Friday, 30 January 2009

38% of American Think It is Good Time to Buy Real Estate.

This is very interesting research that track the Worldwide Barometer of Financial Crisis. It is quite encouraging to see that American are, despite recent economic and financial meltdown, quite optimistic about future, especially real estate, compared other major countries.

Here is detailed results on real estate related questions:
"In general, do you believe it is a good or bad time to buy a house?"

38% of American has responded "Good Time", second highest in optimism after Swiss. I believe it has lot to do with the fact that 1) US real estate has declined quite dramatically already (compared to other countries) and 2) American Love Affair with Real Estate.

Country Good Time Not Sure Not Good Time DK
Switzerland 57 11 25 7
USA 38 26 27 9
India 37 29 26 8
Austria 37 14 40 9
Germany 32 26 30 12
Spain 31 6 61 2
UK 28 30 39 3
Brazil 27 13 55 5
Canada 26 37 26 11
Netherlands 22 7 63 8
Korea 21 34 39 6
Italy 18 13 65 4
France 17 36 37 10
Iceland 13 16 66 5
Japan 12 29 49 10
China 11 49 36 4
Russia 7 28 47 18
Total 25 24 43 8
*G8 22 28 40 10
*BRICs 20 30 41 9

Here is the gist of research and download link, I highly recommend this research if you are global minded. This research clearly shows characteristic of nationality and various stages of economic development of surveyed countries.
Download full research at:

WIN conducted the first wave of the WIN Crisis Index interviewing 14,555 respondents in 17 countries simultaneously. The objective of the survey is to evaluate the respondents’ perception of the financial crisis in their countries. The WIN Crisis Index will be conducted every 3 months. The countries of the G8: Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States, included in the 17 countries surveyed, are also included in each table. The same has been done for the countries known as BRIC: Brazil, Russia, India and China.

Happy Investing!!!!!

Thursday, 29 January 2009

Trickling Down Effect of One Family's Layoff on US (+ Global) Economy

This is article from Wall Street Journal on JANUARY 29, 2009.

This is kind of depressing but great illustration of how one family's layoff affect entire US economy.... I think US is finally in deflation......

It shows how the job loss of Mr. Smith, businessman living in Dallas Tx area, affect entire town, US corporations and global economy. As result, we see news about massive layoff at Starbucks, AT&T and etc....

70%+ of US economy is made up with "consumption" and it has led global trade and export. However, as you can see from this article, US consumers are seriously cutting down on consumption and also start paying off debt and saving! I think US economy is officially in deflation now.

Under this consumption slump, I see US corporate performance also goes down dramatically --- leading Dow Jones to possible 5,000 level (based on P/E Ratio). So, for stock and 401k investors, be careful blindly hoping for come back.

In addition, US consumption slow down will dramatically affect global economy, especially export-dependent Asia economies.

Lastly, I find it very interesting that, in this WSJ article, one man says "I understand that we need to spend money to get the economy moving, but he doesn't feel like he can afford that."

I think this symbolizes the challenge US is facing. Statistically, US consumers has too much debt and US has too much consumption. So it is good that consumers are finally cutting back the consumption, stop using credit card and house as ATM and start saving (Is it new era of responsiblity?). However, under this circumstance, even Obama administrations drop 800 billion stimulus package, I am not sure how much of these package leads to increased consumption and boost of GDP.

Anyhow, let's take a close look at US economic data!

As for real estate investment, it is increasingly important to invest in the area where there is real demand and brings in good income and buy them at below fair market value.

Happy investing!!!

Article from Wall Street Journal on JANUARY 29, 2009.

A Layoff in the Smith Family Ripples Through Town


Grand Prairie, Texas

The recession hit Chuck Smith on May 30, after lunch.

The 42-year-old father of four was in his small office in a suburb of Dallas when his boss walked in and closed the door. His troubled look gave away the news before he said a word.

Like many families, the Smiths had to cut back on spending that collectively hurt local businesses.

Mr. Smith knew he had been working on borrowed time. Metrostudy, the housing market research firm where he worked as a staff consultant since 2005, had seen its business drop. A glut of homes prompted builders to stop building, eliminating their need for Metrostudy's market information. That prompted Metrostudy to cut back on its consulting, eliminating the need for Mr. Smith.

The few moments it took for Mr. Smith's boss to relay his company decision to lay him off launched a series of actions that in subsequent weeks and months have rippled through the economy, affecting the lives of individuals and companies -- one as far as Finland.

The Smiths sat down at the kitchen table one evening in early June to crunch the numbers. With a stack of bills and his wife's paycheck, which would now have to support the family, the Smiths laid out their financial life on a white legal pad.

The math wasn't pretty. Mr. Smith had earned about $90,000 at Metrostudy. His wife, Kimberly, earns about the same at a retail marketing firm. The family concluded it needed to cut its spending nearly in half.

The Smiths weren't unusually lavish spenders, but they rarely stopped to think before spending money: new computers at Christmas, new videogames for the kids' birthdays, a new car at the first sign of trouble from the old one. If the money in the checking account wasn't enough to cover it, well, that's what credit cards were for. They accumulated more than $25,000 in credit-card debt.

Now they realized those carefree spending habits were the first thing that had to go. Mr. Smith stopped perusing the list of new video releases and buying DVDs that would go unwatched for months. Mrs. Smith stopped shopping at Harold's, the upscale clothier that had been a favorite since her days at the University of Oklahoma.

Thousands of other shoppers were making similar decisions to cut back, and the drop in sales sent Harold's, already struggling to compete with larger rivals, underwater. The 60-year-old chain filed for bankruptcy in November, and this month closed all 43 of its stores in 19 states.

Among the 50-plus employees listening to the grim announcement at Harold's Dallas headquarters on Nov. 7 was Amanda Martin, a 27-year-old newlywed who had worked for nearly five years as a merchandise planner.

Ms. Martin knew Harold's had been struggling, but the news still came as a shock. Her husband, Kyle, worked for Belo Corp., the local television giant that has faced its own recent financial challenges, and was pursuing an M.B.A. -- a long-term investment they suddenly weren't sure they could afford. So the Martins, like the Smiths, sat down to figure out how to slow their spending.

In the end, the M.B.A. program stayed. But Ms. Martin's weekly shopping trips to J. Crew "just to see what's new" did not. Nor did the couple's frequent Wednesday night dinners at Café San Miguel. Ms. Martin, who had watched the slowdown in spending ruin her former employer, felt guilty about the decisions she was making -- though she had no choice.

"I kept thinking, I'm cutting back my spending, which is hurting this store, which could put them in the same position we were in," she said.

At Café San Miguel, co-owner and Chef Hugo Galvan already had noticed his regulars were becoming less regular, and when they did come, they weren't ordering as many $7.50 pomegranate margaritas. So Mr. Galvan made savings adjustments of his own, buying less liquor, cutting back orders to his food suppliers and asking kitchen staff to carefully watch portion sizes.

So far, Mr. Galvan has been able to avoid laying off workers, but only by cutting back their hours by as much as eight a week. But that might not be enough.

"Most of my people, they've been with me since the beginning," Mr. Galvan said. "When it gets slow, someone's got to go home early."

At the Smiths' kitchen table, it was clear that cutting back on their impulse purchases wasn't going to be enough to make the numbers balance out.

The Smiths took a hard look at one of the biggest expenses after their mortgage: child care. Between day care for their two- and three-year-old children, after-school care for the six- and 10-year-old, and summer programs for all four, the Smiths were set to pay $22,000 in child-care expenses last year. Now, with Mr. Smith free to stay home with the kids, those expenses are gone.

The Smiths' savings are Marty Kidd's loss. Mr. Kidd runs the day-care center where the Smiths had been sending their younger children, and said he has been losing five families a month to the economy as many make alternative arrangements to save money.

"Grandmas are coming out of the woodwork," Mr. Kidd said.

The local Boys and Girls Club, which runs the after-school program the Smiths' older kids had attended, is even more vulnerable. Enrollment has fallen 7% in the past year, and almost all the losses came from the 60% of children who pay the full, $180-a-month fee. That has made it hard for the program to pay for the 40% of students who receive financial aid -- the needy children the program exists to help.

Steve Wurm, the club's president, said the nonprofit already has cut its annual budget from about $2.5 million to just over $2.3 million. So far, the agency has instituted a wage freeze, cut back hours of part-time workers and laid off one clerical worker -- setting off yet more ripples through the community.

Some of the Smiths' smallest cuts reached the farthest. One of the first expenses to go was Mr. Smith's $43 monthly membership to 24 Hour Fitness, a local gym. The chain of more than 400 clubs in 16 states has been trying to cut its own costs as customers scale back. So the company has pressured vendors such as fitness equipment manufacturer Precor to slash prices. That has hurt Precor's profits, which in turn hurt the profits of its Finnish parent company, Amer Sports Corp. Last month, Amer Sports warned investors that it would miss its 2008 earnings target in part due to Precor's poor performance.

Mrs. Smith has been more reluctant to cut out her own fitness spending, $40 sessions with her personal trainer, Kurt Moore. She has reduced them but she warned Mr. