Lenders Tighten Up

In the last 4 weeks I have that many "changes to terms" coming across my desk that I think that lenders are giving up.

Time and again we are seeing reductions in loan to value. From 95% to 90% then on down to 85%. It has to be panic -- but on two fronts.

1. Worries about the ability to service loans
2. Concern that valuations are falling!

Yes that's right values are falling. Not prices advertised. I mean who wants to accept less on their main (only) investment. Lets listen to Estate Agents, when they talk about business being slow they mean volumes are reducing. This means that less instructions to sell are coming in. But this has happened in the past back to the 1970's. It means that potential vendors are less confident about prices it means they feel they cannot get their price. So they don't sell or withdraw their property.

Throw in the impotent HIPS debacle and it means less chance of a transaction. All in all it's a dip in the prices of property. Masked by vendors who now will not go to market.

Time to see property as a place to live for the next 10 years. I mean what is going to provide a recovery (demand) first time buyers are only getting 2% pay rises or less. Banking bonus will collapse after they greedily ramped up derivatives engineered with fresh air and bull.

Buy to Letters getting less than 6% return on the full value of their property are insolvent, and will either try to sell, or subsidise their mortgage. Tenants in these properties now have the upper hand.

Only London with the 2012 and a never ending stream of inhabitants could buck the inevitable. And even there signs of the bubble are evident.

Now if the lender tighten up all hope of a property recovery in the medium term are gone. I mean overly competitive lenders actually added to the inflationary problem.

With them taking the heat from the market along with all the other factors it has to be a recession. So time to look at real investment for a change, wealth and job creation in the UK has been neglected for a decade and the chickens are coming home to roost.

More Sub Prime Loan Fears

By Richard Beales and Saskia Scholtes in New York

Published: February 27 2007 20:23 Last updated: February 27 2007 23:18

The market for home loans made to Americans with patchy credit histories suffered another blow on Tuesday as Freddie Mac, the US government-chartered mortgage finance group, said it would no longer buy several risky types of subprime mortgages.

The move, billed as a way of protecting borrowers from predatory lending practices, follows a sharp sell-off in the subprime mortgage world that threatens to spill over into the broader $8,000bn US mortgage market.

Defaults on home loans to subprime borrowers have spiked in recent months, exposing a loosening of lending standards in the past two years and forcing more than 20 small subprime lenders to close their doors.

Together with losses at big institutions, including HSBC and New Century Financial, this has prompted lenders to impose tighter criteria for risky borrowers. “The steps we are taking today will provide more protection to consumers and enhance the level of underwriting standards in the market,” said Richard Syron, chief executive.

Freddie Mac, which buys mortgages from lenders and guarantees bonds backed by pools of home loans, is traditionally seen – along with Fannie Mae – as a mortgage buyer of last resort.
But the company said that from September it would stop buying “no income, no assets” mortgages, in which borrowers are not asked to provide financial information; “stated income, stated assets” products, for which borrowers’ incomes are not easily verifiable; and certain kinds of mortgages offered with teaser rates.

The move could put further pressure on the battered subprime market. The ABX index tracking the credit risk on subprime mortgage-backed bonds rated BBB- has ballooned from 250 basis points about three months ago to about 1,400bp on Tuesday.

Jeffrey Rosenberg, head of credit strategy research at Bank of America, said that the “erosion” in the ABX had also “bled” into the highly rated AAA version of the index, suggesting investor concerns are broadening.

This indicator of less-risky mortgage credit risk has jumped from about 10bp at the beginning of February to approach 30bp.

Analysts say a tightening of mortgage-lending standards could damp any recovery in the housing market. Mr Rosenberg said: “Even a slight potential for housing-led weakness to grow into larger systemic concerns would lead spreads wider.”

Existing home sales data released on Tuesday suggested slightly stronger activity than expected last month. But the supply of unsold homes held steady at a high 6.6 months.

With this kind of turmoil in the housing market in the US and UK, stock market instability, a good place for cash right now is in Gold Bullion and the New Gold 4 Gold Trading Platform

Real Estate for Dummies

Although this article and books were written in the US the simalarities are so striking that it has to be taken seriously. John Burke


By Susan Barretta

The publication of Real Estate for Dummies in November 2004 indicated that real estate has "arrived" in the public consciousness. The complete idiot’s guide to success as a real estate agent followed in 2006.

