Real Estate Information

Two years ago real estate investing in “hot” markets like Phoenix, Las Vegas and San Diego was the thing to do to make a load of money without much work. These “investors” were simply buying new houses with easy money and turning a profit when the home was completed. It was turnkey and anyone could do it.

Then the market shifted and things began to unravel. Casey Serin so mis-timed, mis-invested and mistook the market, he ended up holding eight houses in four different states. Foreclosure took most of those properties.

Critics claim Casey was stupid, but guys like Jeff from the SDCIA knew what they were doing and were successful. Then a few problems turned up on some Florida properties he owned and the market changed and now he s facing foreclosure as well.

The

face of the specuvestors, those that were successful, had to be Zareh Tahmassebian. He was a 22 year old high rolling Las Vegas real estate investor who had so many houses, he didn t know where they all were. He was buying up property in Las Vegas and Phoenix left and right in 2005. When the market turned, he kept buying. This time it was New Mexico. He even moved to Phoenix and got a commercial real estate license to catch the next wave of real estate early. He was impressive and I was envious. Today it s been reported that even poster boy wunderkind real estate investor Zareh Tahmassebian is facing foreclosure. What? He s supposed to be successful. He was worth millions! Well, dear readers, he is now in a bunch of trouble. The foreclosures aren t even the tip of the iceberg. Read on to find out more, because I am going to share with you something few people know.

I ve been investing in real estate for some time now. The original Fortune article Zareh was featured in really struck me. I couldn t believe how easy it was to make money in real estate, but I knew new houses were a problem. They re very fickle and I personally don t really trust new homes. There are too many things that can go wrong. I ve never bought a new home from a builder. This guy impressed me nonetheless. As the market changed, I was curious about Zareh and wrote a post about where he was today. Even though the real estate market turned Zareh seemed to be holding out well. He was still doing well and I wrote an article documenting where he was today.

Then I got the “call.” It started out innocently enough. The caller had found my article and was curious if I had spoken to Zareh. I explained the article was a compilation of other sources and some of my research into his Nevada mortgage license and Arizona commercial real estate license. After my explanation, the caller revealed the true nature of their call. They were trying to track this guy down. He had stiffed them on a real estate transaction I ll get to in a minute. They had already found foreclosures in the Las Vegas area and Zareh had sold all his Nevada properties by the end of 2006! After Zareh Tahmassebian had maxed out his debt to income ratios on loans, he sought investors to keep his house buying going. The Fortune article said,

Tahmassebian bought his eight Phoenix houses with 10% down, a total investment of $150,000 including closing costs. To buy seven more houses, he entered into a limited partnership with his best friend s dad, who lost money in the tech crash and is looking to make it back in the housing market. Each contributed half the down payments.

After maxing out the opportunity with his friend s dad, Zareh found other investors through the mortgage company he worked for. The investor that called me explained they had gone into a house together in Arizona. After investing a mid-five figure sum with Zareh, a home was purchased and rented out. According to the investor, Arizona public records show the home was sold in January, 2007. The last time the investor spoke to Zareh, was February 2007 and he assured them everything was ok. To this day they have not received their original investment or any profits.

The investor was just trying to get their initial investment back, but as soon as I heard about the foreclosures, I knew this was going to be an unlikely scenario. The investor asked that I hold off on writing anything as they were still hoping to find Zareh and “talk some sense into him.” I obliged, but did contact the original author, Grainger David, in hopes that he might be able to do a follow up story and possible locate Zareh.

After a brief introduction, I wrote the following:

The reason I m writing you is yesterday I received a call from one of Zareh s investors. It turns out they have not been able to reach him, his phone has been disconnected and he sold the house they invested with him in without paying them back. They did some research in Las Vegas where he owned houses and found they had all been sold or foreclosed on. I thought you might be interested in this information for a follow up. I don t have the resources to track this guy down, but figured you would.

This investor is just looking to get their money back, but I suspect they are not the only ones who has been left holding the bag. They don t want to make a big deal about it and just want to find him. If you re interested, I have their contact information. You can call me or email me back to discuss.

