Wachovia Declares Recession in November Economic Report

Email the Author: Brad Nix, Managing+Broker
Posted: November 18th, 2008
Category: Market Reports

The first paragraph of Wachovia’s Report is a tough one, but I think a first real honest look at where we are in today’s market….

A Serious Recession Has Set In

While the NBER will not likely get around to declaring when a recession began until late January or early February, there is little doubt a serious recession has set in. Real GDP declined at a modest 0.3 percent pace in the third quarter and more recent data have been decidedly more negative. Nonfarm payrolls fell 240,000 in October, following a much larger-than-initially-reported 279,000 job loss in September. Not only has the pace of economic decline intensified but it has also broadened considerably. Both the ISM manufacturing and non-manufacturing surveys fell well-below their key break-even level of 50 in October. The pace of layoff announcements has also picked up, as has the list of firms announcing earnings disappointments. While lending among banks has improved, the credit crunch is still abundantly evident virtually everywhere else. Underwriting criteria for home mortgages and consumer loans remain exceptionally tight and terms are far less generous than they have been anytime this decade. Lending for commercial real estate has all but dried up and the list of delayed and canceled projects has skyrocketed. Even state and local governments are scaling back. We expect policymakers to continue to work to offset this weakness, with a new stimulus package; likely to be passed during the lame duck congressional session.

Not exactly peaches and cream, but at least we are acknowledging the facts. Now, let’s start charting a course for improvement.

View the entire november economic report.

As always, thanks to David Bell, VP, Wachovia Business Banking for providing us with the Wachovia Economic Report.

Discussion: Comments

Residential real estate investments beat the stock market

Email the Author: Brad Nix, Managing+Broker
Posted: November 18th, 2008
Category: real estate news

As bad as the housing collapse has been in America, the stock market collapse has been worse. And not for just the past year plus, but for the past 10 years.

PortReal, LLC, publishes real estate investment reports and provides custom analysis for investors and industry professionals. Here are their findings:

On average, residential real estate investments beat the stock market for the last 18 months and for the last 10 years. This is particularly remarkable as the stock market data includes the benefit of reinvested dividends, while the real estate figures account only for market value and not rental income. Real estate is a protected investment in the US as government policy supports home-ownership. This protection shows up in tax benefits to homeowners and in monetary policy that reduces volatility in prices and financing costs. Real estate has a significant edge over equities from the standpoint of risk-adjusted returns (e.g., Sharpe Ratio).

Real estate outperformed equities

Source: http://www.portreal.com/

Discussion: Comments

Real Estate Strategy: Buy & Hold (even if it hurts right now)

Email the Author: Brad Nix, Managing+Broker
Posted: November 16th, 2008
Category: Real Estate Investors

I know many homeowners are upside down in their mortgage, meaning you owe more to the bank than your home is worth in today’s market. Don’t panic. Don’t force a sale. Don’t do anything, except keep making your payments - even if it’s hard to do so. Cut back on everything else in your life and keep making payments on your house.

Mark Cuban, one of my favorite thinkers, bloggers and personalities in America, recently wrote this advice on Homes vs Stocks:

So whats the difference between being underwater on a mortgage and underwater on a stock ? Is it that “experts” will tell you to hold the stock in hopes of it going up in value and then explain that those with homes worth less than their mortgages shouldn’t feel bad about breaking their mortgages and defaulting ?

I think “Buy and Hold” for stocks is one of the all time great marketing scams. Ignore it. Always.

“Buy and Hold” for your house is a mantra you should always live by. The difference ?

You can live in your house. You get utility from your hous

e. You may get a deduction for interest paid on your tax bill. You can develop a positive emotional attachment to a house.

A share of stock….well you can…you can look up the pr

ice anytime you want if you think thats fun. There is no utility of a share of stock beyond its financial value. The value of a house is that its your home.

But so many of you are now saying, but I’m upside down or underwater on my mortgage. I owe more than my home is worth. Cuban has this to say to you…

The fact that you may be underwater in your mortgage is of no relevance if you can make the payments.

If you can make the payments on your mortgage, it shouldnt matter if your house is worth 10pct of your mortgage. If you can make the payments, make them.

The value of your home may not go back up for years, but your payments will build equity. It may take years, truly a Buy and Hold Strategy, but you can ride it out and make it work. Time is on your side in a fixed rate mortgage. The longer you stay and pay, the more equity you have later. Cuban has this to leave you with…

Which is exactly the point. Buy and hold works when it comes to the HOME you LIVE IN. Turning in the keys because you have negative equity is a fool’s game. If you do, YOU WILL NEVER OWN A HOUSE.You will be a renter FOREVER.

Your home has far more value than its mark to market price because you can live in it . Do whatever you can to stick it out. It will pay off for you in the long run

Thanks Mark for being a true Maverick, read his full article here!

Discussion: Comments

Haste Makes Litigation Waste: Poor Drafting Renders Option to Purchase Unenforceable

Email the Author: Justin Daniels,
Posted: November 15th, 2008
Category: real estate law

Blackberries, text messaging and instant messaging have resulted in a culture that worships speed at the expense of precision. I see this effect every day when people explain transactions to me that they wish to pursue only to leave out important details that they either had not considered or were in their head and did not make it into the email.

I recently encountered a court case the demonstrates this principle and its disastrous consequences. A landlord and tenant quickly entered into a lease where the tenant was leasing “premises” defined as approximately half the available office space. The parties further agreed that the tenant would have the right to purchase the property. The parties, however, in their haste, failed to define what property meant. The tenant later exercised its right to purchase the property, however, the landlord refused to honor the option. The parties predictably ended up in litigation over the word property.

Definitions of Property and Premises are not Identical

After both parties expended significant sums in legal fees, the court of appeals determined that the lease defined premises but the option to purchase was for the property. The term property, however, was not defined anywhere in the lease. The court concluded that the option failed and was not enforceable because it did not define the property subject to the purchase option.

Haste makes litigation waste. A competent commercial real estate attorney can save you thousands of dollars in litigation fees by properly drafting this lease by defining premises and separately defining the property by attaching the legal description of the property to the lease. You may also not be aware that it’s a good idea to file a memorandum of the lease in the county real estate records so any third party who wishes to purchase the property will have notice of the purchase option. Many people, unfortunately, belatedly realize the value of a good commercial real estate attorney only after feeling the pain of five or six figure litigation costs. Avoid these costly mistakes by employing a seasoned commercial real estate attorney.

As always your trusted resource for practical legal advice.

Discussion: Comments

Another Point of Light

Email the Author: Brian Dubuc,
Posted: November 14th, 2008
Category: real estate news

Image via Wikipedia

Recent news stories about the federal plan to support the U.S. financial system explain that the Treasury Secretary Hank Paulsen has shifted the focus of this effort from purchasing suspect mortgage backed securities to other non-real estate backed securities and bank capitalization. The question is why?

If you are looking for that pony in the pile like I am, the answer is obvious - the toxicity of mortgage backed securities was not nearly as bad as was feared. The stock markets seem to think so too. Yesterday, real estate stocks were way up. Huh?

If you also believe that the stock market is a harbinger of things to come, then this is good news. Of course, we could have a massive sell off today of real estate stocks. The other explanation is that the initial investment in those CDOs and MBS issues was enough to contain the fire, and now the blaze has moved to other sectors of the financial world. I just like my theory better, because I just know that I am going to find that pony.