It was no longer a matter of buying a house to shelter yourself and your loved ones -- instead, it was about putting your money to work in "hard assets" by buying second and vacation homes, creating streams of income in rental properties, and fixing up properties for a quick flip.

What does the S&P 500's ascent mean?

In Wednesday's (Feb. 14) Short Term Update, editor Steven Hochberg noted that just because the S&P 500 climbed to 1455.33 on Wednesday doesn't mean that it's going to keep soaring: "Each time it appears that the S&P is finally set to confirm a reversal, prices turn up from trendline support." Yet each time this happens, the advance weakens, today's gain being the smallest. Learn more here.

The mania even reaches a point where speculators do not even have to put any elbow grease into a fixer-upper; they merely buy under-construction properties from a builder and sell 'em once they're built.

"Everybody should have the opportunity to own their piece of the American dream, no matter their income level, race, religion, or gender." On the other side of this is the haunting thought, "If I don’t get in now, I may never be able to afford it!"

"You’ve got to live someplace. They aren’t making more land!"

"[Comparable] houses have gone up ... Now I feel like we will never be able to afford a house."

Thwarted home buyer, Los Angeles Times, August 4, 2002


"We've got -- home ownership rate is at an all-time high. And a particularly important part of that statistic is minority home ownership rates are at an all-time high ... When I'm talking about ownership, I'm talking about ownership for all people, not just -- not just a certain type of person. We want ownership to be a part of every neighborhood."

President George W. Bush, July 2, 2004

The real surge in home ownership came in the post war years. Between 1960 and 1990 ownership rates were between 60% and 65%. Even with the push to improve home ownership rates for even the most disadvantaged groups, one would think that the rates would have surged past 75% by now. In 2004, when President Bush made those remarks, the home ownership rate stood at 69%. It declined slightly in 2005 to 68.9%. Perhaps slick lending tricks have been run to exhaustion.

Even children are part of the audience in the real estate sales pitch. Some realty agencies have sponsored school essay contests for students to write about what the word "home" means. One national home builder offered coloring books to the kids while the parents were in the sales gallery of the latest condo development. The subject of the coloring book? Moving into a new house, of course.

"Did you see the movie about those crazy home buyers?" Not content to just live in a house, we experience real estate through games, books, comics, TV shows, and movies.

Monopoly, the classic real estate game first released by Parker Brothers in 1935, is still the most popular board game on the planet. In the United States, city specific editions started appearing around 1994. A Mega edition, released in 2006, takes players back to the game’s origin (Atlantic City, NJ) and now has players erecting skyscrapers. The properties in the United States Here and Now edition, also released in 2006, cover the entire United States, ranging from Jacobs Field in Cleveland to Times Square in New York.

For Sale signs resembling Monopoly game boards have been spotted. The California Department of Real Estate has a link on its website directing children to a Monopoly page, to teach children about real estate.

In the amazon.com book listings, not only are there scores of published books on real estate speculation, but the number of books scheduled for future publication is climbing.

In 2006, David Lereah, chief economist of the National Association of Realtors (NAR), released Why the real estate boom will not bust – and how you can profit from it. Other books published in 2006 are:

Wise women invest in real estate
The insider’s guide to tax-free real estate: retire rich using your IRA
Weekend warrior’s guide to real estate

Titles due out in 2007 include:
All real estate is local: why understanding the housing trends in your area is essential to building wealth (also by NAR’s economist)
Successful real estate investing in a boom or bust market
Nothing down for women: the smart woman’s quick-start guide to real estate investing An insider’s guide to real estate hot spots
Rent to own: use your rent money to get started owning real estate
The real estate entrepreneur
Be a real estate millionaire: secret strategies to lifetime wealth today

If residential housing is not your cup of tea, you can always wait until 2008 for the release of How to retire fast investing in commercial real estate.

In June 2005, the nationally syndicated cartoon Cathy ran a humorous but truthful story arc in which the characters got hit with "sticker shock" while looking for a new home, and then went through the stressful process of buying a house.

Characters in the role of real estate professionals have appeared in movies and television series since these entertainment genres have come into existence. But few television programs or movies have focused on the buying, improving, and selling real estate as its central theme.