Though I didn t hear back from the reporter, I did stay in touch with the investor. They said they were close to finding Zareh and for me to hold off on writing anything. I respected their wishes, but after the article today again stated my intention to publish. The investor agreed and provided the following additional information:

Thanks so much for the latest information. Yes, I had a friend of mine check on his latest whereabouts and it looks as though he s hiding out in Rio Rancho, NM. Due to the new FCC regulations, phone numbers were an impossibility to obtain. We filed a complaint against his AZ RE license and apparently, someone else had beat us to the punch. AZ DRE informed me that as of May 21, 2007, he is not eligible to re-apply and will be denied if he tries. He has not made any attempt to contact us since February of this year.

Holy crap! Rio Rancho is where Casey Serin invested and had a home foreclosed on! I also checked on the license and it shows inactive with two complaints. Clearly, this is not the only investor burned by Zareh Tahmassebian. With investigations by real estate boards, burned investors, foreclosed homes, this poster boy of real estate investing success is quite surely heading for a heap of problems. Law enforcement likes to take out big fish, especially those within the real estate industry. Zareh Tahmassebian, I m afraid you have got the biggest bulls eye pointed in your direction right now. And I am no longer jealous of your “success.”

Not that Jobs, work jobs. You know, the kind that pay you money.

All kidding aside, I had the opportunity to read some local market research put together by a major land developer in the Salt Lake Valley. Their research showed the demand for workers in SLC will not only continue to support real estate, it will attract people from other states I m looking at you California where house prices are much higher.

In many instances people have come to Utah with their equity windfall after selling their home without even having a job to come to. I found all this pretty interesting. Though much of their data came from late 2006, the report I was reading had been compiled in late April, 2007.

This afternoon, an article appeared in the Salt Lake Tribune that continues

to confirm the developer data. Jobs and financial opportunity are driving immigration to Utah, which will continue to place upward pressure on house prices.

Utah continues to lead the country in job creation, with employment growth of 4.5 percent for the year that ended in May, the Utah Department of Workforce Services said Tuesday. The state has been creating jobs at a high rate, well above the national average of 1.4 percent, since January.

In all, about 54,000 jobs have been created in the Utah economy in the past year, raising total employment in Utah to 1.25 million. That s an average of 4,500 new jobs in the state per month.

Creative recruiting, raising wages and searching out of state are the keys for employers to keep up with work demands.

So when will Utah s hot job market cool down?

Last year, economists had predicted it would slow by now.

Today? “It seems like we ll keep rolling along at this level through the end of the year,” said Mark Knold, chief economist for the Department of Workforce Services. “It could be two years down the road before we see any noticeable slowdown.”

The high rate of new jobs is creating headaches for employers, many of whom are struggling not only to recruit but to retain workers. For workers, the tight labor market means higher wages and more job security.

Knold said he had thought such low unemployment would eventually slow job growth because employers couldn t fill positions.

But they are still able to find workers, which leads Knold to believe that many new hires are from out of state, especially from areas plagued by high unemployment.

Aside from recruiting out of state, companies are offering creative incentives to get the workers they need.

The time line for continued opportunity in Utah real estate has been pegged at several years from now. With our local economy rolling along as it is, this several year projection seems to be likely to hold up.

I ve been asked to provide some insight into the Salt Lake real estate market in the face of nation wide real estate trends. Here are a few anecdotal pieces that may help us see where the local market is headed.

From personal exposure, I ve seen two failed sales on properties. One is a home I m purchasing and the reason that sale failed was because the buyer s sale failed. Due to the price, I m guessing this was a step up and the failed sale at the end of the chain involved a first time home buyer. The particular home in question is in Holladay and was on the market for only a few days before going under contract. After the sale fell through it was on the market for 17 days before my offer came in. Total time on the market has been about two months.

Another home I m aware

of also had a failed sale. The sellers purchased a new home, obviously a step up. Their home in West Jordan has been listed for three months and has heavy competition. They are currently making two house payments not a good situation to be in.

These are just a few stories I ve seen out there and may not mean very much in the grand scheme of things. However, a better indicator the market is changing is more purchases are being made with contingencies of selling a prior home. The fact these are being offered and accepted indicates a shift in thinking of both sellers and buyers. In super hot markets these kind of offers could never be considered because someone else would be offering more money without any contingencies.

