A number of realtors across the country can be heard making claims that we are ‘finally in a recovery.’  They like to site the summer’s sales figures as evidence.  Let’s examine the facts so we aren’t mislead by, for all intents and purposes, the sales people.

The labor Department has reported consumer prices rose 0.2% in September.  For the year, consumer prices are down 1.3%.  This provides the Federal Reserve incentive to hold interest rates at record-low levels with the idea of giving the economy a needed boost.

In the week ending October 10, initial claims for unemployment benefits fell by 10,000 to 514,000.  This figure came in a little lower than expected.   The number of people still claiming jobless benefits in the week of October 3 fell by 75,000 to 5.99 million which is the lowest number since last March.  Sound encouraging?  First consider this:

From National Association of Home Builders:  “The pending expiration of the $8,000 first-time buyer credit made for a disappointing 1 point dip in the October housing market index to 18, according to the NAHB.  All components dipped in the latest report especially traffic which fell 3 points to 14. The results hint at a step back for housing which had been on the rebound thanks to government stimulus.”

From Associated Press:  “The Commerce Department released its monthly report on housing starts Tuesday, saying they increased in September by a modest 0.5 percent to an annual rate of 590,000 new homes and apartments. Applications for new building permits, however, fell by 1.2 percent to an annual rate of 573,000 units.”

The facts tell a bit of a different story!  In the light of the current economic trend many savvy, educated and well-employed families with 6-figure household incomes are assessing the damages and opting out of their homes now.  This will clearly fuel the foreclosure fire for some time yet.  Luxury homes will be – in fact, already are in default like never before in our lifetime!  That’s right.  The next wave of foreclosures will bring a flood of higher-end properties!

I have stated for some time now in my blogs, speeches, webinars and on my website, that this thing isn’t over yet – far from it.  I do not see millions of educated, well payed Americans all taking the housing value implosion sitting down!  The American way has historically been to take more than you give.  Most people will not accept this short fall of hundreds of thousands of dollars.  They will wrestle with the moral dilemma for a while but, in the end, will do their best to sell their home short and cut their losses.

In the long run, they will have taken a hit on their FICO scores that will be sustained for at least 2 years. Once their credit has reached an acceptable level they will purchase again – this time, at a much lower price.  Do the math.

At this juncture I must interject the personal note that I do not agree with reneging on any contractual arrangement and I will not encourage anyone to default just for the sake of escaping their obligations.  Nonetheless, my company had aided many families to find solutions once they are already in default.  This means even providing them the opportunity to remain homeowners even when they have had to short sell their home.  Remember this, it took America years to get to this point and it is not going to suddenly correct itself unless we learn to discipline ourselves and control our spending habits.  Don’t hold your breath waiting for that to happen!

That is the question.  Depending on whom you ask, you may get an amusing variety of answers.  In theory, loan modification should be an equitable arrangement in which the bank avoids taking back a property from a family that is in hardship.  The family, in turn, would likely avoid losing their home and taking a broadside hit to their credit rating.

That was the hope of the U.S. government when they decided to “bailout” the banks.  Some of the money that went to these troubled banks was allocated for helping approximately 750,000 troubled families to save the family home.   The idea was to reduce the monthly payment to an acceptable level….maybe even some of the principle.  All would work well if everyone cooperated and tried to do the right thing.

Well, guess what?  Out of that huge number only 7,000 got modifications to their mortgages.  What happened to the rest of these unfortunate homeowners.  They ended up getting the “short end of the stick.”  Even now, it takes 4 months just for an applicant to get a reply.

As a result, attorneys are working to protect families across the country from the predatory practices of many banks.  Now banks, attorneys and others cannot accept money from homeowners seeking a loan modification until one has been successfully obtained.  But what about the many who have helplessly been relying on their lender for some relief?

One terribly wrong practice that has become commonplace is for a bank officer to suggest that the homeowner must go into default if they want the bank to “buy” their hardship story.  Imagine if you had stopped making your payments, received a N.O.D. (Notice of Default) and 4 months later get notified that you’ve been turned down for your loan modification?  In some cases, families have even gotten their notice of foreclosure auction while patiently awaiting a reply from the mighty bank.  Now their credit is shot, they will have to move and they are further away from a resolution than before applying.