Until recently, that is. There is a real estate glut on the airwaves and in film.
Among the crop of reality TV shows are The Apprentice (2004), in which contestants seek the opportunity to work for real estate icon Donald Trump; Extreme Makeover, Home Edition (2003), in which volunteers remodel or rebuild the house of a family facing hardship; The Adam Carolla Project (2005), in which the comedian fills in as contractor and carpenter on a housing project; Flip This House (2005), in which real estate developers rapidly turn eyesores into "profitable beauties"; House Hunters International (2006), in which buyers and their agents try buying real estate overseas; and one show not yet aired as of this writing but in the works is Real Estate Confidential (2007), which presents stories on successfully buying or selling a house.

Some recent documentaries and movies on the subject include House Hunters (1999), which "focuses on the emotional experience" of buying a home; Crazy Like a Fox (2004), in which victims wage war against evil real estate speculators; and Closing Escrow (2006), a comedy about real estate in which different couples try outbidding each other for the same property. If one wants to go back far enough, Glengarry Glen Ross (1992) is about the lives of high-pressure of real estate salesmen.

An acquaintance from a family of realtors recently joked that he was hoping this market bubble would pop, "so these TV shows will go away."
"I guess it's going pretty good…I love California."
Homeowner whose house value has tripled since 1997, L.A. Times, November 12, 2006

It’s time for a trend change. In the next article, we’ll look at what kind of behavior we would expect to see as the housing bubble deflates.

Property Investment at Any Price?

Who would buy an asset at the top of a market?, well most people buying in the South East of England actually. The only ones who are giving themselves a chance are those who buy property with potential for improvement, or expansion, or with planning gain possibilities.

Anyone else who is happy with a rental yield in the 3% range or lower is taking a huge gamble, even in the medium term. Not only are tenants getting harder to find, mortgage rates rising and bankruptsy rates rocketing, but if property values start to fall as in 1989-1992 then you are sitting on a "millstone".

When looking at a property investment (and assuming you are not buying outright, and with unlimited cash reserves) you have to look at the borrowing rates and rental yields. Even if you will not actually borrow against the property!. Why, becase they give a good rule of thumb as to the quality of an investment. At 3% yeild as above you may as well put your money in the bank!, at least you will not have the worries of finding tenats, getting the rent and re-furbishing.

With the market in the South East overheated, the risks of a downturn can turn an investment gain of a few %, into a loss of 10-15% on several hundreds of thousands! Therefore look at the attractions of the North, rental yeilds of 8-10% plus capital appreciation as they try to catch up with the North-South property gap.

Now at these yields it is OK to borrow against these properties. Because you can borrow at a rate below the rental yield, means that you are making money on the loan!. This is how we have built up our portfolio in the last 3 years. By a process of buying, renting, improving, re-mortgaging, we have about 50 properties.

So the moral is: treat property as an investment, seek out good investment returns, and be prepared to walk away from over priced property. In the process throw at the vendor an offer of 30% below the asking price. Once in a while you will get a YES!

Sub Prime Lending Under Pressure

More worries for homeowners in the USA with similar situations developing here in the UK

See my other Blog

The upshot is that if you are selling, make sure you get out of a deal soon, and if you are buying the cards are now stacked in your favour providing you make a low enough offer.

These situations tend to re-inforce my belief that property topped out in 2005 and makes the Bank of England's comments on house price inflation pretty hollow. Mostly anecdotal evidence from the lending vested interest groups.

New Edition of An Insider's Guide to Successful Property Investing

An Insider's Guide To Successful Property Investing - Bundle


An Insider's Guide To Successful Property Investing - Part I by Peter Jones

Anyone Can Do It, You Just Need To Try

"It's the law of supply and demand. Real estate, especially residential property, is a commodity that's in critical shortage and for which there is enormous demand. It is a necessity, not a luxury. People can't print up 100,000 new homes as they might print up a stock offering. That's why I continue to say 'Don't wait to buy real estate, buy real estate and wait'" (Robert Allen, American self-made millionaire property entrepreneur)

A Very British Obsession

Have you noticed that the British are almost totally obsessed with the value of their homes? Perhaps it's because we remember the excitement experienced in the late 1970's and 1980's when house prices were moving so fast that paper fortunes were being made almost overnight. Every one was a jackpot winner and you didn't need a lottery ticket; if you lived in your own house or flat you were guaranteed a bumper payout. It's happening again, now. The market's hotting up and the same thing is happening. Friends of mine who bought a four-bed house in Surrey last year for £200,000 tell me it's now worth £300,000. I'm sure we've all heard stories like that.

