May 2009 Charleston Market Report

8/9/2019 May 2009 Charleston Market Report

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www.charlestonmarketreport.com

May 2009 EditionIn This Issue:Alan Greenputz Greenspan SpeaksLearn to Grind!The Bank HustleThe Bank Bottleneck America AAA RatingQuick Stock Market UpdateCharleston Real Estate Market Update

Alan Greenputz Greenspan Speaks

When Greenputz speaks nobody should listen!This guy just has tons of credibility for helping create the biggest financial Ponzi Scheme ever.

We are finally beginning to see the seeds of a bottoming [in the housing industry. The U.S. is] at the edge of a major

liquidation [in the stock of unsold properties, which may help to stabilize prices].Alan Greenspan, May 12 2009


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I dont know, but I think the worst of this may well be over. Alan Greenspan, October 2006

Thanks to The Big Picture for these quotes.

Learn to Grind!If you are involved in the real estate industry right now it is an absolute grind. If you do not get a paycheck every two

weeks like many of our friends in the banking industry and you work off of commissions you are going to need tolearn how to be a grinder like Tiger Woods is on the golf course or life will be difficult. I am not being negative butmerely realistic about what I see going on in Charleston and the rest of the country. The real estate industry got itself into this mess because of greed. This is a fact. I do not recall the industry complaining about too much business andappreciation being too high during the go-go days. This bubble creation was a group effort among manyprofessionals. Many who read this newsletter made a ton of money during this period of false demand. Just likeTiger Woods has changed his golf swing to be a better player (even though he was already the best player in theworld) many have to change how they approach the sales process in real estate or business. Many have to step back and refocus on fundamentals to get back in the game. There is no point in whining and complaining about thepotential roadblocks out there because you just have to deal with them! Tiger Woods had to deal with a broken legbut he still managed to win the US Open! Anything is possible if you set your mind to it.

The real estate agents who read this newsletter know that buyers are nervous and cautious right now. My message tothe agents and buyers out there is just focus on risk management! Remember, a home purchase is typically the largestpurchase your clients will ever make. These purchases are extremely important from a risk management standpointbecause they are typically leveraged purchases. I encourage you all to embrace risk management in your salesprocess to avoid your clients from becoming another short sale or foreclosure statistic. Focus on a process where youwork as a cohesive unit between the buyer, realtor and the mortgage broker so that you can implement effective risk management principals. You have tremendous responsibilities as a real estate and mortgage broker towards your clients making a sound financial decision on their home purchase that impacts their future retirement.

The CMR has and always will be about managing risk. I hope the CMR helps everyone make better investmentdecisions.


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The Bank Hustle

You can not trust certain bank earnings because they recently changed the Mark to Markit accounting rules. Watch out for increasing credit card defaults. Bank reserves are too small. The Stress Tests are BS because they do not test for asset quality or losses. All 19 banks passed the stress tests but collectively need over $2 trillion dollars of taxpayer money. Tim Geithner, The Treasury Secretary, has a record as a failure during his entire career. Previously he was in

charge of The Reserve of NY and was in charge of regulating the largest banks in the country who just failed.

Geithner missed the sub prime and credit crisis and received a promotion to Sec. of Treasury. Next big problem is commercial real estate. Citibank needs to be broken up. So do all TBTF Too Big To Fail Banks.

http://trendocracy.blogspot.com/2009/05/bank-hustle.html

Our current system of "money-as-debt" in which money is created through a borrowers promise to repay loans and theinterest on loans, and a system through which the financial industry has created, through fraud and other criminalbehavior, a multi-trillion dollar international crisis of debt. This system only works if citizens purchase necessarygoods and services with debt and then service their debt. If you want to be free from the economic and bank hustlethen get out of debt. Save money and quit leveraging everything you buy through high interest rate loans. This is theexact advice that certain banks (Who promote credit cards) do not want you to hear.


