loans are available to properly qualified borrowers. They also show that many people have realized this and are getting approved and buying a home. Sales for single family homes, condos, and co-ops all showed increases. While sales are 3.5% lower than where they were the previous year, the increase is a good indication that existing home sales will be the torchbearer of economic recovery.

If you are not familiar with this subject, then I recommend that you read the post below. Rich makes an excellent assessment of this procedure. For those of you that do not understand this program, it is actually a very good thing as this will not have an adverse affect on the neighborhoods. As always, if you have questions, then please ask.

Via Rich Dansereau of Rich Talks Real Estate

There has been talk for many months, perhaps even a year or more, that the most direct way that lenders could impact the volatile housing market and impose some stability would be with write downs of the loan principals to more align with current market values. This proposal was boosted today with the support of Senators Richard Durbin of Illinois, Charles Schumer of New York, and Christopher Dodd of Connecticut who got the agreement of Citigroup to go one step further and support legislation that gives bankruptcy judges the authority to write down loans, alter terms, and even nullify lender’s rights if they violated the Truth in Lending Act or other state and federal laws. Though this type of authority has been in the talking stages for many months, it appears that it may be moving closer to becoming reality.

With the election over and riding on a mixture of resolute determination to get the economy moving and a new found majority in both houses of Congress, doing something for longterm results seems to be the watchword of the day. Dropping their opposition to such a proposal, the National Association of Home Builders has joined in the growing chorus of industry professionals, economists, and distressed homeowners in calling for just such legislation. Even the generally conservative leaning National Association of Realtors is debating whether to end its opposition to this very issue. We may very well see this attached to the Economic Recovery Bill that House Speaker Nancy Pelosi said must be debated and voted on before Congress’ first vacation scheduled for February 16th. The stakes are very high and the next month to six weeks will be very telling of what this new Congress might be able to do to help curb the current economic crisis.

I, like many of you, have watched with hopeful optimism as the news of the Emergency Stabilization Act of 2008 or any number of the bailouts have been approved by Congress to help stimulate the economy. Please understand there is a distinct difference between being optimistic about what is being done in the name of economic stimulation and supporting the method being used. While you may or may not agree with the moves the current administration and Congress has taken, it is important to try to maintain an optimistic and positive attitude with regard to the success of those moves.

You may be asking, why would I want to maintain some hope that moves I did not support are actually effective? That question has an easy answer, as real estate industry professionals across all fields our incomes and families are directly affected by the current economic turbulence many markets are experiencing. It would be counterproductive to hope for anything but success with regard to measures that had already been approved to help curtail the economic issues in many markets.

A natural follow up query might be, shouldn’t I question what is being done? I believe that as a patriotic American it is your duty to criticize and question. The act of debate is an important historical tool used to better our country by examining the various sides of an argument that may not be readily apparent. So yes, you should question what is being done but the tone with which that questioning is done must rise above children screaming at each other on a playground. If the tone of discourse, though vigorous, cannot also come from a place of hope and optimism then there is the real risk of alarming those other kids on the playground who are not screaming and may not even understand what the argument is about. This debate may be the best opportunity to educate those confused bystanders who otherwise will get the gist of their information from the evening news and newspapers.

Many people say that there is unfettered and unwarranted optimism coming from the real estate industry. I would respond by asking simply, what is the alternative? Coming from a positive place does not mean that one is ignorant or naive, it means that one chooses to rise above the screaming cacophony of negative to a cerebral place where reason and intellect grow from a place of optimism and hope.

See the image I have inserted into this post? It is from Digg.com‘s Business & Finance front page. Some of you may not be familiar with Digg so a simple explanation is that this is where millions of people get the stories they read on the internet everyday. The number in the yellow box represents votes by people in favor of a particular article. The stories that get the most votes make it to either the sectional or general front page of Digg. Making it to the front page (and yes there is criticism on how many people do this) can garner that article thousands, even hundreds of thousands, of hits as well as comments on the article, and on Digg comment section for that article. Like most programs on the internet, the number of votes is a mere fraction of the actual visitors to an article. I use this to further illustrate the importance of real estate industry professionals being active and positive participants in this conversation.