Charleston SC Real Estate Blog

From SCR--- (Use the main header link to take immediate action on your behalf)

No one knows better than you how point of sale assessment is affecting the real estate market, and your Representative needs to hear from you on this issue. The House of Representatives will have an opportunity to correct point of sale by passing H.3272 when it comes before the House. H.3272 was passed by the House Ways and Means Committee on March 26th and will move to the floor of the House for consideration this week.

H.3272, introduced by Representatives Cooper and Merrill, eliminates point of sale assessments and puts property tax reassessment back on the five-year cycle that existed prior to the property tax reform package that became law in 2006. Passing H.3272 and sending it to the Senate for consideration is a vital step in ensuring that point of sale is addressed this year.

Please contact your Representative immediately and urge them to support H.3272 and keep the bill moving forward. This is the single most important economic stimulus that the South Carolina General Assembly could provide for our state.

Labels: SC Legislative Issues on Property Taxes

Real Estate Show Live on WTMA.com or 1250am, WTMA, Radio on Saturday Morning at 8am. This week: 10 steps to buying a foreclosure, What is the state of our market as it relates to Foreclosures? And...more helpful selling tips.

Labels: charleston and mount pleasant sc real estate.

Young Chuck moved to Texas and bought a donkey from a farmer for $100.�

The farmer agreed to deliver the donkey the next day.�

The next day the farmer drove up and said, 'Sorry Chuck, but I have some bad news, the donkey died.'�

Chuck replied, 'Well, then just give me my money back.'�

The farmer said, 'Can't do that. I went and spent it already.'

Chuck said, 'OK, then, just bring me the dead donkey.'�

The farmer asked, 'What ya gonna do with a dead donkey?�

Chuck said, 'I'm going to raffle him off.'�

The farmer said 'You can't raffle off a dead donkey!'�

Chuck said, 'Sure I can.. Watch me. I just won't tell anybody he's dead.'�

A month later, the farmer met up with Chuck and asked, 'What happened with that dead donkey?'�

Chuck said, 'I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $898.00.'�

The farmer said, 'Didn't anyone complain?'�

Chuck said, 'Just the guy who won. So I gave him his two dollars back.'�

Chuck now works for Morgan Stanley.
�

(This was my response to Brad Rundbaken's email this morning from the CharlestonMarketReport.com, and his original comments below)

Brad:

I'm afraid you are correct. We do a lot of REO work for banks and we are absolutely slammed with pre-foreclsoure BPO Evaluations right now. My guess is that there are about 500 Looming Foreclosures in Mount Pleasant alone. There are three or four Mt. Pleasant high-end neighborhoods on the verge of imploding. There are probably three times that many in number, in Summerville and twice that many in the rest of Charleston County. So, that would be 3,000 exactly, right now in delinquency.

The problem is that our congressmen and Senators don't understand. You and I see it at the local level in a moderate market. They don't. D.C. doesn't have a recession, so when they dine, they're not seeing a typically full restaurant with five people in it. They're not talking to homeowners who are current on their mortgage (by the droves) that are about to throw in the keys, because they owe 30% more than it's worth; and on top of this there are tons in denial. What happens when they wake up? No matter how much all the recent moves help housing and even if our sales double to 600, 700 or even 800 homes per month in the Tri-county, that will only be enough to consume the added foreclosures that are coming. This means more of the same as an optimist, just more transactions. The Charleston County foreclosure list doubled this week.

Have you noticed, Brad, 85% of the listings on the market in the Charleston MLS are severely overpriced? Most of the people are either listening to bad advice from their Realtor or they, seriously, are waiting on the "Normal" Charleston market to return. With a lack of stated financing, a lack of buyers/confidence, I'm afraid we may have thousands more go into foreclosure by not facing the problem and dealing with it today.

On Wed, Mar 25, 2009 at 8:03 AM, wrote:

Charleston Market Report Newsletter

I went on the Rocky D show yesterday with the intent of warning my fellow Charlestonians about the problem with Tim "Tax Cheat" Geitner stealing more of our tax dollars to prop up bad banks and the increasing foreclosure problem in Charleston.

I am trying to get the Charleston community into a proactive discussion about the increasing foreclosure problem that will have a major impact on local real estate prices if it is not addressed asap. My current estimate is that there are over 3000 homes in foreclosure or short sale status that are NOT reported on the MLS. Local and national banks are often holding these properties off the market or will not sell them because they do not want to take the writedown. The local real estate industry and govenments are either not aware or ignoring the problem.

As of today no emails or calls from anyone regarding my announcement to be proactive instead of reactive to this growing problem. I guess it is business as usual in Charleston. Not good.

'Shadow' Supply Of Foreclosures May Delay Housing's Recovery
BY KATHLEEN DOLER

FOR INVESTOR'S BUSINESS DAILY

Posted 3/24/2009

Even as a few rays of hope peek out for housing, a dark cloud of unlisted and unsold foreclosed homes threatens to further delay a recovery and undermine lenders' financials.

The government is riding in with new programs almost every week, including Monday, that may rescue lenders. But they also cause paralysis in the short term.

Lenders are holding "between 600,000 and 700,000 residential properties that are not on the multiple listing service (MLS)," said Rick Sharga, senior vice president at RealtyTrac, a foreclosure listing firm in Irvine, Calif.


This shadow supply isn't counted as part of the housing inventory. There were 3.8 million existing homes on the market in February, equal to 9.7 months' worth at the current sales pace.

Add in the shadow supply and selling all the available homes will take even longer, and that suggests prices have even further to fall.

There has been some good news on the home front. February existing-home sales rose 5.1%, the best monthly gain in years. Housing starts shot up 22.2% from a record low. Low mortgage rates and falling prices have made homes more affordable — though that doesn't help if you can't get a loan or you've lost your job.

Meanwhile, foreclosure activity has been artificially suppressed. Mortgage delinquency rates have continued to soar in the last several months even as the new foreclosure rate has held steady. That's due to government moratoriums or voluntary lender halts. But most experts say eventually most of those homes will be foreclosed.

Lenders also may be understating the impact foreclosures will have on their balance sheets. And the shadow is likely to grow as more homeowners default.

Window Dressing?

Specialists who handle loan modifications for borrowers say that despite a flurry of new programs, few mortgages are being reworked.

"Lenders aren't doing anything," said Jim Richman, president and founder of Richman & Associates, a real estate and debt restructuring firm in Glendale, Calif. "They're waiting to see if the government will bail them out."

"Everybody is stalled 100%; the lenders aren't doing anything" with modifications, said Moe Bedard, president of Loan Safe Solutions, a Corona, Calif.-based firm that does mortgage auditing for attorneys.

Richman is a former banker and former Housing and Urban Development commissioner. He also believes lenders "are illegally operating under current federal rules," by not writing down their foreclosures adequately.

"Lenders are doing everything they can to stay in business, but it's against all the rules," said Richman. "(Regulators) are afraid to enforce the rules because if they do the banks will fail, and the feds will have to bail them out."

Sharga says he's spoken "directly with foreclosure attorneys in several states (including Texas, Michigan and California) to find out if any of their firms were reappraising properties" during the foreclosure process for their clients. "None did formal appraisals," he said.

