Are Short Sales Disappearing? 

Per Wikipedia "a short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property."  With home values still less than mortgage balances, and homeowners in distressed situations, a short sale can be an excellent solution for a homeowner who needs to sell because it avoids the "atomic bomb" of credit issues: "the foreclosure".

The challenge with short sales is that they are extremely time consuming, sometimes taking 9 months or more to complete.  For the bank to accept a short sale the homeowner must prove that they are in a distressed situation and can't make the payments.  Once that is done the bank must determine a fair market value for the property.

In April we reported that FHFA was requiring the big mortgage holders to respond to short sale requests within 30 days.  However, the industry may be making a huge shift.

As you might guess from recent issues of the newsletter we have been paying a lot of attention to the wonderful world of investing in mortgage backed notes.  What we are hearing is that the banks are dumping huge amounts of these notes rather than go through the lengthy short sale process.  This is especially true for the homes valued at $150k or less.

This information is further backed by the announcement on the 13th that the Fed will initiate purchases of agency mortgage-backed securities at a pace of $40 billion per month.  That's like another ½ a trillion dollars.

The good news for private investors, like us, is there are actually trillions of dollars of these distressed and non-performing mortgage backed notes available for purchase.  So we will be able to help the banks dispose of toxic assets, make some money, and help people stay in their homes.  What can be better than that?

By the way, in 2010 and 2011, almost 1/3 of all homes sold in the United States were paid for with cash!  Cash is king right now.  Those who put their cash to work now can benefit big!

Marcus and Millichap reported weaker than anticipated job creation in August, combined with downward revisions to the previous two months' figures, reinforces the fragility of the economy.  Although last month's results reflect slower hiring instead of increased layoffs, uncertainty surrounding the election and the approaching fiscal cliff are holding many employers at bay.  Manufacturing, one of the brightest spots of the recovery, was beset last month by waning exports to Europe...for the complete report click here.

Marcus and Millichap also reported all 44 markets tracked in the National Apartment Index are forecast to post continued employment growth and effective rent growth in 2012.  Recovery has moved beyond the cyclical surge in demand to a more sustainable expansion, as remarkable shifts in demographic, economic and social patterns underpin demand for rental housing.

Recently Lawrence Yun, chief economist of the National Association of Realtors predicted a 70 percent surge in housing starts in 2013.  A 70% surge in housing starts, new house permits, sounds impressive but built on the current base of housing starts is it really?  Still it looks like we have turned the corner which makes now an ideal time to be buying.

Another Bailout?

Our friend Andrew Mogol from Morgan Stanley Smith Barney LLC reported on September 13th that the Federal Reserve announced its third significant monetary easing program since the start of the financial crisis, dubbed "Quantitative Easing 3", or "QE3" by the investment community.  This includes the monthly purchase of mortgage backed securities mentioned above.  This announcement, a short term boost to the economy, sent the Dow Jones industrial Average up 207 points.

Laughs and Interesting Stuff 

Moped versus Ferrari

An elderly man on a Moped, looking about 100 years old, pulls up next to a doctor at a street light.

The old man looks over at the sleek shiny car and asks, "What kind of car ya got there, sonny?"

The doctor replies, "A Ferrari GTO.  It cost half a million dollars!"

"That's a lot of money," says the old man.  "Why does it cost so much?"

"Because this car can do up to 320 miles an hour!" states the doctor proudly.

The Moped driver asks, "Mind if I take a look inside?"

"No problem," replies the doctor.

So the old man pokes his head in the window and looks around.  Then, sitting back on his Moped, the old man says, "That's a pretty nice car, all right... But I'll stick with my Moped!"

Just then the light changes, so the doctor decides to show the old man just what his car can do. He floors it, and within 30 seconds the speedometer reads 160 mph.

Suddenly, he notices a dot in his rear view mirror. It seems to be getting closer!

He slows down to see what it could be and suddenly WHOOOOSSSHHH! Something whips by him going much faster! "What on earth could be going faster than my Ferrari?" the doctor asks himself.

He presses harder on the accelerator and takes the Ferrari up to 250 mph.  Then, up ahead of him, he sees that it's the old man on the Moped!  Amazed that the Moped could pass his Ferrari, he gives it more gas and passes the Moped at 275 mph.

He's feeling pretty good until he looks in his mirror and sees the old man gaining on him AGAIN!   Astounded by the speed of this old guy, he floors the gas pedal and takes the Ferrari all the way up to 320 mph.

Not ten seconds later, he sees the Moped bearing down on him again!  The Ferrari is flat out, and there's nothing he can do!  Suddenly, the Moped plows into the back of his Ferrari, demolishing the rear end.

The doctor stops and jumps out and unbelievably the old man is still alive.  He runs up to the banged-up old guy and says, "I'm a doctor.... Is there anything I can do for you?"

The old man whispers, "Unhook my suspenders from your side view mirror!"

Interesting Facts:

No matter which side of the political world you are on I think we can all agree it is time to do something about our national debt.  I have heard that the funds we pay in interest alone on our national debt, even with today's low interest rates, is now larger than our defense budget.

Don ran some figures during one of his lunch breaks.

If the national Debt was a 30 year mortgage with a 2.5% interest rate the monthly payment would be $63,128,576,554.41 (ouch!) 

That's about $180 per person per month in the US

If the national debt were to have 0% interest and no more accumulation we could pay it off in 100 years if we paid

$                       5,194     every second. That's    

$                   311,661     every Minute

$            18,699,705     every Hour

$          448,792,920    every Day

$  163,809,415,800    every Year