How long this will last, I don t know. It could be a natural blip, or it could be a sign of something worse to come. Many neighborhoods still have high demand though. I get to test the market myself as my Holladay home will be up for sale tomorrow. There are only 11 comparable homes for sale right now in this zip code and only one in my neighborhood, so I m hoping there is some demand. I ll keep you posted.

Despite increased housing inventories and declining prices across much of the country, there are still regions and cities that are doing well in real estate.

Granted these are first quarter numbers and I am eagerly awaiting 2nd quarter data, Salt Lake real estate is still looking good.

In an article pointing out anti-bubble cities, Salt Lake showed a 12.3% increase in sales prices during the first quarter. Other major cities showing gains include Seattle, Albuquerque and San Antonio.

Part of the reason these cities are defying the declining trends are some I ve stated over and over; jobs and population growth.

The main ingredient is a set of positive fundamentals, including strong job and population growth, which then fuel demand for houses.

It certainly isn t all rosy out there. The crunch caused by tightening of sub-prime lenders is reducing the pool of buyers and high media coverage is causing consumer sentiment to cool on housing.

Despite the challenges right now, the biggest factor in real estate success continues to be location.

But even the strongest areas around the nation show hints of weakness that aren t covered by NAR statistics.

According to Lennox Scott, of the John L. Scott Realty Company, one of the largest home sellers in the Pacific Northwest, the hottest Seattle neighborhoods are those closest to job centers.

“We see double the demand close in,” he said. “People don t want the commute.”

This sentiment is mirrored in Utah where real estate on the fringes like the West Bench and Utah County is having a tough time selling. Meanwhile, houses in desirable locations, especially the East Side are still selling well.

My opinion is Salt Lake won t see a major correction, just a slow down commensurate with current lending trends and buyer sentiment.

One of the things I ve tried to do with this blog is point out how the mainstream media often twists facts to create a story. My mantra is “Don t believe the headlines, believe the facts.”

Today I was quoted in the USA Today on a story about real estate and stocks. Some people would be happy for the press. I am not. While my words weren t twisted in the direct quote, my story was and I m pretty upset about it. This is not a case of a hyperbolic headline, this is a case of an out and out lie.

The story said,

Others, like Nigel Swaby, a 36-year-old mortgage broker in Salt Lake City, are reluctant stock investors. Fearing the prices on two investment properties he owned in Salt Lake City could decline, he sold them in 2005 and invested the money in stocks.

Swaby wants to get back into real estate and has been hunting for homes to buy, but feels prices are still too inflated. “There aren t a ton of deals out there,” he says. So his money sits in a high-yield savings account, a diversified stock mutual fund and four stocks: Procter Gamble, Nortel Networks, Revlon and United Airlines. “I want a higher rate of return than a savings account, and stocks are it, until the real estate opportunity presents itself.”

Where s the lie? I never told this reporter I thought pricing in SLC was going down. I didn t sell in 2005 out of fear. I sold for profit. In fact I would have held at least one of those properties for another year, but different choices presented themselves. And what did I do with that money? First of all, I bought another house in 2005, then I invested in stocks through an IRA. In 2006, I sold that house and bought another one and then bought the stocks listed in the story. In 2007? I m preparing to sell again and just put a property under contract this Sunday.

There are not a ton of real estate deals in SLC right now. I was fortunate enough to stumble upon one as I ve recently had the need to look and I locked it up immediately.

Some of you may not believe my explanation here, but let me show you something. The day after the reporter called me, I made a post about the topic of his story. The reason I did this was to start some discussion on the topic and to try and find people who had completely divested themselves from real estate and reinvested in stocks. Why? Because Mr. Reporter couldn t find any himself. I thought about it for a while and in my searches through the bubble blogs, I hadn t seen anyone who had previously owned real estate that had completely divested themselves from it to buy stocks. I referred him to the stock folks at Silicon Investor as the best possible source.

Mr. Reporter admitted my experience didn t really fit his story line and he probably wouldn t be using it. My outlook wasn t that real estate was bad, it was it is very tough to find a good investment deal in SLC right now, but if one did come along, I would drop my stocks like a hot rock. (I did sell out of PG yesterday to help fund my new real estate deal.) I guess he couldn t find anyone else and with a deadline looming he twisted my experience a bit to fit his story and voila, his article got published.