Everyone seems to know how much their house is worth, almost to the last penny. What makes this so surprising is that the professional valuers, who tell the Building Societies how much your house is worth when you ask for a mortgage, spend at least five years training, including three years at university, and yet most home-owners seem to be able to get to the right figure instinctively!
When they retire most people's largest asset is the equity in their home. In a survey in the USA a few years ago it was found that the average home owner's assets were worth thirty times the value of a home renter's assets. Just look at how much the capital value of homes has increased in this country over the last 30 or so years. In 1969 the average price of a British home was around £4,500. In 2001 alone house prices went up an average 17% and today the average house price stands at over £100,000.

And owning your own home and "trading up" is still the most tax-efficient way to make money in property; if your home is your main residence for tax purposes, when you sell at a profit you pay no tax at all. So, if you are serious about making money in property the first step is to own your own home. It's probably the most important investment you'll ever make. It isn't just for living in. As the capital value accumulates it's also a cash machine, a savings account and a source of equity for your future deals.

But that is by no means the end of the story; it's only the beginning. As the British public are so naturally good at property I am always surprised that their interest stops at their own front door. Most people don't seem to realise that there are all sorts of opportunities in the property world for everyone to explore and exploit, which with a little bit of creative thinking everyone can afford.
I've been lucky enough to have spent most of the last 20 years working in commercial and residential property and have been able to follow the careers and fortunes of individuals in the property world who never seem to put a foot wrong, and who have been tremendously successful.

It's probably true to say that property has created more millionaires than any other type of business. And it seems that business people who are successful in another area are more often than not tempted into trying their hand at property, even if it's only as a side-line.

You would probably think all property entrepreneurs must have had at least a small fortune to start with and could afford to play with property. For some of them that may have been true, but certainly not for the majority. Many successful property investors have started almost literally with nothing, but by knowing just a little more than the average lay person have built up large property fortunes.

There are several powerful secrets all successful property people use which give them a better than even chance of being successful. In my book, An Insider's Guide to Successful Property Investment, I will teach you what they are and how to use them so that you can start to build a property empire of your own. If you have the time and the desire, and if you put these secrets into practice, you too can be a successful property investor. No problem.

And, actually, anyone can afford to be a property investor. It really is true that you can start your own private property empire tomorrow by buying properties for as little as £500, perhaps even less if you shop around. And if you are really clever you can start by getting someone else to pay for them for you, perfectly legally. I know this sounds almost incredible but I'll tell you how to do it.

How successful you will be depends upon how you perceive property. You need to understand that most people don't think of property as something they can be involved with. Perhaps it's psychological and they are overwhelmed by the physical size and scale of property. Perhaps it's because they assume that all property is too expensive and out of their price range and they don't realise that they don't have to pay the whole purchase price themselves, or any of it.

But the key to building your property empire is to start thinking more laterally, and to start to see the opportunity and not the building. The value of a property depends on the interest being sold and not on the physical accommodation it provides.

I have written this book especially for small investors who may have a few hundred pounds put away for a rainy day and want to do something more interesting than leave it in a building society. I am going to tell you why it's better to buy property using other people's money, and how to get them to lend it to you. I'll show you how to value investment properties and work out whether you are getting the best return on your money, and about the different types of properties that are available and why they should be of interest to you. And I am going to tell you in detail those little known secrets of property investing which will allow you to succeed where others will fail.

Within An Insider's Guide To Successful Property Investment you will also learn:

• 
  Why you don't need to be able to afford a whole property
• 
  How to use other people's money, and how to get it
• 
  What's a clever thing to do in a hot market
• 
  Why buying at auction can reap big rewards
• 
  Why residential lettings are as safe as houses
• 
  About a long-term idea; going for growth
• 
  About an alternative idea; going for income
• 
  All about what you need to know if you want to be a serial landlord
• 
  That patience is a virtue
• 
  All about residential reversions
• 
  That blocks of flats can be bought for as little as £1,000
• 
  All about valuable freehold ground rents
• 
  What 'garage mania' really means
• 
  How holiday-makers can pay for your dream cottage
• 
  How a lodger could pay your mortgage
• 
  How to buy a £60,000 investment property for £22,500

And I provide you with comprehensive 'action steps' to get you started

Buy my book An Insider's Guide to Successful Property Investment and start on the road to success in property today!