Sharga says lenders have taken huge write-downs. But if they have not reappraised their foreclosures, are the write-downs adequate?

"What the banks can buy with time (holding foreclosures and not listing them for sale) is the tooth fairy," said Thomas Barrack Jr., founder, chairman and CEO of Colony Capital, a Los Angeles-based private equity firm specializing in real estate. "The government has shown that if you wait long enough, it will come out with a new program to modify the obligations of the bank and borrower. Pixie dust comes every week."

The Treasury on Monday laid out its plan to partner with private funds to buy up to $1 trillion in so-called "toxic assets." It's as-yet unclear if these purchases will include actual foreclosed properties — these programs tend to morph as they get rolled out.

"Why take a loss today if there's any chance that loss could be less (due to changes in government programs)?" said Terry McEvoy, a banking analyst with Oppenheimer & Co. in New York.

Some shadow inventory may not be listed publicly because some lenders sell foreclosures via in-house divisions, says Bedard. Or, lenders may be selling the defaulted paper to investors. But these gray market sales can't account for all unlisted foreclosed properties.

And the stalling is getting worse. "What we're seeing is slowdowns in the processing of properties throughout the foreclosure cycle . . . it's taking longer to file (default) notices, taking longer to actually foreclose and taking longer to get the properties on the market," said Sharga.

"The lenders ease their way into the losses," said Jeff Davis, senior vice president and director of research at Howe Barnes Hoefer & Arnett Inc., Chicago. "If the economy would pick up, a lot of the issues wouldn't be as problematic. But that's not happening and these issues are just compounding."

If banks dump their properties at once, it could cause dramatic price erosion in already hard-hit areas.

Home prices, which have fallen 30% or more in some areas, still have more to go, many experts say. In some areas they need to drop "another 30% to get down to 1998 normalized levels," Barrack says.

Lenders have argued before Capitol Hill to relax or suspend mark-to-market rules for valuing mortgage-backed securities. Lawmakers, in turn, have leaned heavily on the private-sector Financial Accounting Standards Board to make changes. FASB has signaled it'll modify the rule in cases where markets are illiquid. It met Tuesday to discuss the issue.

Barrack, who opposes changing the mark-to-market rules, said: "When real estate and securities were booming, the lenders were booking unbelievable earnings. Now the market is going the other way.

"They can't have it both ways," Barrack said.

Other analysts disagree. "When you mark to the market and there is no market, you're recognizing an economic loss and a loss of liquidity," instead of an actual loss, said Davis.

But he said if the underlying assets —the homes — "are collapsing in value, then there's a problem."

Labels: Charleston SC and Mount Pleasant SC Foreclosures

# posted by Bryan Crabtree @ 8:42 AM 0 comments

Just posted - our segment on AIG, and what exactly went wrong. This segment from our broadcast on WTMA - Real Estate Show explains the crisis at its foundation:

http://housedog.com/wtma-radio-show-by-bryan-crabtree-c12907.html

Labels: Charleston SC Real Estate Expert and AIG - what went wrong?

If you're thinking of buying a foreclosure presently owned by the Bank, you're not alone. About 40-50% of all sales in the Nation are distressed properties. And, there's a lot of foreclosure opportunities on the horizon. Here are the ten steps to take, if you plan to take advantage of this opportunity:

1. Get pre-approved with a reputable well-know lender in your city.
2. Find an agent that has sold at least 10 foreclosures in the past year.
3. Line up an inspector that can do an inspection quickly. You won't be able to ratify a contract on a foreclosure until your inspection is complete - so you'll need to have an inspector ready to act quick, and an agent who knows how to "tie down" the property while you do the inspection.
4. If the property has been listed in the past 21 days, plan to offer full price (they may pay your closing costs at full price).
5. If the property is a new listing, prepare to act in the first 24 hours. Most of our bank-owned listings sell in the first week.
6. Expect that you'll have some work to do before you can move in. Most foreclosures need paint and carpet; some even more.
7. If you are paying cash, this can sometimes help you, but make sure you have a proof of funds document to present with your offer.
8. You'll be responsible for doing your own CL-100/Termite Letter in most bank-deals and it's highly recommended.
9. Prepare for closing to take 30-45 days, as the bank has to get a final deed from the Magistrate to provide a clear title to you.
10. Expect a wait and/or a competitive situation when you're bidding. These homes are typically priced below market, so there are a lot of buyers looking at Foreclosures.

Labels: Foreclosures in Mount Pleasant and Charleston, SC

This was sent to me by Jeff Doss at Bradford Mortgage (Bradford is one of our Radio Show Sponsors. Great insight into the market from today:

MBS prices are down -2/32 below the 9:45 et pricing level of unchanged, but above the low for the day of -7/32. It was a volatile session. No economic data came out today. The 2-yr Treasury auction saw strong demand, and foreign investors purchased a high 53% of the total. MBS prices moved lower after the auction, though, despite the strong results. Following Treasury markets, MBS markets reversed direction a little later when the Fed announced that it will begin buying Treasuries tomorrow, under the $300 billion program revealed last week. Treasury Secretary Geithner and Fed Chief Bernanke testified before Congress about AIG. They were seeking to establish the regulatory authority to deal with future problems at large nonbank financial institutions. The Dow fell 120 points. Tomorrow, Durable Orders and New Home Sales will be released. There will be a 5-yr Treasury auction at 1:00 et.

Labels: Charleston SC Real Estate Statistics

This week on the Lowcountry Real Estate Show - Heard Saturdays at 8am on 1250am, WTMA or live on WTMA.com. (Also, look for new podcasts on our website this week)

On the show:
1. What does the real estate industry think of the new Treasury Plan and will it work?
2. Details of the Treasury Plan - and what it means to you.
3. More....on Foreclosures and Bank Owned Homes.
4. A recent glimmer of hope in the markets and Real Estate Activity is up - is this the end of our crisis?
5. How to find an exceptional deal when you're buying or get the highest value as a seller.

TUNE IN AND LEARN MORE!

Labels: charleston and mount pleasant sc real estate.

This was sent to me by one of my sellers (written by an anonymous author) about the Charleston Real Estate Market:

Market Review

March 20, 2009

The 2009 real estate market is off to a slow start. The first two months of 2009 saw the number of Tri-Countytransactions drop 42% from the same two-month period in 2008. Since November, the number of transactions that occur each month have been roughly one

third of what they had been during the corresponding months of peak year 2006. The monthly number of transactions is roughly half of the average number of corresponding monthly transactions over the last nine years.

In January, the median price of a home sold in the Tri-County region was $177,500, down 16% from the $210,600 median price of a home sold in January of 2008. In February, the median price of a home sold in the region had climbed back $7,400 to $183,900. This $183,900 median price was 10% less than the $205,000 median price experienced in February of 2008. Expect to see a bumpy plateau of median price fluctuation between $170,000 and $210,000 in each month of 2009. This is because in any given month, there may be more discounted homes sold at the higher end of the market than there are in the low end of the market.

Take I’On for example. Below is a table showing the five homes that have closed in the neighborhood thus far in 2009.

