BAD NEWS!!!

In an August 30 article on WSJ.com (wall street journal's website), Nick Timiraos related that HUD (Department of Housing and Urban Development) Secretary Shaun Donovan "side-stepped" the question of whether Obama would implement the housing tax credit that again.  Also Robert Gibbs, whitehouse press secratary stated that "it (the tax credit revival) is not high on the list."

This is unfortunate for first-time home buyers. My wife and I personally took advantage of the tax credit when we purchased our first home in 2009. We got the phase 2 $8,000.00 credit which we do not have to pay back.  This is an excellent program for first-time buyers and essentially pays for itself (I won't get into that in this post).

With the tighter underwriting and lending standards, constrained funds supply and risk averse investors in this troubled economic environment the economy and the housing industry could use a follow-up shot in the arm.  The ripple effect the housing industry has on the whole economy is obvious after the recent Great Recession.

I guess the moral of the post is that delaying to purchase a home because of the possibility of a tax credit revival is a gamble.  Most signs point to no revival.  For first time home buyers with a relatively stable job, working on your credit and saving cash for a down payment (the old fashion way) is probably going to the path to the "American Dream" of home ownership.

Here is a solid product for gaining knowledge about credit scores. 

New Housing Numbers - Important Indicators

According to an August 24, 2010 article published by NAR (National Association of Realtors) existing home sales have dropped significantly since the expiration of the federal housing tax credit.  An interesting fact in the article, quotes as, "sales are at the lowest level since the total existing home sales series launched in 1999, and single family sales - accounting for the bulk of transactions - are at the lowest level since  may of 1995."

On the flip side, home-starts are down year over year from July 2009 (note that data is usually published in arrears).  Housing starts being down allows for the current inventory to be absorbed quicker, which reduces the supply on the market. In terms of the basics of supply and demand, as the current inventory is absorbed (purchased and removed from the market) and supply is constrained, prices rise. 

The mix of reduced home sales keeping inventory on the market and reduced home-starts (construction of new homes) allows for an interesting dynamic in the marketplace. Prices should remain at low levels due to the reduced buying activity but even the low levels of transactions will begin to "eat away" at the inventory.  In that case, home sales will natural flow towards it's equilibrium (when supply and demand meet) price; in this case increasing.

Going back to the NAR article the NAR President Vickie Golder states, "mortgage interest rates are at record lows, home prices have firmed and there is a good selection of property in most areas, so buyers with good jobs and favorable credit ratings find themselves in a fortunate position."

In my opinion, now is the time to pick up your first residence or your first (or additional rental property) in order to take advantage of low prices and low mortgage interest rates.

* check back soon for a discussion on the tax benefits of owning investment properties. A breakdown of depreciation, mortgage interest tax deductions and their effect on before tax rates of return will show you why investment properties are more then just owning property.  Also, I will try to get a paragraph on passive real estate investment losses and their deduction to you income tax.

To get a better understanding of the fundamentals of real estate investing you can purchase some "entry-level" texts from Amazon.com.  My suggestion would be to go with books from respected sources, publishers and authors. This one is suggested by me personally:   The wall street journal. complete real estate investing guide, by David Crook.

General Thoughts & Survey - Consumer Choices

While thinking about the fundamental elements of creating a marketing plan we have to consider the mission of the "company" (our business); or the reason for the business, service or product.  Part of my mission is to create long-term relationships with clients that involves what is termed relationship marketing (as opposed to transactional marketing) and social responsibility.

I think that the consumer and general public were let down by the banking, real estate, appraisal and government (in terms of fiscal and monetary policy as well as the lack of oversight).  In my opinion what is needed moving forward is professionals that base their success not on the amount or value of their transactions but on the amount and value of their relationships (of course profitability is the primary goal).  The consumer should seek trusted advisors, consultants and professionals that have their best interest in mind; particularly when they hire professionals for that particular reason.

Also, consumers do (and should) demand social responsibility from today's businesses. So many company's lack a socially responsible attitude and do not address social responsibility in their operations. In fact, I beleive that social responsibility is no longer a marketing tactic but needs to be fully integrated into the core business strategy.

So what does this all mean?  My business plan is to build relationships with consumers based on trust and expertise in consulting.  Also, I will build in an integrated philanthropic strategy into my core business by dedicating a portion of my profits to organizations (non-profits) that serve the community. 

So my question to you is; would you choose a service provider based on the fact that they have a socially responsible (like philanthropy) program?  And are you more selective of the people and company's you choose based on the events that led to the Great Recession, housing crisis and the more recent issues with corporate fraud?

Here is a good text on helping to make socially responsible decisions, investing:

FSU Real Estate Program

I have to share this article since I am in a distance MBA program at FSU and some of those honored are my or were my Professor's.

http://www.fsu.com/News/FSU-real-estate-program-ranked-No.-2-in-the-world-for-faculty-research

Recent Comments from the FOMC

 LINK:  http://www.federalreserve.gov/newsevents/press/monetary/20100810a.htm

With the recent comments of the FOMC, the Federal Open Market Committee, and the consensus that the economic recovery will be prolonged, borrowing rates will be extremely low (due to the federal funds rate / monetary policy).  Couple that with the downward pressure on home prices due to poor macro fundamentals (like over-supply (supply and demand) and high unemployment) and you have great conditions for real estate investing and a tough environment for other investment platforms. Cheap borrowing costs and downward pressure on house prices maximizes the effect of leverage in real estate investing.

* leverage is the use of borrowed funds to maximize equity returns in real estate. Equity returns are the return on the cash you put into a property.

* Borrowing costs are a major part of the analysis associated with real estate investing. A cheaper mortgage will allow increased cash flows.  Assuming a fixed rate mortgage; inflation and market fundamentals should push rents higher and this increases the difference between cash flows and mortgage payments that remain the same over the term of the loan.  Also maximizing leverage allows the borrower to gain equity through appreciation of the property.

* There are downside risks to investing in any case and investing decisions should encompass much more then only considering borrowing costs and prices. For the purpose of commenting on the FOMC article I have limited my discussion.

Good software tool:

Real Estate Calculator Suite

The Purpose of this Blog - Reducing Complexity to Allow Quality Decision Making

The purpose of this blog will be to help individuals and potential investors, hereinafter "moguls" :), understand the fundamentals of real estate and real estate investing which I hope will lead to better personal real estate related decision making.

The crux of this blog is to help everyone understand real estate fundamentals, macro-economic conditions effect on the real estate environment and to provide personal commentary on current macro-economic data in a way that everyone can understand its application to real estate investing. 

I will also publish some of my favorite websites, books and articles that I feel will help educate everyone on important real estate related topics.  I will also supplement this blog with content from my MBA program (so we can learn together) and ask the real estate professors from FSU to contribute to the blog, whether directly or indirectly. 

Next, I will provide links to local real estate companies and professionals that can provide services that I can not.  This will help people understand what services are available and what professionals can provide these services in the Pittsburgh market.

I work in corporate real estate and I sell real estate part-time.  This blog is not to directly solicit business for myself but I will publish my listings and contact information to help develop my business.  This blog is an extension of my current and future business plans and will provide a platform for delivering information about my business. You can review my business mission and vision statement as well as gain an understanding of how I integrate philanthropy as part of my core business strategy.

Lastly, I am asking for feedback, thoughts and contributions to this blog.  Please send me your comments, opinions, criticisms and any general thoughts you have on the blog and other general topics in the business environment that you think will be a value-add to this blog. 

DISCLAIMER:  I am not a professional consultant nor do I claim to be an expert on anything; I am a real estate professional and an MBA student.  The opinions on this blog are my own; the interpretations of economic data are my own and neither of these represents anything else.  My goal is to educate people on real estate related topics that will allow them to make better decisions and to stimulate critical thinking.