Suppose, though, that a family took the short sale route.  They call a qualified short sale consultant and chose to stop making their payments, all the while saving every dollar for later.  Yes.  They will have to move…..eventually.  But in 24 months their credit can be repaired.  In addition, they will have gotten out from under the burden of debt that loomed over them relentlessly.  Honestly, we have to acknowledge that the banks have brought this on themselves by their greed and insensitivity.

Of course, each case is different and each family must decide for themselves which direction to go.  Nonetheless, the notion that the banks will be true to their fiduciary responsibility to the consumer has been dispelled.  Protect yourself!

Do you like roller coaster rides?  Check this out: The number of long-term adjustments completed under the president’s foreclosure prevention plan rose to 66,465 at the end of December, or 7.4% of all trial modifications started, up from 31,382 a month earlier. Another 46,056 modifications are pending borrowers’ final signatures, according to Treasury statistics released Friday. Another 48,924 were denied permanent modifications, mainly because they did not make their trial payments on time, didn’t hand in the needed paperwork or didn’t meet the program’s criteria.

So what does this all mean?  Loan modifications aren’t working. Unless and until there is any kind of significant  reduction of principle, most people getting a loan modification will stop making their payments if they are $100,000+ upside down on their home. And there are A LOT of people upside down. This will trigger lots of “jingle mail,” where the homeowner just sends back the keys, in 2010.  According to one business journalist: “The big wave of Option ARM resets has yet to come, and given the drop in home prices, refinancing won’t be realistic.”  Expect there to be more short sales coming in 2010. But 2010 may bring more buyers now that FHA has given the green light.

Housing experts remain concerned that the rate of foreclosures still outpaces the help homeowners are receiving under the program. A record three million homeowners received at least one foreclosure filing in 2009, according to a RealtyTrac report released last Thursday. A lot of borrowers are too far underwater or don’t have enough income to qualify for a permanent modification, said Celia Chen, senior director at Economy.com. Many will not be able to provide all the documentation needed. Administration officials said they continue to review the program to make sure it is helping those in need.  Chen said she doesn’t think there’s anything the government can do to keep these borrowers in their homes. “As more of these loans fail to make it to permanent modifications, a lot will go back on the market as foreclosures and that will depress home prices,” said Chen, who expects home prices to fall another 10% by the third quarter of this year.

So what’s the bottom Line here?  Although the number of delinquent properties and shadow inventory continue to rise, early indications seem to point toward a reality check sometime in the near future. Once
existing inventory is purchased, expect a significant lag time to meet growing demand. In other words, supply will once again have to catch up with demand.  Currently, distressed homeowners have reduced expenses, moved in with family and made other temporary arrangements in an effort to “ride out the storm.”  I expect that short term solutions will eventually give rise to the need for permanent housing.

Now, as the need grows again, there will be another push on existing inventories.  Many savvy homeowners are coming to grips with an inevitable dent in their credit ratings and opting for short sale of their homes.  With this trend, it will present investors with many good opportunities over the next 18 months.

Feeling a little beat up coming out of 2009?  You’re not alone.  Now as we look forward into another year, anxiety and maybe a little fear seems to captivate the minds of many.

Just over a year ago we witnessed the near collapse of the U.S. financial markets.  While jobless figures have rocked our world, unemployment is likely to rise going into 2010.  Due to the fact that government policy is uncertain, many firms are holding off from hiring until the future gets clearer.  But don’t conclude that’s all.  As the government stimulus programs wind down, we could experience another dip.

Compounding the situation is the massive amounts of household debt Americans are carrying.  The levels are unprecedented and potentially lethal.  What, then, will this mean for the housing markets?

Inventory of new homes is at its lowest level in 17 years.  This is due largely to the steady stream of foreclosures hitting the market.   Add to that, the extension of the government’s 1st time home buyer tax credit till April, 2010.  This will stimulate more action on the lower-end houses.

However, according to Cameron Findlay, chief economist at LendingTree, “Delinquencies are a precursor to foreclosures.”  Then he added, “We’re not seeing any decreases in delinquencies, which is very concerning.”  A wave of foreclosures would only add to the inventory in residential real estate.