The lowest price home - 90 North Shelmore - sold for $690,000, or 95% of the list price (87% of original list price). The highest price home – 15 Eastlake – sold for $1,135,000, or 91% of the list price (73% of original list price). The median price of the five homes sold was $1,050,000, substantially greater than the $815,000 median price of the 54 homes sold in I’On in 2008. The increase in median price was due to greater discounting at the higher end of the market. Such discounting will happen throughout the Tri-County region, but particularly in those areas like downtown Charleston and the islands that experienced the greatest price appreciation prior to the bubble bursting.

Foreclosures, short sales, and high inventory levels will continue to put downward pressure on prices in I’On and throughout the Tri-County region. Nevertheless, because of greater discounting at the high end of the spectrum, by year end I wouldn’t be surprised to see the 2009 median price for the Tri-County area near or slightly above 2008’s $205,000 median price. To reiterate, this wouldn’t necessarily mean the market improved, it would just reflect greater discounting at the higher end.



Image removed by sender.

I’On inventory. As of this writing, three homes are under contract. Normally, there are at least nine under contract this time of year. 83 homes are listed for sale. Two of these 83 listings are for homes that have yet to be started, and two more are for homes still under construction. Taking away these four, leaves 79 completed homes on the market in I’On. These 79 homes range in price from $499,000 to $2,700,000 with an average asking price of $1,100,000. They have been on the market for periods ranging from a few days to almost 4 years, with an average of 14 months.

12 of the 79 homes were recently listed (placed on the market since the beginning of the year). Of theremaining 67 placed on the market before January 1, 2009, one was listed in 2005, 10 were listed in 2006, 23 in 2007, and 33 were listed in 2008. The prices of 34 of those 67 have been reduced since January 1st. These reductions have ranged from $10,000 to $230,000. If you have a home on the market and are seriously interested in selling it, then given the state of the economy, the dearth of homes under contract, and the recent sales comparables, consider reducing the price or further reducing the price.
With the “Ides of March” just past, this famous passage from Shakespeare’s

Julius Caesar seems a timelyreminder for pricing strategy:

There is a tide in the affairs of men.

Which, taken at the flood, leads on to fortune;

Omitted, all the voyage of their life

Is bound in shallows and in miseries.

On such a full sea are we now afloat,

And we must take the current when it serves,

Or lose our ventures.

Some recent good news:

1. Mortgage rates have fallen again, making home ownership even more affordable. If you haven’t refinanced your home in a while, now would be a good time to do so.

2. Ground was recently broken on four new homes in I’On. Three of those are custom homes. Now is a fantastic time to consider building a home as construction costs are the lowest they’ve been in a long time.

3. The fourth of those homes started last month will be

Coastal Living magazine’s 2009 “Idea Home.” Built by Structures on Jefferson Canal, this home will be open for tour in late summer and be featured in the October issue of the magazine. The first ever Coastal Living Idea Home was built on Sowell Street in 1998. We are proud to have been selected once again.

4. Several more homes will start over the next three months. They will be built on lots recently sold as part of the I’On Company’s Holiday Home Site Sale.

5. You may have heard the announcement of our new sales and marketing collaboration with William Means! I’On Realty is very excited about this new relationship and are proud to have them working alongside us to help sell homes in I’On.

6. Spring has returned to the Lowcountry!! Celebrate!!!

Labels: Charleston SC Real Estate Statistics

AIG has $1.7 Trillion in exposure to the declining housing market. We've put $170,000,000,000 into AIG at this point. The problem, they've invested in so many derivatives that if we don't continue to prop them up, several more banks will fail as a result. Listen to our March 7 Podcast in the third segment for more on this issue:

http://housedog.com/wtma-radio-show-by-bryan-crabtree-c12907.html

Labels: Charleston Mount Pleasant Real Estate Topics

We service the Charleston SC area for Real Estate Services. If you are looking for Charleston SC Real Estate, Mount Pleasant SC Real Estate, Summerville SC Real Estate including bankowned and foreclosed homes, then visit our website at Housedog.com. This blog offers information and commentary relative to the radio show that we host on WTMA Radio in Charleston SC.

Labels: Charleston SC and Mount Pleasant SC Real Estate

Here is a great lending program for teachers. I found this from one my Charleston, SC clients who had asked about it. The Palmetto Hero Program:

Here are some features of this special mortgage program :

*

30 Year fixed rate of 5.875%
*

Up to $7,000.00 in Forgivabe Down payment Assistance available.
*

Loan amount up to $284,050.00
* The amount of down payment assistance, income limitations and loan amount is dependent on county of residence.

* Loans are on a first come first serve basis and the program is limited to $20 milion dollars.

Labels: Charleston SC Real Estate

HOUSEDOG.COM - we provide you with a resource for all Charleston SC Foreclosures and surrounding cities.

Labels: charleston and mount pleasant sc real estate.

Don't forget to listen to our Charleston Real Estate Radio show each Saturday on 1250am, WTMA in Charleston at 8am. Or live on WTMA.com. You can also subscribe to our podcast via Itunes - or just visit our website (About Us).

http://www.housedog.com

Labels: charleston and mount pleasant sc real estate.

Taxes Two Step

Chief among the concerns is the White House's tax policy.

On one hand, tax cuts on 95 percent of households may sound good, but are so small they are unlikely to more than soften the pain of the downtown.

Some 95% of American families at lower income levels will share about $770 billion in new tax breaks through 2019.

In particular, the stimulus package provides tax cuts of roughly $400 for individuals and $800 for couples.

Compare that to the rebate checks under the 2008 stimulus plan, which worked out to $600 per person and $1,200 per family, plus $300 dollars per child. They barely made a dent in the economy, with economists estimating as much as 40-percent directed to savings rather than spending.

“It’s not sufficient,” says Richard Hastings, who follows the consumer sector for Global Hunter Securities. “At this level you’d have to wait a year and a half to see anything.”

What’s more, the long-term Reagan and Bush administration tax cut measures involved a broad range of income groups and spared taxpayers far more money, but were still subject to a lag affect of a year or so.

Meanwhile, the White Houses’ budget proposal to hike taxes on the two top income groups (covering 3 million households), as well as capital gains rates, though not intended to take effect until 2011, will arguably begin to depress consumer spending even before that time.

As proposed under the $3.6 trillion-budget blueprint, rates will rise from 33 percent to 36 percent and 35 percent to 39.6 percent, respectively, generating $637 billion.

Labels: charleston and mount pleasant sc real estate.

Bank of America is among the major banks rolling out jumbo mortgage programs and holding the loans in their own portfolios.

It will offer loans from $730,000 to $1.5 million with 30-year fixed rates under 6 percent; but borrowers must make a 20-percent down payment, have good credit, provide proof of income, and hold six months' of principal, interest, property tax, and insurance payments in reserve.

Other banks offering jumbo loans include ING Group's ING Direct unit and Luxury Loans of San Diego.

This is a good thing for our jumbo market over $417,000 loan Amount. The above post is courtesy of CNBC.com which has great news and commentary on the financial markets.