I find it funny that in this day and age a reporter would even attempt to twist facts, especially about someone who has their own soapbox to refute the distortions. It makes me wonder how many of his other examples were accurately portrayed. The funniest of all is I also know this reporter contacted Casey Serin for his input. If Mr. Reporter wanted to generate buzz, he should have lead with, “Foreclosed on eight homes, real estate investor turns to penny stocks to get rich.”

And this readers, is why I don t like, or trust the mainstream media.

Some of you readers may have noticed I was mentioned briefly in a USA Today article on real estate and stocks that headlined yesterday s money section.

I was pretty upset about some mis-characterizations in the story as it made it look like I dropped out of the real estate game in 2005. Of course those that know me, know different. Here s what some of them said.

Byron Goates - my mortgage boss emailed me and said:

Dude,

You made it to the national news you are now big time!

I replied:

Getting media attention doesn t mean anything.

Byron concluded:

That s excellent. [referring to this] Maybe you can get your own article in USA Today! I have attached your title report.

A business associate I don t even know very well emailed me with the following:

Nigel,

I was reading through USA Today last night and I saw your comments about stocks and real estate. Very cool. You ve got some good stocks in your portfolio. Revlon and P G are said to be recession proof because they re cosmetics and smaller household items that people will always need. Wasn t sure if you were aware that you were in the news. Here is the link in case you didn t see the article.

My home builder boss, who s out of town at a national convention wrote:

Good Morning Nigel,

I guess by now you know that you were quoted yesterday in USA Today I'm impressed. This must be the power of blogging .At any rate, I have a copy of the article and will bring it back with me. It's a great article about how investors are moving away from homes (real estate) in favor of the stock market. We knew that would eventually happen. It hurts our industry when the investors jump in and when they leave, so that's good for us in the long term. Homes really are for residents .Congratulations on your new status as the real estate investment expert from Salt Lake City!

Thanks for the kind feedback everyone!

I know that anything publicized about me won t necessarily get kind feedback from my Internet critics. Over at the main housing bubble blog, the USA Today article was spotlighted and the feedback wasn t so kind. Oh well, Internet strangers don t make my house payment. Satisfied employers and clients do.

Ok, I ll admit it. My crystal ball isn t very clear. At the end of February when the Dow dipped, I started to get nervous. Reading all these bearish articles on housing and stocks made me think, “Oh crap, these guys were right!” I m old enough to remember the great stock crash of 87 and I also remember stocks rebounded then. After February, the Dow crashed hard before recently setting some new records.

Now, after three days of large sell-offs, the hesitancy could be returning. Not really. I sold my shares of PG on Tuesday, fortunately after they reached this year s high. It was a year over year return over 20%. Since Tuesday, it has sunk. Oh well, it will come back. Yesterday s 100 point loss brought me a $100 gain. I was hating it today.

Am I going to freak out this

time because of three days of large drops? No! Buy low, sell high folks. (The same goes with real estate) After the drop in February, many analysts counseled not to worry. The same applies now.

Unemployment is still doing well, however one economic indicator is beginning to make me think. Mortgage rates and the 10 year bond are up quite a bit. However, the current mortgage rates are mirroring those of last August and as we know, those rates came down quite a bit over the past year.

The 10 year bond has been on a slow motion roller coaster. Since I ve been following it closely from 2003 at 3.98 it s been all over the place. Big dips and big rises have been part of the ride. Today s 17 bps rise in yields has to rank as one of the widest changes in a single day. However, I know it can easily rebound the other direction. So long as the Fed hold rates steady to combat inflation, the 10 year bond should revert back a bit to previous levels. High amounts of media speculation are sending all the markets all over the place and days like today are what we get. A correction back to previous levels should soon be in the cards.

Programming note: I ve received a few comments and emails from visitors who would like to see more posts specifically about Salt Lake real estate. I appreciate the feedback and will try to accommodate. I will point out that many national trends do impact to a certain extent what happens in SLC, so these posts are necessary, but I certainly would like to indulge readers with more local info.

How the appreciation of real capital assets has redistributed household wealth. Much of Adam Smith s classic treatise on “The Wealth Of Nations” is not really about wealth at all, but about income. The two concepts are different: income is the flow of money a nation or household receives in a given lapse of time, say a year. Wealth, conversely, is the stock of capital assets the nation or household have accumulated over their lifetime, minus debts. The difference matters, but how much is hard to say.