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The bailout is not something neutral that cancels itself out, but instead amounts to a transfer of trillions of dollarsof purchasing power directly and indirectly from those who didnt finance reckless mortgage loans to those who did.Farewell to the projects, innovation, research, investment, and growth that might have been financed by thesavings and retained earnings of good stewards of capital. Those funds are being diverted to the careless stewardswho now stand to be made whole. (source: Hussman Funds)

The Bank Bottleneck If you ever want to witness the purest form of stupidity then just watch how many of the banks handle their distressedsales. Not only are many of these large banks horrible risk managers but they are horrible at real estate and they areterrible at efficiently getting rid of distressed properties. Whether it is due to their internal inefficiencies or

accounting shell game strategies there is one thing that I am certain about. Many of the banks who received TARPmoney are JAMMING UP the Charleston and national real estate market and are acting as a bottleneck in the system.I wish I had a solution on how to fix up but I think the powers that be at the Federal level are going to have forcesome change. The real estate agents out there who are dealing with these issues need to contact the NAR and havethem lobby Congress to make some changes.

What we are witnessing right now is how connected the banking and real estate industry are but they do not work very well together with regards to distressed properties. Many banks feel they can get rid of their distressedproperties themselves without the help of the real estate community. This saves them from paying a commission. Inmy opinion, this is a strategic mistake. Banks do not know how to value real estate much less sell it. Other banks,whom I have spoken to, believe they can sell REOs for 85 cents on the dollar without the help of an intermediary. I

spoke to the Asset Manager of a major banking institution last week that told me they would sell their REOs to mybuyers for 85 cents on the dollar. I laughed at her. I asked her why my institutional buyers would accept that dealwhen these assets will probably be worth less than that value in a year. My buyers would give her 25 cents on thedollar. So there is a 50 cents spread in terms of bid versus ask. I told the Asset Manager good luck and asked her what expertise they had on the Charleston market. I received no reply. I politely wished her luck and then hung upthe phone.

Some banks are sending out NODs (Notice of Defaults) and then intentionally stalling out the foreclosure processintentionally in order to protect their balance sheets. By holding these securitized notes at par the banks preventthemselves from taking a loss or write-down, which makes their books look better on Wall Street. This is veryimportant when your stock has lost 50-70% of its value in the past year and you are bleeding to death and need equity.

So instead of selling off non performing assets, they hold them at par when they may be worth 25 to 50 cents on the


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dollar and use accounting shell games to raise money through the stock market because the bullshit stress tests showthat things are not so bad. LOL! Brilliant! At the end of the day folks, the numbers are the numbers and this shellgame eventually gets snuffed out. So you may see some POS (Piece of sh*t) banks stocks rise in the near future butbe very careful if you are investing your hard earned money with some of these guys. The reason is that if they areholding a note of $3million dollars worth of real estate that is worth $1million on the market the chances of that noteappreciating back to par in the near future are slim and none.

Many of the big and small TARP banks need to go before a bankruptcy judge and be put out of their misery. Thisway the small and large banks that have managed their business properly and did not make poor loans can takeover

market share from the banks who screwed up which is the purest form of capitalism. Instead our government hasrewarded the crooks that helped create this mess. The lesson learned from this financial fiasco is create businessesthat are Too Big Too Fail because Big Mama will keep you in business forever and keep supplying you billions of taxpayer money. Brilliant!

Here is the honest truth everyone: The poorly capitalized banks can not keep up the shell game forever. The toxic assets they are determined not to sell will not disappear or regain value anytime soon. Excess debt must be taken out of the system the old fashioned way through liquidation NOT by keeping a bank on life support via TARP or changing accounting rules.

Economist Nouriel Roubini estimates total losses of U.S. financial firms to be $3.6 trillion.