As I have stated for some time, without the federal stimulus money and earnest cooperation from the lenders, it is likely that we will see a continued drop in demand while the supply rises.  I also see this happening at a higher rate in the luxury home arena.  Many of this nation’s rich will opt out of their mortgages in 2010 making the luxury home market the best in our lifetime.

One innovative young company has created what they call their “Homeownership Preservation” program suited to these types of families who wish to short sell their homes and start afresh.  In a future article I will comment on some of the features of this brilliant strategy.  Till then, I’ll have my “ear to the ground” and keep you posted.

For a while now you have been hearing about everything “green.” This is the new buzz word for the decade to come. Of course, “green” refers to anything that, in a very broad sense, is environmentally friendly. So, whether you are a real estate investment expert or just launching your “real estate investing for beginners” venture or you are a real estate investment expert, how can you utilize the “green” trend? Better yet, how can moving with this trend prove profitable for your real estate home business?

The answer is to do “green-habbing.” Yes. There are a variety of rebates, tax incentives and credits for those who rehab their investment properties in this manner. While it is usually more expensive to purchase “green” materials, in the long run it will be cheaper because of the many government programs designed to attract environmentally friendly projects. In my opinion, if you don’t mind dealing with the pace of government agencies, you can effectively profit from such an approach.

No doubt the utility bills will end up less for the end user and the indoor air quality will be less toxic than in recent traditional rehabs. For these reasons it is clearly the socially responsible thing to do with real estate investment properties.

So, what kind of methods do I advocate in my real estate mentoring program? First, commit to the learning process and profitability will follow. Secondly, for those who know their buyers/end users, it is advantageous to use this option as a selling point. Third, look for rebates on everything you need to purchase for your rehabs.

Every day more and more suppliers and contractors are opening up to the concept. Before your next project, do a little research to see the viability of building your own “green team” of suppliers and trades people. I feel that those real estate investors who take the initiative now will have some unique opportunities as we move into the next decade.

Track your results. Some things work very well while others, you may not wish to offer in the future. See what sells and what doesn’t. Certain communities are more in tune with the “green” mindset. If you have one of these communities in your area, strongly consider “green-habbing.” It could be one of the more lucrative decisions you make this year.

Left under the ominous shadow of the megabanks is the bruised and tattered small real estate investor.  The large lending institutions have brutalized the businesses of many small investors who were only out to turn a modest profit from turning a polished property…something the banks wouldn’t typically do.

It used to be that whenever we would hear about an REO we would get excited.  Since they were so uncommon an investor would feel like they had struck gold….not any more, though!   The term “REO” represents more of a retail proposition rather than a bargain.  Lenders have been flexing their muscles and held out far longer than logic would dictate until the market stagnated to the demise of the industry as a whole.  I personally know once-successful Realtors® who have been forced to file bankruptcy as a result of the stranglehold the lenders have placed on their escrows.  Repeatedly, escrows fall off and they need to start over again.

From my experience and continued research, I can confidently claim that without the investor, the real estate market would be an entirely different ball game.  Over the last 2 years it has been the investor that has kept the market somewhat alive.  There is still a large segment of the buying public who will not touch a home that is not in pristine shape.  That’s just human nature.

One of the ways my team has fought back is by making things happen with private money.  This is, in fact, a productive way of profitably operating our REI business while boycotting the Godzilla-like banks who leave a wake of devastation everywhere they go.  Private money has helped many of my students and clients to make things happen quickly and without sterling credit.

Of course, as a leading real estate mentor, I teach and employ a proprietary system in which we can get around the lender-generated mine fields.  We could stay and cry about the changes being made or we can be proactive and change with the times.  In my company, we have chosen the latter.

Real estate investing will never be the same, but does it ever remain the same?  No.  Like every industry, there are always changes-some good/some bad.  Nevertheless, the wise investor will roll with the punches.  This is a great reason why buying many of the REI programs out there isn’t wise.  Methods don’t last forever, so get a qualified mentor with decades of experience who can adjust with the changes the market brings.  Be open-minded and ready to make changes yourself.  Only the strong survive!