Category — Investments

THE STABILITY IN FINANCIAL MARKETS we needed, as I have previously posted, is not happening.  One thing is certain, instability will continue.  This is true because the big mortgage losses are still ahead of us.  The Pay Option ARMs resets will be in the billions in California in 2012.  Foreclosures will hit their peak then.

One thing that will not occur is something similar to the Great Depression when deflation and the money supply collapses the economy.  The opposite is runaway inflation do in part to a meltdown in the dollar.

There is a technical term for this condition.  There is the Edge of Chaos, using Chaos Theory, where the economy normally works.  Going beyond this boundary area of normal gradients of change there is Chaos.  A better more understandable term is Negative Dynamical Stability.  This occurs where corrections and efforts to bring about stability produce greater instability, in wave of increasing amplitude.  Should Negative Dynamical Stability continue the structure eventually comes apart.  Chaos results.  Then new structures evolve.

It seems now certain that the economy has entered a prolonged period of Negative Dynamical Stability.  Stand by for more negative impacts.

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BEARS HYBERNATE because in winter there is no food, it’s cold, miserable, and well… dreary.  I’ve always been a real estate “bear”, preferring flat or declining markets to euphoric bull markets that inevitably crash. 

I have not been blogging, but hybernating.  However, it is now “spring” in the market, and time for “bears” to get to work.

Now that the market has deliciously crashed, and continued to crash through this last month, it is time for me to “wake up”.  Ah, the winter kill!  What a “winter” it has been!  Foreclosures everywhere! Yum!  Whow!  The market bulls this time have been wiped out.  Dumb bulls.

Has the market hit the bottom yet?  Is it time to wake up?  Almost… almost there… what is the purchase price to rent ratio in Santa Clara County?  Ah, 1/1:20.  A  purchase price to capitalized rent ratio of 1:15/1 is a good time to buy. 

McMurdie’s Real Estate Rule No. 2: never buy into a declining market; buy at the low price using known minimum income/ price values, and then buy bargains.

OVER 1400 REAL ESTATE & MORTGAGE professionals were arrested today.  Bear Sterns hedge fund managers were taken away in handcuffs.  FBI special agents are the guys that carry guns.  They actually arrest people for mortgage and real estate fraud.

I used to remind mortgage agents that when their client (my clients too) sign a deed of  trust there is bold ten point print that points out that not occupying the property on a owner occupant loan, is a felony.  I’ve even had people (not my clients) actually ask me “do we really have to move in?”  Ya.  Otherwise the guys with the guns show up.  And now you know.  They do arrest borrowers.

There are a variety of mortgage scams, but the most common one is the investor who applies for and gets an owner occupied loan, and never intends to move in.  Bye Bye Puddin’ Pie.

McMurdie’s Real Estate Rule No. 26: Don’t be a Puddin’ Pie.  Tell the truth.

DAYS ON THE MARKET is now less than 90 days in most Santa Clara Valley neighborhoods, and although total listings have increased, homes are selling.  Interest rates are low, and likely to rise, particularly fixed rate as the dollar weakens.  Prices have flattened.  It is time for bargain hunters to buy!  Follow McMurdie’s Real Estate Rule No. 12: buy real estate counter cycle, buy at the market low as soon as it goes flat.  This takes courage, and reading your calculator!

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