The entire U.S. banking system only has $1.4 trillion of capital. $1.4 $3.6 = -$2.2.. NEGATIVE $2.2 TRILLION . I smell TARP 2.0, 3.0, etc. If you want to read details regarding how the 1 st quarter bank earnings were faked then click below:

http://seekingalpha.com/article/136769-a-summary-of-q1-bank-earnings-world-you-just-got-hustled?source=hp_mostpopular

Based on the current economic environment I do expect many of these poorly capitalized banks to get healthier because of some of the policies that government has passed and is implementing. Some will survive and others willmerely become Zombie banks.

"America's Triple A rating at risk."

I wrote about the danger of the U.S. losing its AAA rating in a previous newsletter but can not remember which one.Lets hope this does not happen but when you do not cut wasteful spending and increase the debt and deficit what doyou expect? I think most of you would agree that the U.S. is run worse than most bad companies. Case in point:Amtrak, US Postal Service, AIG, Citi, Phoney Mae, Fraudey Mac.

Moody's has issued a warning. Either the US cleans up its ledgers or it will be downgraded like a bad company.The US was first awarded a Triple-A credit rating in 1917. Not even a century later, it looks like it will lose it.

David Walker, star of Addison's movie - I.O.U.S.A. - writes in the Financial Times that the US is headed for bankruptcy just like GM. It owes $11 trillion officially, with another $45 trillion in "off balance sheet"obligations. And, as we reported yesterday, this year it will lose another $1.8 trillion. That's according to the Obama

administration's official count. Our own guess is that the loss will come to $2 trillion or more...and that trillion dollar losses will continue for years in to the future.

Quick Stock Market UpdateWhat you are currently witnessing is a bear market rally. This has happened before during previous bear marketcycles. You can not buy and hold in this environment.

The technicals of the stock market are at a much higher risk than we saw a few months ago before this bear marketrally. If you are long in the stock market or have new money to put in I would recommend you be very careful rightnow. I believe you will see a market pullback so cash or short positions would be something to discuss with your

financial advisor since the risk is much higher today.


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"The current rally is smaller - in order of magnitude and duration - than the average Great Depression rebound."Here's the 'money' lesson: Despite 5 rallies from 1929-1932 that exceeded 15% - including the doozy that soaredalmost 48% - the Dow fell from 300 to 60 over the same period. That's an 80% crash.

David Rosenberg...chief economist at Merrill Lynch...is leaving the firm, and here are his parting words:

"Just as the clock is winding down on my tenure at Merrill Lynch, the equity market is winding up with an

impressive near-40% rally in just nine weeks...

"The nine-week S&P 500 surge from 666 at the March lows to 920 as of yesterday has all but retraced the prior nine-week decline from the 2009 peak of 945 on January 6 to the lows on March 9. We believe it is appropriate to put thelast nine weeks in the perspective of the previous nine weeks. To the casual observer, it really looks like nothing atall has happened this year, with the market relatively unchanged. But something very big has happened becausethe risk in the market, in our view, is much higher than it was the last time we were close to current market pricesback in early January, for the simple reason that we believe professional investors have covered their shorts, liftedtheir hedges and lowered their cash positions in favor of being long the market.

"While it may be the case that the pace of economic decline is no longer as negative as it was at the peak of the post-

Lehman credit contraction, the reality is that employment, output, organic personal income and retail sales are still ina fundamental downtrend.

"This is a bear market rally that may have run its course...

"So yes, there may well be some improvement in the GDP data, but it is based largely on transitory factors. Westrongly believe it is premature to totally rule out the end of the vicious cycle of real estate deflation - residential andnow commercial - that we have been experiencing since 2007. Balance sheet compression in the household sector willcontinue to pressure the personal savings rate higher at the expense of discretionary consumer spending. This is asecular development, meaning that we expect it will last several more years."


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Charleston Real Estate Market Update

CMR Main Indicators

The charts of the CMR main indicators can be found on the CMR website in the Registered User section.