To view all bank owned and foreclosed homes in the Charleston and Mount Pleasant SC area, click on http://www.housedog.com

Labels: charleston and mount pleasant sc real estate.

Have you ever wondered what the point of Active Rain is? Yes, it's a tool for networking with Realtors, but for what? I've been doing this site for sometime and have finally decided, this is it. It's a waste of time. My website has referred more people to active rain, than it has referred to my website. Why do we, as Realtors, do this to ourselves? We all jump on the Trulias, Active Rains and the like and post all of our information allowing them to take control (or take a slice) of our industry. In my opinion, our consumers don't find Active Rain useful. In fact, my research has shown that the average consumer stays on this site and our blogs for just a few seconds and then exits the site.

And, just for those of you who are thinking of advertising or spending money with Localism, don't. My web analytics showed that ZERO people actually visited my site as a result of that ad (except me clicking on it to see if it worked).

I hate to "rain" on the parade here, but the whole idea of us posting and blogging and commenting on blogs just to get points on a site that is mostly read by Realtors is useless. What's the point? Networking? Okay, I give you that. But wouldn't we be better served on a serious/real blogging program like Google's Blogger or if we spread our messages as Realtors all over the web instead of in this one forum that is predominantly read by Realtors? I won't discount that some consumers read these things, but 100% of the hundreds of comments I've had and my wfie has had on our blog posts have been other Realtors doing it just to get the points. And, I'm confident, those points won't lead to a sale.

For me, Active Rain has been an unproductive waste of good prospecting time. I'm moving on. Good luck in your careers!

Muddle Through or End of the World?
An Alphabet Soup of Credit
Turning Nuclear Waste Into Gold (and Back Again!)
Mrs. Watanabe and the Hedge Fund Connection
The Rating Agency Blame Game
Where Do We Go From Here?
Hedge Funds to the Rescue!
Warren Buffett Needs to Take Over Moody's
Will a Fed Rate Cut Make a Difference?
Vacation, Europe, and Reading


End of the World or Muddle Through? This week I try to explain in simple terms the very complicated story of how we went from some bad mortgage loan practices in the US to the point of world credit markets freezing up. There is a connection between the retirement plans of Mr. and Mrs. Watanabe in Japan and the subprime problems of Mr. and Mrs. Smith in California. We find the relationship between European banks and problematic hedge funds. And finally, we try and see how we get out of this mess. Oddly, I think it is hedge funds (and maybe Warren Buffett) to the rescue, but not in the way you would think. It is a lot to cover, so let's jump right in. (And there are a lot of charts, so while this will print out long, it is only a little longer than the usual in word length.)

But first, since this letter is likely to be forwarded a lot, if you get this and would like your own free weekly subscription, you can go to www.2000wave.com and simply put in your email address. You can be one of my 1,000,000 closest friends who get this letter for free. We will send my Thoughts from the Frontline to you each Saturday morning, along with my Outside the Box, which features the writing of other analysts and comes out on Tuesday.

To say the credit markets are frozen is an understatement. Talking to any number of people who have been in the markets for decades, this is the worst in their memory. Ironically, it is the 100-year anniversary of the Panic of 1907, when one banker (J. P. Morgan) stepped in and provided liquidity to the markets. The central banks of the world are providing liquidity; but as we will see, it is not mere liquidity that is needed.

You cannot explain the problems with just one or two items. A perfect storm of this sort takes a number of factors all coming together to work its mischief. Bad mortgage underwriting practices, bad rating agency practices, a destruction of confidence, excessive leverage and then the withdrawal of that leverage, the need for yield, greed, and complacency which then in a Minsky moment (explained below) becomes paralyzing fear - all play their part.

An Alphabet Soup of Credit

But let's start at the beginning. In the early '90s, investment banks created a new type of security called an Asset Backed Security (ABS). And it was a very good thing. Essentially, investment banks would take a thousand mortgages or car loans or commercial mortgages or bank loans and put them into a security. You could have a Residential Mortgage Backed Security (RMBS) or Commercial Mortgage Backed Security (CMBS) or a Collateralized Loan Obligation (CLO) and then a Collateralized Debt Obligation (CDO).

I am going to grossly oversimplify the following description, but the principle is correct. Let's take a look at how a Commercial Mortgage Backed Security is created. If you are a bank or institution, when you make a loan on a mall or office building, you incur a certain amount of risk. If you hold 100 such loans, you can almost be certain that some of those loans are going to be bad. Further, you are limited in the amount of loans you can make by the capital you have in your company. But what if you could package up those loans and sell them? You get your cash back, and then you can keep the servicing fees and make more loans. But who would want to take the risk of your loans?

Through a form of financial alchemy, you can take your loans and increase the quality of them to potential investors. Let's say you have $100 million in commercial mortgage loans. You take this pool and divide it up into 5-7 (or maybe more!) groups called tranches. The first group gets the first (as an example) 60% of the principal which gets repaid. That means that 80% of the loans would have to default and lose 50% (80% of the loans times 50% loss is 40% total portfolio losses) of their value before your money would be at risk. If the bank originating the loan is not completely asleep at the wheel, your risk of an actual loss is quite small.

So, an investment bank goes to a rating agency (Moody's, Standard and Poor's, or Fitch) and pays them a fee to rate that tranche in terms of risk. Since the level of risk is small, that first tranche gets an AAA rating. Then the agency goes to the next group. Maybe it is 10% of the pool. It would get all the principal repayments after the first group. In this case, 60% of the loans would have to default and lose 50% of their value before your group lost money. The ratings agency might give this group an AA rating.

This process goes on until you get to the lowest-rated tranches. There is typically an "equity" tranche which is about 2-4%. That tranche is the last group to get its money repaid. In our example, if 8% of the loans went bad and lost 50% (8% times 50% is 4%) of their value, the equity tranche would lose all their money.

Let's assume the average interest rate on the loans was 10%. Because of the lower risk, the investment bank putting the CMBS together might decide to pay the AAA-rated tranche only 7%. Each successive tranche would get a higher rate, as they were taking more risk. The equity tranche is priced to pay in the mid-teens (or more) if all the loans are paid off.

Now, insurance companies, pension funds, and other institutions can buy this security that pays an interest rate higher than they could get from a similar government bond. This difference is called the spread. And in the beginning, spreads were high, as not everyone was comfortable with these new-fangled investments.

To see what I am talking about, you can look at the chart below, taken from the open education source at MIT. You can see the whole chapter here.

Let's also notice something. In order to get someone to buy the lower tranches you have to pay them more. So, the more of the loans you can get the ratings agency to classify as AAA, the more interest you can pay to the buyers of the lower tranches to entice them to buy. This is going to become an important point. (I should note that it also means you can charge higher fees for putting the deal together and selling it to your clients.)



Now, this financial engineering is a very good thing. It is one of the reasons for the worldwide economic boom, as it allows capital to invest in all sorts of loans that would normally be considered too risky. And for the vast majority of all these various alphabet securities, the ratings are going to be just about right. AAA CMBS or CLO paper is where it should be. Even AAA-rated prime mortgage paper, which is now selling for a discount, will (in my opinion) turn out to be just fine.

Investment banks put together all types of asset-backed paper. Car loans, mortgages, business loans, credit card debt, etc. are all fair game. And you can mix and match risk if you like. The combinations are endless. So it can be quite a complex task to analyze what you are buying. And to a very great extent, that analysis was delegated to the rating agencies. For all practical purposes, institutional buyers would look at the general classification of the security and then at the rating. It was on the screen, so they hit the bid. If you can't trust your friendly neighborhood rating agency, then who can you trust? And most of these securities had ratings from at least two if not three agencies.

But (and you know there is a but) there is a problem with subprime-rated paper. In the beginning, subprime loans were made the old-fashioned way. You had to have 80% loan to value and show you had a job and could actually pay back the money. And these loans were packaged up into a subprime Residential Mortgage Backed Security. Eventually, 80% of those loans would get an AAA rating. Now, this means that 40% of those subprime loans would have to go bad and the value of those homes drop 50% before the holders of that tranche of debt lost money. Even with today's loose lending practices, that is unlikely. I think any rating agency is going to be able to justify that initial AAA rating.

But then in 2004 loan practices began to change and had got completely out of hand by 2006. In 2005-6, about 80% of subprime mortgages were adjustable-rate mortgages, or ARMs, also called "exploding ARMs." These loans are so-named because they carry low teaser rates that often reset dramatically higher, increasing the borrower's monthly mortgage payments by 25% or more. Let's look back at what I wrote in March in this space.

"Let's say I want to buy a $200,000 home. I can qualify for an option Adjustable Rate Mortgage (ARM) with a starter rate of 2%. I can pay interest only for the first year, and then the rate goes to 5%. So, I have an interest payment of $4,000 a year, or $333 a month. But starting the second month, the interest is actually at 5%, so the real interest amount is almost $10,000, and the amount on my mortgage grows by roughly $6,000 the first year. I now owe $206,000 on the home. If I put down just 5% as a down payment, I now owe more than I paid for the house, if you take out 6% realtor fees when I sell! But as the interest rate resets in the second or third year, it can go up to 8%. I am now paying $16,500 in interest, and my monthly payment for just the interest is $1,375.

"According to reports from loan counseling agencies across the nation, the main reason homeowners give for falling behind on their mortgage payments is not a change in personal circumstances (such as a job loss), but instead, they are not able to make the increased payments on their ARMs.

"The loan application and review process for 'no-doc' loans was so lax that such loans are referred to as 'liar loans.' In a recent report by Mortgage Asset Research Institute, of the 100 loans surveyed for which borrowers merely stated their incomes on loan documents, IRS documents obtained indicated that 60% (!) of these borrowers overstated their incomes by more than half.

"The newer mortgage products, such as 'piggyback,' 'liar loans' and 'no doc loans' accounted for 47% of total loans issued last year. At the start of the decade, they were estimated to be less than two percent of total mortgage loans. As a result, homeowners have never been more leveraged: the average amount of debt as a percentage of a property's value has increased to 86.5 percent in 2006 from 78 percent in 2000."

Ok, let's run the math. Almost 50% of the loans made last year were made with little or no documentation check, and 60% of those people overstated their incomes by more than half!!! That means 30% of the loans made were to people who were stretching to buy a home and whose actual income would not qualify them for a home anywhere close to what they bought.

The following chart from RBS Greenwich shows the amount of mortgages hitting the reset button in the next two years.



Research by RBS Greenwich (assuming I read it right) suggests that 20-23% of the subprime loans made in 2006 will go into default and foreclosure. I talked with one head of a mortgage brokerage business in California this week (he has over 800 brokers who work for him) and he thinks that home values in certain areas he services could drop by as much as 50%. Others in my area (Texas) think these defaulting home values will drop by as much as 20%. No one can be sure, as the supply of homes for sale is already very high and likely to get worse.

But let's look at what that can mean for a buyer of a lower-rated tranche of a 2005-6 vintage in a subprime RMBS. If 20% of the loans default and lose 30% of their value, the loan portfolio would be out a total of 6%. If defaults were higher, the losses could be more. 8% would not be a stretch. The problem is that the lower-rated tranches comprise as much as 8% of the total pool.

And that may be optimistic. The study done by RBS Greenwich reads: "Our cumulative default projection would translate to a cumulative loss of 10%-11.5%."

As I showed last week, there are already some 2006-vintage subprime RMBS's that have over 50% of their loans at 60 days past due, with over 25% already in foreclosure or having been repossessed. That is in less than a year, and the interest-rate mortgage resets have not even really kicked in! (To see those charts, you can go here.)

Turning Nuclear Waste Into Gold (and Back Again!)

But that's not really where the problem is. Let's go to a great chart from good friend Gary Shilling (www.agaryshilling.com). In an effort to make it easier to sell the lower-rated tranches, the investment banks put together a Collateralized Debt Obligation (CDO) composed of just the BBB-rated paper. And then got the rating agencies to give 75% of that paper an AAA rating! So we have turned 75% of BBB waste into gold with the alchemy of ratings.



That means that if those RMBS lose just 5% of their value, everything but the AAA portion of the CDO is wiped out. Any losses beyond that start eating into the value of what a rating agency said was AAA! If the Greenwich projections are right (and these are very serious analysts), then all 2006-vintage CDO's will lose their AAA rating when the rating agencies look at them again. The new rating becomes "toast."

Who owns this stuff? According to Inside MBS, foreign investors own as much as 16% of the total mortgage securities. Mutual funds have about 16%. Oddly, for all the publicity, hedge funds probably have less than 5%. But they were leveraged, so the losses are magnified.

Mrs. Watanabe and the Hedge Fund Connection

If you live in Japan and are retired, investing in bonds is not all that exciting at rates that are barely 1%. But you can exchange your yen into all sorts of currencies that have investments that pay much higher rates. And of course, that makes the yen go lower, which increases your yield. You notice your neighbor is making very nice returns, and you open a retail currency account and start trading. 25% of Japanese currency trading is from small retail accounts.

If you are a hedge fund, you borrow massive amounts of Japanese yen at 1% and invest in higher-yielding investments and make the spread. Life is good. The trade goes on and on.

Hyman Minsky famously said that stability breeds instability. The longer things are stable, the more likely investors are to become complacent and risk premiums drop. Because of the lower yields, investors tend to over-leverage to try and keep up their returns. The markets are then likely to have a "Minsky Moment" of instability, and then risk premiums rise and all sorts of assets are repriced.

And that is exactly what has happened. The markets are de-leveraging. The yen carry trade is going away, and hedge funds and Mrs. Watanabe are driving the yen back up in as violent a move as I can ever recall. Look at the chart below of the euro-yen cross.



Notice the steady move up in recent months of the euro against the yen, and then a 12% correction in just two weeks! Ouch. Whether it was the Canadian or Aussie dollar, you were down big. And that is forcing a lot of funds to sell anything they can in order to meet margin calls. And since they can't sell their CDOs, they sell stocks, commodities, and anything that is high-quality. That means that assets that do not normally correlate with each now all move together. And the movement is down.