Peter Jones

Peter Jones is a surveyor with 20 years' experience in residential and commercial property, both in the private and public sectors. Peter is also Managing Director of a company he has recently formed to trade in residential property investments. He also acts as a consultant, with a particular interest in the valuation, and acquisition and disposal of investment properties.

An Insider's Guide To Successful Property Investing - Part II by Peter Jones

Just launched ­ An Insider's Guide To Successful Property Investing - Part II. Exposing even more insider secrets of the business, now you can learn how even the "small guy" can become a successful property investor.

If you'd told me three years ago that today I'd own my very own property company with 28 rental properties, and that I'd have started it from scratch using hardly any of my own money, I'd have thought you were crazy.

What if I told you that you can do the same?

I believe that with the right systems in place, anyone can do what I have done, and by using my knowledge and experience, you can do it more easily, quickly and profitably.
It's just over two years since I wrote

An Insider's Guide To Successful Property Investing in which I showed you the key steps to starting your property business.

If you benefited from reading my Insider's Guide Part I, you'll love Insider's II. I will show you, amongst many other things:

• 
  Ten sources of bargain properties, and simple systems you can use to find them.
• 
  Nine systems you can set up to create your own successful property business.
• 
  An eight-step plan to identify and buy the best property available.
• 
  The seven most important traits of a successful entrepreneur.
• 
  Six ways of generating profits from property.
• 
  Five reasons why I think property beats all other investment types hands down.
• 
  Four common scams in property and how to spot them.
• 
  Three things you can do to make a good deal "great!"
• 
  Two reasons why your property business could fail, and how you can guard against them.
• one fantastic website that will help you build a serious property business.

I have subtitled my new e-book "Milking The System" because I believe that no matter how clever you are, if you don't have the right systems in place to find, buy, run and manage your property business, you cannot be successful. But, if you do have the right systems in place, and you use them, then success and profits are yours for the taking. I will show you in detail those systems, why you need them, and how to make them work for you.

My property business is now growing quicker than at any other time. In fact, the number of properties owned by my company will have doubled in the last year alone. But I'm not too proud to admit that when I first started out I made a lot of mistakes, mistakes that have cost me time and money. In Insider's Part II I will humbly share those mistakes with you so you can avoid the pitfalls and get off to a flying start. That's why I show you in detail:

Why we all do 'dumb deals' from time to time, and how to cope when they happen.
What you need to think about before you buy, including how to do your own due diligence.
How to do your own risk analysis before you buy, so you don't get caught by damaging negative cash-flow.

I am so pleased to be able to bring this title new to you now, which is a perfect compliment to my original publication. Now, with my two titles, I have been able to cover the whole subject of property investing in as much detail as is possible and have managed to bring the subject completely up-to-date.

I know that you will benefit from Part II as you have from Part I.
Best regards,

Peter Jones

More Misery in the UK

The jittery Bank of England Monetary Committee has set ther stage for a big shake out of over extended property owners with their suprise increase in base rates.

Their excuse is as ever inflation, however with exporters hurt and imports suddenly even more attractive it spells more unemployment, and you guessed it more mortgage arrears.

Europe, America and Asia must be rubbing their hands together.

From an property investor perspective, stand by for "distressed sales" opportunities from those novice Buy to Letter's who only entered the market in 2003, and those on a "off-plan" promise who now cannot afford the final installment let alone find a tenant. In addition, recent first time buyers having over spent at Christmas will be tightening their belts and worrying about their cost of borrowing.

On the negative side new tenants may find their rents harder to pay, and may have their jobs under threat.

Overall it may be better to steer clear of the UK (unless you can get a 10% rental yeild, rather than the avaerage 5.5% in London-which is less than their mortgage rate-so taking more money out of the ecomony).

As I have stated in other blog,and despite the reports of the vested interest group the UK property market just like the USA peaked in 2005.

So if you have the chance get out of UK property for a while. Gold Bullion is good.

US Housing Trends or Recession?

If you want to know where today’s US housing market is heading, then the two graphs shown below say it all. The first is a longer-term at median U.S. home prices from 1990. The recession in the early 90’s shows up as a dip, but nothing in the past 16 years compares to the plunge in 2006, from the peak in 2005. See my Blog on Gold Bullion and the Stockmarkets

The second picture is a housing starts and permits: from July 2005 to November 2006 the trend speaks for itself. The rapid reductions in permits means that the house building speculators are slowing down their building plans significantly. A classic sign of a RECESSION