During April 2009 386 out of the 496 SFD and SFA was less than $300,000. 78% of the sales were homes less than $300k. I think we can all easily see where the demand in the Charleston market is at the moment. This is being driven by a number of different factors. Psychology, affordability, lending and confidence. Justifiably so most buyers do not trust the prices at the upper end of the market and neither do the banks. Try

getting a Jumbo mortgage right now. The underwriting guidelines are much stricter for Jumbos versusconventional.

What is and will happen is the Tri-County average and median home prices will decline because of the severe

discounting that will occur at the upper end of the market. Eventually nature will take its course at the upper end of the market and there will be more fabulous deals. Isee some now but I wish there were more. You have to really look to find the diamonds in the rough but theyare out there.

Even though most of the CMR Indicators are Unfavorable there are still deals in this market. However, I stillsee a bunch of homes overpriced all over the Tri-County region.


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The College of Charleston Home Value IndexSM indicates that the value of a typical home in the Charleston Tri-County Area fell by -5.17% in April. In comparison, the change in the index value was -1.29% in February and -3.38% in March.

Source: http://www.cofc.edu/cartercenter/hvi/index.htmlCollege of Charleston Carter Real Estate Center

Look at what happens to the overall numbers when you take a look at the market where the buyers/demand is right

now. These stats are not nearly as bad as some other segments of the Charleston market. The bottom line is your negotiating power and risk is going to be determined by the price of the home you can afford and what area of Charleston you are looking to buy in.

SFD - $100k-$180k

Source:CTAR


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Sold TermsApril 2009 for SFA & SFD

31% of the deals closed in April 2009 were on the backs of taxpayers through the use of FHA and VA loans. In April 2008 only 12% of the homes were closed using FHA and VA. Hmmmm. What this tells me is the government is heavily subsidizing the affordable price range of the housing market in

Charleston and the rest of the country.

The typical FHA and VA loan require little money down which makes them riskier loans in a declining realestate market.

FHA will be a future housing bubble because of the lack of down payment required. Remember, these loans used to be performed by the typical mortgage broker using Conventional, Interest

Only or Pay Option mortgages. Not anymore. Now Big Mama has taken up the slack. This market would really suck if it were not for FHA and VA loans!

Based on my research of where the affordable market currently stands in this market I have changed how Isegment the Tri-County stats. Again, these is a macro view and remember Charleston consists of thousands of different mini markets that need customized analysis in order to get a concise picture of what is happening.


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Tri-County SFD


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Tri-County SFA


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Tri-County SFA >$300,000

Source:CTAR


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Tri-County - Vacant Lots

Source:CTAR


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Tri-County Commercial RE

For a synopsis on the Q1 2009 Office and Industrial Commercial Real Estate Trends please go to:http://www.barkleyfraser.com

Office Q1 2009


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Industrial Q1 2009


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Tri-County (All) Commercial

DisclaimerThe research done to gather the data in The Charleston Market Report involves examining thousands of listings. Withthis much data inaccuracies will occur. Care is taken in gathering and processing the data and information within thisreport is deemed reliable. IT IS NOT GUARANTEED. The real estate market is cyclical and will have its ups anddowns. Past performance cannot determine future performance. The purpose of the Charleston Market Report is toeducate you on current and consistent market conditions by reporting leading market indicators with the support of traditional real estate data.

This information is offered with the understanding that the author is not engaged in rendering legal, tax or other professional services. If legal, tax or other expert assistance is required, the services of a competent professional arerecommended. This is a personal newsletter reflecting the opinions of its author. It is not a production of myemployer. Statements on this site do not represent the views or policies of anyone other than myself.

Investing in real estate is not a get-rich-quick scheme nor is there any guarantee you will make a profit. Every efforthas been made to make this report as complete and accurate as possible. However, there may be mistakes. Therefore,this report should be used only as a general guide and not as the ultimate source for making money in real estate.

Documents

May 2009 Charleston Market Report