Groundhog Day For Hedge Funds

One of my all-time favorite movies is Groundhog Day, featuring Bill Murray, where the main character keeps living the same day over and over. One hedge fund manager I know in the credit sector says this whole credit cycle has been like Groundhog Day for certain types of hedge funds.

In February some of the lenders began to notice that the credit quality of some of the CDOs they were lending on might not be as good as that rating they had. So they went to the hedge funds and banks and said, "We are not going to offer you as much leverage as before and are going to make you take an extra 5% haircut on those bonds."

So the funds sold collateral to make the margin calls. And guess what? They had to take less than face value. And that lowered the value of those bonds on everyone's books. Which means the banks went to anyone holding those bonds and demanded more margin money and gave less credit, which created more selling and fewer buyers. The cost of hedging became expensive. It started a vicious cycle. In May, the Bear Stearns fund blew up, and the rout began in full earnest. The chart below is from www.markit.com. You can look at any of the scores of indices they track, and see that the problems began in February.



The above chart is of a BBB RMBS CDO (enough alphabet soup for you?) issued early this year! It is now down to $.33 on the dollar, and it may well go lower. Pools of senior bank loans are selling by as much as a 10% discount. All manner of debt is selling at significant discounts to what it was just 7 months ago.

The problem is, quite bluntly, that no one knows what the values of some of the mortgage-backed securities are. And if you don't know, you don't buy. And today, even very well-designed CDOs with no subprime exposure are selling at discounts, if they are selling at all. Senior bank loans are selling at an apparent discount to subordinated debt (which is not selling, so no one knows the value, so the "price" is the last trade).

And what about the banks that bought those CDOs? What exposure do they have? Are they in a fund or part of the bank capital? Do you want to lend them money on the overnight markets, for a few basis points more than government securities? The commercial paper market for many banks has simply evaporated. These banks depend on this market for their financing.

Last week, the Germans had to completely rescue an older, venerable bank which had a great deal of commercial paper and some off-balance-sheet funds which essentially made the bank's balance sheet negative. If you can't trust a German bank, who can you trust?

This has consequences. As of today, the largest mortgage lender in the US, Countrywide, is now only doing "agency" loans (Fannie Mae and Freddie Mac). Even the best of firms, like Thornburg, are having problems. If you want a nonconforming loan this week to buy a home, either subprime or over $417,000, you may have a very hard time.

The Rating Agency Blame Game

The ratings agencies have put 101 different CDOs on "watch," which is market speak for "we are probably going to change our rating." But that's a little too late.

In 2006, nearly $850 million or 44% (up from 37% in 2002) of Moody's Investors Service total revenue came from the rarefied business known as structured finance. In 1995, its revenue from such transactions was a paltry $50 million. Moody's took in around $3 billion from 2002 through 2006 for rating securities built from loans and other debt pools. The same pattern holds for Standard and Poor's and Fitch.

In short, the ratings agencies were making huge amounts of money from the investment banks for rating these structured products. And let's make no mistake about it, they were selling their name and credibility. Everyone knew what a AAA rating meant when it came to a corporation or a country. And even though there were disclaimers in the 500-page documents accompanying the CDO sales material, the investment banks were clearly pointing to the ratings as they sold that paper.

The entire process hinged on the credibility of the rating agencies. Somehow, no one seemed to think that the default rates from "no-documentation" and "liar" loans would possibly be different. I am sure you can find a paragraph in the offering documents which will make that contention, at least obliquely. Lawyers are good at that stuff. But that is entirely beside the point.

Credit markets function because there is the belief that if you lend money you will get it back. Ratings are the grease for those markets. Now they have become sand in the gears. If you are a bond buyer on an institutional desk, do you want to risk a career-ending move and buy a bond that you are not ABSOLUTELY sure it is what you think it is? Do you want to buy 3-month commercial paper for a few points of spread from a bank or corporation about which you are not 100% sure? Just how solvent is that bank? So, you wait and go to US government bonds in the meantime.

If you are in Europe, you worry about your money market fund. In the US, you think about your CD at Countrywide if it is over $100,000. Everyone gets nervous, and central banks everywhere have to step in and offer massive amounts of liquidity, as they should.

Where Do We Go From Here?
Hedge Funds to the Rescue!

This is not the end of the world. I actually think things should sort themselves out by October or so, given no new major surprises. But how do we get back to normal markets?

It might be helpful to look at how we got out of the savings and loan crisis in the late '80s. As everyone now knows, Congress changed the rules and allowed local savings and loan thrifts to finance all types of debt. They jumped in with both feet. Many were very bad at assessing risk and went bankrupt. The government had to step in and bail out the depositors. The assets of the collapsed savings and loans went into the Resolution Trust Corporation (RTC).

I had friends who made a great deal of money in that market. They would walk into the RTC offices. There would be two-foot stacks of manila folders, each folder representing a loan. You could go through the files and then make a bid for the whole stack.

Quite often, in the file there would be checks from good borrowers who kept sending in their check for the car or boat. Since the S&L was gone, there was no one to cash them. People were paying $.15 cents on the dollar for good loans, and working out the rest. Now, some of the loans were indeed 100% write-offs. But a lot were not. But there were so many that the RTC simply took high bid and went on to the next pile.

I also had a friend (whom I have lost touch with) that bought half a dozen older apartment complexes that needed work. He got them for very little cash, put his own work into fixing them up, got them certified as lower-income housing and then got government-guaranteed rent. He was able to retire in a few years.

The same process needs to happen in the credit markets. First, we need someone to step in and actually make a market for the downgraded credits. Who is that going to be? Mutual funds? Investment banks? The Fed? No, no, and no.

The answer is that it will largely be distressed-debt hedge funds, both those that exist today and the scores that are being formed as I write. There are bonds and loans, various CDO securities, CLO funds, etc. that are seriously mispriced because of the lack of liquidity and transparency. When you can buy a loan today for $.94 that has a 99.9% chance of being good, you simply take the interest and get the extra return for allowing the loan to go back to par. Even modest leverage produces very nice returns.

Savvy distressed-debt managers will go in, look at the paper, and buy it. This time, instead of manila folders it will be electronic files. But with a lot of work, someone will be able to assess the value. Of course, the bad paper needs to be written down and off the books. There will be little appetite for a lot of the riskier paper.

Also, the structure of many CLOs will help. Most CLOs are formed and have a finite life. But for the first 5-7 years, they take the principal repayments and reinvest those dollars in other loans. CLOs that are getting cash today are finding good values.

Warren Buffett Needs to Take Over Moody's

Second, the rating agencies need to restore their credibility. Warren Buffett's Berkshire Hathaway owns about 19% of Moody's. I would suggest that Mr. Buffett step in take over the company (much as he did with Salomon years ago) and put his not inconsiderable credibility on the line for all future ratings and the inevitable re-ratings that are going to be done.

The Panic of 1907 was solved by the credibility of one man, J. P. Morgan, who stepped in to provide liquidity. The Panic of 2007 is not a problem caused by lack of liquidity. It is a problem caused by lack of credibility. Morgan could (and did) provide liquidity. Buffett can (and should) provide credibility.

And someone of similar stature needs to step in at S&P and Fitch. (Can Volker be summoned into the trenches yet one more time?) This is not about whether some person or group at the ratings agencies necessarily did anything wrong, although more than a few lawyers will suggest just that. This is about restoring credibility to the ratings and markets as soon as possible. Without someone new at the head, future ratings are likely to be viewed with the skeptical (and correct) question, "Is this from the same group of people who rated that bond that I bought just a few months ago that is down 50%? Why are they right now? Where is the adult supervision? Who has made sure the process is now working?"

The SEC has announced that they will allow mortgage lenders to work out resetting mortgages with borrowers in cases where there is an obvious default about to happen. In many cases, that will mean extending the lower coupon rate another year. That may just put off the problem, but it will keep a home off the market and allow for a more orderly solution.

Will a Fed Rate Cut Make a Difference?

A rate cut will not make a difference as to the credibility of the ratings, nor will it transform bad debts into good ones. But my view has been for a year that the economy is heading for a recession due to the housing market problems. Given the turmoil in the markets, a rate cut may be in the offing later this year. And given that lower rates will make mortgages cost less, that will help.

The significance of today's cut of the discount rate, and the willingness to look at up to 30 days of loans and high-quality asset-backed paper, is not the actual cut but more the boost to confidence. It is the Fed saying to the market, "Daddy's home. Everything is going to be all right."

Beyond that, let's look at what Nouriel Roubini says today in his blog about the Fed move to cut the discount rate:

"More important than the symbolic 50 basis point cut in the discount rate was the move in today's FOMC statement from the semi-neutral bias of the last few months ('semi' as inflation was still their predominant concern until recently) to a clear easing bias today. Essentially today the Fed telegraphed a certain Fed Funds rate cut at the September meeting and possibly more cuts in the months ahead.

"The statement was very clear in signaling an easing bias and a policy cut ahead: 'Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth forward. The statement also pointed that 'the downside risks to growth have increased appreciably.' And it clearly signaled that the FOMC is 'prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.'

"The stress on the downside risks to growth and the failure of the statement to even mention the 'I' word (Inflation) suggests that, in about a week since the previous FOMC meeting, concerns about inflations as the predominant risk have faded and concerns about growth have sharply increased. For a Fed that until recently was in the soft landing camp (slowdown of growth but still moderate pace of growth) today's statement is a signal that they are starting to worry about a hard landing of the economy.

"For the first time in over a year the Fed is now implicitly admitting that they underestimated the downside growth risk: until now the official Fed view was that the housing recession was contained and bottoming out and not spilling over to other sectors of the economy; and that the sub-prime problems were also a niche and contained problem. The sudden shift to a strong easing bias suggests that the Fed miscalculated until now the damage to the economy and to financial markets of the housing recession and its real and financial spillovers."

While I am not so sure that the Fed will cut in September, they have signaled that they are aware of the problems, as noted above.

As an answer to my opening question, I think we are in for a return of the Muddle Through Economy rather than the End of the World. Credit markets will get back to normal, as there is a lot of money that needs to find a home. It is just looking for a credible home and one that will feature higher risk premiums and spreads.

Vacation, Europe and Reading

I am off to Europe (London, Denmark, Poland, and the Czech Republic). Other than a speech and a few meetings, I actually intend to take a vacation and do some sight-seeing. In my absence, though, Thoughts from the Frontline will still be coming your way. Next week, it will be written by Barry Ritholtz and the following week by Rob Arnott, so you are in better hands than mine. And Michael Hewitt is going to do the Outside the Box on September 4, about how the credit markets are doing.

And thanks to the hundreds of readers who sent in suggestions as to what books to read on my vacation. I made a new folder to save them, as many of you suggested books that I have always intended to read but not gotten around to.

Tonight I have to hurry home, as I have dinner with friends and then off to The House of Blues. I see margaritas and tacos in my near future, and some much-needed rest in the next few weeks.

All the best, and remember that the world is not in all that bad a shape. We just have to work through a few kinks, and Muddle Through is still moving forward.

Your enjoying the ride analyst,


John Mauldin
John@frontlinethoughts.com

Copyright 2007 John Mauldin. All Rights Reserved

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John Mauldin is the President of Millennium Wave Advisors, LLC (MWA) which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS) an NASD registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.

Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above.

Note: The generic Accredited Investor E-letters are not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for accredited investors who have registered with Millennium Wave Investments and Altegris Investments at www.accreditedinvestor.ws or directly related websites and have been so registered for no less than 30 days. The Accredited Investor E-Letter is provided on a confidential basis, and subscribers to the Accredited Investor E-Letter are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an NASD registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private investment offerings with other independent firms such as Altegris Investments; Absolute Return Partners, LLP; Pro-Hedge Funds; EFG Capital International Corp.; and EFG Bank. Funds recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor's services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.


-- Posted Sunday, 19 August 2007 | Digg This Article


Previous Articles by John Mauldin

Home sales continued to drop in South Carolina, falling for the seventh straight month in December, while the overall median home price eked out growth, according to statistics provided by the South Carolina Association of Realtors.

According to SCAR statistics, there were 5,065 home sales in December, down 12.4 percent from a year ago when 5,780 sales were recorded. Sales encompass single-family homes, condos and villas. Sales for all of 2006 were down 5.4 percent from 2005 to 68,900.

Among the state's larger markets, the Charleston Trident region saw a 31 percent decline in sales for the month from its year-earlier level, followed by the Coastal Carolinas region -- which includes Myrtle Beach, N. Myrtle Beach, Conway and Georgetown -- where sales tumbled 21.7 percent during the period.

The overall median price for single-family, condo and villa homes in December was $157,900, up 5.5 percent from $149,700 in December 2005.

The most dramatic rise in median price statewide occurred in the Coastal Carolinas area where the median gained from $176,000 in December 2005 to $220,000 in December 2006 -- a 25 percent increase.

In the Charleston area, the median home price edged up 3.6 percent in December to $200,000.

January proved to be what we predicted on the show: A start to the return of our strong market. With sales up in our company, and indicators positive market-wide, many homes moved in January. More importantly, buyer activity increased drastically. Our Weichert Lead Network (which is usually a six month indicator in advance), reported the strongest month ever of buyer inquiries, with more than 105,000 people per day. And the "pinned up demand" seems to be accurate. Buyers have been waiting while rates are historically low. We are still looking for a mid-year mini-frenzy in the Tri-County area which points to an improving and stable second half of 2007 and early 2008.

As announced on the radio show this weekend - our major indicator of consumer real estate interest at Weichert is our leading Weichert Lead Network. This past week, we experience 3 of the biggest days every for web traffic and consumer inquiries. What does this mean? My theory of a 2007 mini-frenzy is shaping up. The real estate market appears to be correcting and consumers seem to be on the prowl looking at real estate again. There are still bargains, and inventory is high - so don't expect a huge jump in prices or a rapid market, but a more healthy market is on the horizon!