On the one hand the distribution of income has been debated over and over but, on the other hand, the distribution of wealth has been largely ignored. This is so because whereas it is relatively simple to measure global income inequality,

to measure wealth is an entirely different story. This is all the more true in this time and age, when the richest 10 percent of adults in the world own 85 percent of global household wealth, while the bottom half collectively owns barely 1 percent.

Even more strikingly, with the appreciation of real property assets particularly in Western nations, the average person in the top 10 percent of wealthy adults owns nearly 3,000 times the wealth of the average person in the bottom 10 percent.

In everyday conversation the term 'wealth' often signifies little more than 'money income'. But the economic interpretation of wealth is much broader and encompasses the value of all household resources, both human and non-human, including the ownership of real capital. Although real capital is only one part of all personal resources, it is widely believed to have a disproportionate impact on household well-being and economic success, and more broadly on economic development and growth.

The World Institute For Development Economics Research (WIDER) in Helsinki has now attempted to measure personal wealth, which includes real estate, financial assets, consumer durables and even livestock. Specifically, estimates of wealth levels are based on household balance sheets and wealth survey data, which are available for 38 countries. These include many of the rich OECD countries, that is those nations members of the Organization For Economic Cooperation And Development, as well as the three most populous developing countries, China, India and Indonesia; so the data cover 56 percent of the world's population and 80 percent of all household wealth.

The researchers at WIDER found that wealth levels vary widely across nations. Among the richest countries, mean wealth measured in US Dollars was $144,000 per person in the USA and $181,000 in Japan. Lower down among countries with wealth data are India, with per capita assets of $1,100, and Indonesia with $1,400 per capita. Even within the group of high-income OECD nations the range includes $37,000 for New Zealand, $50,000 for Denmark and $127,000 for the UK.

The regional pattern of asset holdings shows wealth to be heavily concentrated in North America, Europe, and high-income Asia-Pacific countries which together account for almost 90 percent of all global wealth. Although North America has only 6 percent of the world adult population, it accounts for 34 percent of household assets. Europe and high-income Asia-Pacific countries also own disproportionate amounts of wealth. In contrast, the overall share of wealth owned by people in Africa, China, India, Russia and other lower income countries in Asia is considerably less than their population share, sometimes by a factor of more than ten.

So, how wealthy are you compared to the rest of the world?

If you have more than $2,161 in net worth, defined as the overall value of your capital and financial assets minus debts, you belong to the wealthier half of the human race. If you are lucky enough to own more than $515,000, you belong to the top 1 percent of wealthy mankind, although this is hardly an exclusive club, since it contains 37 million adults just like yourself.

The top ranks are dominated by the Japanese, Americans and Europeans, in that order. China occupies the middle ground. Throughout the globe, wealth is shared much less equitably than income: more than one-half of it is held by just 2 percent of the world s adults. The distribution is equivalent to a world of ten people, in which one had $1,000 and the other nine had $1.00 each.

Furthermore, there are some appalling results as well. Many people in poor countries have next to nothing, but quite a lot of people in affluent countries have even less than that, since their liabilities exceed their assets (negative net worth). Take Sweden, for example: the bottom half of all Swedes have a collective net worth of less than zero. And this is a characteristic of pretty much all Nordic countries, due in large part to their social welfare set-up. Sweden, for example, has a wealth per head of $39,000 - less than South Korea.

Someone ought to tell the Swedes that ownership pays. Luigi Frascati luigi@dccnet.comwww.luigifrascati.com Real Estate Chronicle

Labels: REAL ESTATE ECONOMICS # posted by Luigi Frascati @ Friday, June 22, 2007

and how it affects real estate consumers in North America. An exchange rate is the price at which the world demand for one currency equals the world supply of another currency. Foreign exchange rates are of particular concern to governments because changes in foreign exchange rates affect the value of products and financial instruments. As a result, unexpected or large changes can affect the health of nations markets and financial systems. Variations in exchange rates also impact international investment flows, as well as export and import prices. These factors, in turn, can influence inflation and economic growth. Interest-rate differentials between countries are one of the main factors that influence exchange rates. Money tends to flow

into investments in countries with relatively high real (that is, inflation-adjusted) interest rates, increasing the demand for the currencies of these countries and thereby their value in the foreign exchange market. Price of oil, trade and the fiscal position and ratings of each country are also equally important. The Greenback s tumble early on in the year to a 20-year low of $1.32 against the Euro was no surprise to many observers. In fact, now that the Dollar has continued to fall to its present rate of $1.35 for

A retrospective look at 2007 reveals that, contrary to many year-end predictions and a few economic forecasts, Real Estate still rolls, Canada is still in one piece, America has not drowned into the worst recession since the disappearance of the dinosaurs and the Twelfth Imam has not landed from the Moon yet. Things seem to be moving in slow motion this year. We are all still alive and well, when in fact by now we should be all dead and buried - according to some prognostications I was reading all the way back in mid-December 2006, that is.

For the past few years the economies of North America have consistently defied the naysayers. Time and again the Cassandras who predicted trouble - whether a bubble explosion and the

consequent crash of housing prices or the collapse in consumer spending followed by the crash of the American Dollar - were proven wrong. This year does not seem to be the exception, at least for now. Particularly the bubbleologists - those individuals who have made the goal of their lives that of exploring the Milky Way with their economic telescopes looking for bubbles ready to collide with our planet - seem to be especially wrong.

To be sure, the housing boom has ended dragging down the pace of overall economic growth. But the housing correction - as analysts are now beginning to call it - did not have calamitous consequences. In particular, we have not seen a recession in 2007 since - as I did anticipate at the end of 2006 - rather than slashing interest rates to stave off a slump, Central Banks both in the United States and Canada have focused more on inflation. Especially in the United States, after twenty-four months of steady interest-rate rises that have ultimately caught up with American serial borrowers, spending is now set to be a lot softer, which is a good thing overall. And the household saving rate, which in the last quarter of 2006 dipped to a negative 0.5 percent, has finally begun to inch up.

Even the so anticipated flood of defaults on mortgages and the consequent rise in loan delinquencies has failed to put a dent in the economy. Most household balance sheets are strong enough to withstand a drop in house prices. With consumer spending lower but not stagnant, overall economic growth this year is forecasted to be a little less than 2 percent for the United States and a little more than 2 percent in Canada - below its potential but not exactly a slump.

So, where does the foregoing scenario leave us and what can we reasonably expect the future to bring in the forthcoming months?

There is no question that 2007 is going to be a sluggish year, and a sluggish year is exactly what we need both to stem external imbalances and keep inflation under control. Allowing the economy to get an even footing through a slowdown of capital appreciation and at the same time allowing real wages to catch up is exactly the tonic needed for a healthy foundation. In general lines spending fuels consumption, which in turn erodes a limited quantity of resources. This is the concept behind inflation in an economy founded on scarcity of goods, which is typical of all capitalistic economies. As a direct and proximate result, therefore, controlling inflation is the key.

Core inflation, which excludes the volatile categories of food and fuel, is well above the 2 percent that Central Banks here in North America deem comfortable. Central Banks, therefore, will need to be extremely vigilant throughout the remainder of the year because the economy s natural speed limit - defined as the rate of GDP growth that can be sustained without fuelling inflation - has slowed down. The two drivers that determine how fast an economy can safely grow - the number of employed workers and their overall productivity - are both flagging.

Unusually rapid productivity growth has been the source of economic strength in Real Estate over the past few years. But in 2006, as the stocks of unsold houses soared, builders cut back sharply after a multi-year construction binge. The pace of residential building fell by a fifth, enough to drag overall output down by one full percentage point. This year, conversely, the slump in construction has eased up already as builders have worked off a good portion of their excessive inventories. Adjusting to the shift in growth may not be easy for everyone, but absolutely necessary in order to avoid a recession.

And on the bright side of things, with growth strong in the rest of the world slower spending in North America can reduce the mammoth trade deficit without a serious dent in the overall global growth.

Luigi Frascati luigi@dccnet.comwww.luigifrascati.com Real Estate Chronicle

Labels: REAL ESTATE ECONOMICS # posted by Luigi Frascati @ Tuesday, June 19, 2007