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Don's Bulletins

1/23/2010

It is my understanding that there was a buyer for Charter Bank, Beal Financial Corporation which has reorganized Charter Bank into a new Charter Bank. According to the FDIC press release, FDIC will continue to insure depositor’s funds.

For more information on Beal:
http://www.thaindian.com/newsportal/business/new-mexico-bank-failure-is-the-states-first-in-more-than-a-decade_100308529.html

http://en.wikipedia.org/wiki/Beal_Bank

Thought you would want to know.
Don

 

1/18/2010

Market Update Newsletter

Although this issue of my economic update newsletter is primarily directed to sellers, the information should be valuable to anyone considering purchasing. 

In keeping with my ongoing attempts since mid-2007 to anticipate and report direction for the Santa Fe real estate market, I find it important to understand the outside national and international forces which affect our local market.  I have shamelessly lifted bits and pieces from Seekingalpha.com, John Mauldin’s Newsletter, and others for inclusion in this newsletter.  I hope I have given all credit where due.  As with all prognostications, these are useful only in the context of a larger bubbling caldron.

At the end of this email, I have provided a couple of useful tips for marketing your home. - Don

 Probability of a Crisis Will Build in 2010

Source: Barclays through Seekingalpha.com

Probability of a crisis will build in 2010 so says the team of equity analysts at Barclays. Although policymakers helped avoid the second Great Depression, Barclays believes we have simply kicked the can down the road. As their head of U.S. equity strategy said in November, the likelihood of Japanese style de-leveraging stagnation remains very high.

Like us, the bank argues that 2010 will be a year of halves. While the first half is likely to be characterized by more of what we saw in 2010 (improvement in corporate profits and accommodative government actions) the second half is likely to be characterized by an increasing burden on the consumer as the baton is handed from the public sector to the private sector. Barclays says this passing of the baton has the potential for an even greater crisis as higher taxes, higher interest rates and lower government spending create increased risks.

Barclays remains more bearish than the consensus. Global economic growth is likely to disappoint as spare capacity fails to lead to a sharp rebound and unemployment remains high. They see the probability of a crisis increasing as 2010 goes on:

The probability of a crisis will build during 2010. Although it might seem natural to think that the probability of a dire scenario falls over time, as more quarters of growth are recorded, in fact the opposite is true. The main reason why is that, faced with resistance to a more fundamentals shift, currently, policymakers are trying to recreate the “old” world, which was clearly unsustainable in a number of respects, such as in its reliance on “rich” consumers to spend and “poor” ones to save. The longer that continues the higher the probability of a train crash. 

Because of this, the likelihood for an “ugly” economic outcome is 40% according to Barclays. Unlike the consensus, which is overwhelmingly bullish about 2010, Barclays sees just a 10% probability of a “good” outcome: 

As the crisis remains unresolved the potential for policy mistakes grows with every day. Barclays now sees four primary risks to their 2010 outlook: 

• The Fed gets it wrong and spooks the market with rate increases.
• The US Treasury gets it wrong on fiscal tightening and results in yield spike.
• Consumers get cold feet and become permanent savers.
• Foreigners lose confidence in the US and a dollar crisis ensues.

The implications here are fairly straightforward. We are not yet out of the credit crisis woods and 2010 has the potential to remind us of that. Although the first half of 2010 is likely to mirror what we saw in 2009, the back half of 2010 has the real potential for another economic relapse and even a double dip. As we mentioned in our 2010 investment outlook investors would be wise to remain nimble and keep investment durations fairly short.

Thoughts from the Frontline Weekly Newsletter

by John Mauldin, January 15, 2010

It's the Deleveraging, Stupid!

The reason this recession is different is that it is a deleveraging recession. We borrowed too much (all over the developed world) and now have to repair our balance sheets as the assets we bought have fallen in value (housing, bonds, securities, etc.). A new and very interesting (if somewhat long) study by the McKinsey Global Institute found that periods of overleveraging are often followed by 6-7 years of slow growth as the deleveraging process plays out. No quick fixes.

Let's look at some of their main conclusions (and they have a solid ten-page executive summary, worth reading.) This analysis adds new details to the picture of how leverage grew around the world before the crisis and how the process of reducing it could unfold. MGI finds that:

• Leverage levels are still very high in some sectors of several countries - and this is a global problem, not just a US one.
• To assess the sustainability of leverage, one must take a granular view using multiple sector-specific metrics. The analysis has identified ten sectors within five economies that have a high likelihood of deleveraging.
• Empirically, a long period of deleveraging nearly always follows a major financial crisis.
• Deleveraging episodes are painful, lasting six to seven years on average and reducing the ratio of debt to GDP by 25 percent. GDP typically contracts during the first several years and then recovers.
• If history is a guide, many years of debt reduction are expected in specific sectors of some of the world's largest economies, and this process will exert a significant drag on GDP growth.
• Coping with pockets of deleveraging is also a challenge for business executives. The process portends a prolonged period in which credit is less available and more costly, altering the viability of some of business models and changing the attractiveness of different types of investments. In historic episodes, private investment was often quite low for the duration of deleveraging. Today, the household sectors of several countries have a high likelihood of deleveraging. If this happens, consumption growth will likely be slower than the pre-crisis trend, and spending patterns will shift. Consumer-facing businesses have already seen a shift in spending toward value-oriented goods and away from luxury goods, and this new pattern may persist while households repair their balance sheets. Business leaders will need flexibility to respond to such shifts.

You can read the whole report at the McKinsey Global Institute web site. The ten-page summary is also there. http://www.mckinsey.com/mgi/publications/debt_and_deleveraging/index.asp

How does all this affect selling my home?

Don Cavness, GRI, Heritage Realty, LLC

Even though these excerpts relate to the larger national and global economic issues of this moment in time, they have a very real impact on our local Santa Fe markets.

The rapidly escalating Santa Fe real estate prices of the past seven to ten years were successfully employed as an investment vehicle by many.  But, the escalating prices were unfounded in market reality because the advancing prices were fueled by poorly secured financing throughout all the nation’s real estate markets.  Cheap, easy money created high demand for existing properties, thereby causing soaring real estate prices.  As we all know now, the days of rapidly rising real estate prices have come to a dramatic and predictable end.  It is a market reality today that money is more difficult to borrow based upon a return to realistic qualification requirements.  Coupled with a widely held fear of inflation because of government lifesaving policies put in place mid-2008, the predictable outcome is that mortgage interest rates will soon begin to increase.

Not all is gloom and doom.  Should you decide to sell your home at its current value within the realities of current market conditions, success is most certainly within reach.  But, we must accept certain realities to accomplish our goals.

This past week, I read an amusing front page story in the Santa Fe New Mexican which stated that sales of real estate in Santa Fe were up by 16% when comparing a period in 2009 to the same period in 2008.  I found the story amusing because the story spotlights the problem of dealing strictly with empirical numbers when analyzing real estate.  What is wrong with the New Mexican story?  If only one home sold in Santa Fe in 2008 and then two homes sold in 2009, empirical math would be correctly reported as a 100% increase in sales; but, the underlying reality that both markets are hideous would be missed.  Numbers alone do not provide us the answers we seek; we must possess historical and current understanding of why the numbers exist in order to translate them into meaningful outcomes.

Don’s first mantra: “Real estate markets do not recognize personal financial goals.”

For anyone holding onto Santa Fe real estate hoping for a return to rapidly advancing property values in order to accomplish personal financial goals, it is past time to become coldly analytical of what it will take to actually sell your Santa Fe home.

Keep in mind there are two equally important aspects to successfully marketing your home in any real estate market: (1) appropriate pricing, and (2) marketability.

(1) Appropriate Pricing:  Appropriate pricing is critical for selling within a reasonable amount of time.  As I have been advising my Santa Fe seller clients since March, 2007, defining appropriate pricing is most readily understood in the context of what other homes similar to your home sold for within the past 30 - 60 – 90 days.  Most homes go on the market at an unrealistic price when not viewed within the context of most recent sales.  Most sellers, and even many Realtors^© and appraisers, typically look backward six months to a year, hoping for a clear picture illuminated by a large sampling of sales data points.  This always worked in the past prior to mid-2007.  It does not work today.  It may work again one day in the future.  It does not work today. We must instead (a) analyze sales that occurred within the past 30 - 60 – 90 days, and (2) we must also analyze competing listings within the context of days of the market (DOM), homes that are on the market which have not sold over an extended period of time and determine why they have not sold.  In most cases, competing listings have not sold because of unrealistic pricing combined with unobserved and unattended marketability issues. 

Don’s second mantra: “We get only one opportunity to make a first impression.”

(2) Marketability:  One of the more intriguing questions related to real estate marketing is “When there are two highly similar homes next door to each other, same bedroom count, same bathroom count, same floor plan, similar location within the neighborhood, why does one sell before the other?”  For real estate analysts and appraisers who deal strictly with empirical numbers, the answer may be obscure because there is an emotional component of real estate that is very real, but very difficult to quantify.  I think of marketability in much the way an artist approaches a blank canvas.  An artist is very interested in a good plan in order to get it right first time; it is very difficult to “make-over” a completed, unappealing painting.  If we think of an existing home as a work of art waiting to happen, it is very easy to “make-over” an unappealing home.

Typically, enhancing marketability comes down to recognizing a need to de-emphasize our own personal tastes in order to successfully appeal to the larger universe of buyers.  It may be that our personal treasures are viewed by the market as confusing clutter; it may be that a touch of color in an otherwise bland room may make the home “pop”, or that the seller prefers subdued light by day when the market prefers bright and sunny.  Perhaps the winter woodpile is most convenient when placed by the front door, when the prospective buyer finds the placement unattractive and transfers the immediate and negative emotional reaction to the whole property before they’ve been inside the home.

Most marketability issues can be easily recognized and appropriately overcome with a minimum of expense.  What is absolutely required is that the seller “let go” emotionally and make necessary changes.

I hope these ideas are valuable to you.  Send me an email or give me a call if I may be of assistance and feel free to forward this newsletter to any of your family and friends.  I am happy to provide updated market analyses and share ideas of other successful sellers in order to assist with your marketing decisions.

Don