The following information was on Clark Howard's website:

"Realtors tampering with MLS listings
The National Association of Realtors is at it again. The NAR is trying
to establish fixed commissions, despite the fact that they are against
the law. The organization is trying to use the Multiple Listing
Service (MLS) to keep business from the discount realtors. NAR reps
are actually delisting the discount realtor listings from this site.
The average real estate commission in the U.S. has dropped to 5
percent. And realtors are terrified that what happened in the travel
agency business is going to happen to them. So, they are trying to
stop the clock from marching forward by tampering with the listings.
The U.S. Justice Department has already filed suit against the NAR for
another issue. They will most likely jump on this one too. It's simply
wrong and should be against the law. People should be able to use any
kind of broker they would like. Clark uses a full-commissioned broker
because he believes she's worth it. But a discount broker who offers
fewer services might work for you. The industry is morphing, and part
of that is due to Foxtons, the full-service agency that only charges 3
percent commission. The company is only in the Northeast right now,
but it's growing like wildfire. So, the NAR is not going to succeed
with this mission no matter what."

This is spoken like a truly ignorant person in the media. The problem is that the "spin" is so great in these reports. This simply isn't true. The fact is that the limited service brokers do not comply with the MLS guidelines for which they join. As an interesting note, the consumers of Charleston have spoken: Limited Service Brokers don't work. Over the last 5 years, I can count more than a dozen of them that have come and gone. So, Clark: I know you're a big radio personality in Atlanta - but get your facts straight before your start bashing one of the largest and most ethical trade organizations in the World!

In 36 months, there has not been a significant drop in inventory. But the Charleston Trident Multiple Listing Service shows that a 2.5% SHARP drop in inventory has ocurred in the last 45 days. That's awesome news which points to a rapidly changing Charleston Real Estate Market. This drop is likely to be because of three factors:

1. The Holidays.
2. An increasing number of buyers.
3. And a real estate market that has bottomed and starting to upswing.

Thinking of buying? Your window of opportunity is closing for a super deal!

Question: We have had our home on the market since mid-July. We've dropped the price once and have many showings (40+) but no bites. Our broker is telling us to drop the price another $25,000 since homes in our price range ($500,000) don't seem to be selling.

We don't have to sell and are considering:


Taking it off the market completely and putting it back on this Spring.

Waiting until after Christmas to drop the price or not at all and letting the listing run out.

Answer: Given that the property has been shown more than 40 times the problem is unlikely to be with the broker.

Since you don't have to sell would it make any sense to rent the property for a year or two? Be careful that you do not lose the residential capital gains exclusion that comes from living in the property for two of the past five years.

I'd stick with your broker -- and also speak with a tax professional.

Question: If monies are escrowed by a lender to pay real estate taxes and they're not paid in a timely manner, resulting in late penalties or tax penalties, who is responsible?

Answer: If the escrow account had adequate funding to pay the bill, the lender is responsible.

Lender escrow accounts are typically allowed to retain enough money to pay taxes and insurance bills as well as the equivalent of two additional monthly escrow payments plus $50.

Given that a home can be foreclosed if local tax bills are not paid, lenders have a strong duty to assure that such payments are made. For details, speak with a local attorney.

AREA SECTION,NUMBER LISTED, AVERAGE PRICE, MEDIAN PRICE
[47] AWENDAW/MCCLELLANVILLE 158 $602,723 $360,000
[63] BACONS BRIDGE RD TO FOUR HOLE SWAMP 745 $259,226 $213,990
[74] BERKELEY TRIANGLE(17A/C PK RD/CNTY LN) 240 $209,528 $168,757
[78] CAINHOY/WANDO 332 $493,845 $238,750
[82] COLLETON COUNTY 401 $164,463 $99,999
[77] DANIEL ISLAND 334 $675,801 $495,000
[46] DEWEES ISLAND 33 $787,936 $495,000
[62] DOR CNTY-LADSON TO BACONS BRIDG&RURAL SW 355 $221,992 $192,748
[64] DORCHESTER CNTY ABOVE FOUR HOLE SWAMP 132 $371,580 $109,950
[61] DORCHESTER RD CORRIDOR BELOW LADSON RD 468 $253,258 $221,210
[27] EDISTO BEACH 184 $538,101 $449,500
[26] EDISTO ISLAND 107 $588,378 $265,000
[22] FOLLY BEACH AND OUTER JAMES IS. 254 $826,200 $699,000
[71] HANAHAN 168 $270,875 $218,950
[44] ISLE OF PALMS 238 $1,517,082 $1,210,000
[21] JAMES ISLAND 563 $359,921 $279,000
[23] JOHNS ISLAND 449 $529,405 $294,900
[25] KIAWAH AND SEABROOK ISLANDS 255 $1,088,198 $675,000
[76] MONCKS CORNER AND PINOPOLIS 151 $219,960 $159,000
[41] MT. PLEASANT BEYOND 41 645 $475,992 $365,000
[42] MT. PLEASANT OUT TO HWY 41 1284 $507,111 $375,000
[31] N. CHARLESTON INSIDE MARK CLARK 216 $136,619 $92,450
[32] N. CHARLESTON OUTSIDE MARK CLARK 375 $240,605 $169,000
[73] NORTHWESTERN GOOSE CREEK 158 $210,475 $189,900
[83] ORANGEBURG COUNTY 79 $270,902 $161,900
[81] OUT OF TRI-COUNTY AREA 237 $669,735 $290,000
[52] PENINSULA CHAS. ABOVE CROSSTOWN 214 $369,856 $300,000
[51] PENINSULA CHAS. BELOW CROSSTOWN 502 $931,351 $638,500
[75] RURAL BERKELEY COUNTY 465 $231,271 $156,700
[13] RURAL WEST ASHLEY 249 $476,970 $299,000
[72] SOUTHEASTERN GOOSE CREEK 131 $190,218 $171,641
[43] SULLIVAN'S ISLAND 46 $2,073,302 $1,912,500
[11] W. ASHLEY INSIDE MARK CLARK 332 $386,414 $284,750
[12] W. ASHLEY OUTSIDE MARK CLARK 477 $285,042 $234,900
[24] WADMALAW ISLAND 54 $866,533 $650,000
[45] WILD DUNES 220 $1,183,593 $950,000

Generationeneration X May Boost
Sagging Real-Estate Market
By Kristen Gerencher, Wall Street Journal

The housing market may be in a slump, but the
industry's long-term trends look promising as
younger generations begin to buy and trade
up. That was the consensus among a group of
consultants, analysts and developers speaking
at the recent annual meeting of the Urban
Land Institute in Denver.
Rising affordability concerns in some home
and rental markets remain a challenge, but the
generations coming up behind the baby
boomers are giving home builders a run for
their money, experts said. With more
immigration and people living alone,
demographic shifts are pressing developers to
reconsider what's worked in the past.
Generation X, typically defined as those born
between 1965 and 1979, comprise a little
more than half of the market for newly
constructed homes, said James Chung,
president of Reach Advisors, a Boston-based
marketing strategy and research firm.
But that doesn't mean the homes that lured
baby boomers, born between 1946 and
1964, are meeting the needs of the 30-
somethings shopping now.
"Generation X is in the heart of their entry-
level home-buying years and are just now
entering their peak trade-up years," Chung
said. "They haven't yet stolen the thunder of
the boomers when it comes to trade-up homes.
It's a big shift coming up for home builders
and developers."