Posted: Oct 30, 2007
In the past week we've seen more sub-prime casualties. The latest is Stan O'Neal, CEO of Merrill Lynch & Co. Last week Merrill Lynch reported its first quarterly loss in six years and the largest in its 93 year history when it wrote down an $8.4 billion loss due to its substantial holdings in sub-prime mortgages. Furthermore, Merrill Lynch is expected to write down an additional $4 billion loss in the fourth quarter of this year adding to the pain of the company.
O'Neal, who just three weeks ago estimated the third quarter write down to be in the $4 billion range, later commented on how difficult it is to calculate losses in the sub-prime markets. O'Neal stepped down this morning as CEO of the nation's largest brokerage company.
Chuck Prince, CEO of Citigroup is also in the frying pan. Whether he gets fully cooked or not is yet to be determined. Citigroup reported a $1.56 billion write down on its sub-prime business. More losses are coming to Citigroup as well.
The bottom line: There is an unknown amount of sub-prime fallout yet to come. These bad loans are not only hurting these investment firms, but have already had some affect on the overall economy.
If the big Wall Street players made the wrong call, then don't get too down on yourself. I cannot tell you how many times I have heard investors upset with themselves that they bought real estate at the top of the market. They lose heart and decide real estate is not a good investment. This is not true. Real estate is a great investment, especially long term.
Real estate may not be looking good as an investment today if you bought in the past year or two, but real estate is and always has been the #1 means of becoming wealthy. Stick with it. Don't give up. Real estate is still the best investment out there!
No one expected the sharp downturn that we've experienced. The National Association of Realtors didn't, Wall Street investment firms didn't, developers and builders didn't and even I didn't.
I bought 8 investment properties last year in fact and about ¾ of them are down in value! Am I throwing in the towel? No way! I feel the pain like everyone else on these purchases.
Today however, I am seeing a developing opportunity that did not exist last year. It is huge and I plan to not only take advantage of it myself, but help other investors to do the same! We are in the middle of a tremendous window of opportunity. Only when it is shut will we understand the magnitude of it.
I know there are incredible buys that can be found today. They will not be there for very long. They are already being snatched up on a daily basis. In fact, just last week, in the search for one of our Xtreme Investors, we found 3 properties that sold quickly with multiple offers on them! Why? The prices were that good.
If you believe that "no one" is buying today, think again. Smart investors are snatching up Xtreme deals today and we're helping large numbers of them!
Last week one of our Xtreme Investors closed on a 3500 square foot walkout 2-story with a four season porch and a triple garage in Lakeville. The 1994-built home was clean (an 8 on a 1-10 scale) and located in a demand family neighborhood. Two years ago this home would have sold for about $400,000. With multiple offers on the table, we were successful in securing this home for one of our investors for $275,000! This my friends is an Xtreme deal!
Remember, the sub-prime mess that caught so many of us off guard, is now the catalyst that is providing the opportunities! Don't miss it! The window is still open!
The FED is holding its regularly scheduled FOMC (Federal Open Market Committee) meeting today and tomorrow. The futures (bets on what the FED is likely to do) indicate that there is a 98% chance the FED will lower the FED Funds rate by 25 basis points and a 16% chance that we'll see them cut by 50 basis points. The announcement is expected on the afternoon of October 31st.
In the unlikely event that the FED does not cut at all, we will see a disappointing reaction on Wall Street and more pain down the road for real estate, lenders and anyone affected by the sub-prime fallout.
The FED needs to keep easing. There is already a "too little, too late" bias out there as a result of the FED's inaction until just 6 weeks ago. With this in mind, I will not be surprised if the FED cuts by 50 basis points this week and another 25 basis points by the end of the year (or vise versa). A prime rate of 7.0% (from the current 7.75%) by year end would be perfect to keep our real estate market from suffering more than it already has.
Borrowers are more likely to keep their loans current and not foreclose if they can afford the payment, so it only stands to reason that a FED easing will have a positive effect on those who have adjustable rate mortgages. In addition, those who have home equity lines will also feel the relief of a FED ease, as most of these loans are tied directly to the Prime Rate.
As the FED lowers rates in the months ahead, it will have a positive effect on the nation's real estate markets and the Great Buyer's Market will subside. Now's the time to saddle up and pull the trigger as often as you can over the next 6 months.
We are finding great buys for investors here in Minnesota, as well as in Florida. Take advantage of our www.XtremeInvestor.com program today and watch our www.America2Florida.com site for Florida buying opportunities as well - especially the possibility of the BANK OWNED buying opportunity in Tampa that may be right around the corner. Our team is reachable at (952) 431-3900.
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Our nation is at an interesting juncture. Our economy and banking system is under incredible pressure; one of a serious nature.
The mortgages which were written between 2004 and 2006 paved the way for the collapse in real estate prices, which in turn has been pulling down all other areas of the U.S. economy. Currently there are over 1 million foreclosures across America. The frightening fact is that there are more than 6 million mortgages that are 30 days or more in arrears! This is potentially more serious than anything we’ve seen yet.
Posted: Sep 25, 2008
We are in the midst of tough real estate recession; the worst this country has seen in decades. Real estate prices in some areas have fallen to the point where many people are paying more on a mortgage than their property is actually worth!
Posted: May 14, 2008
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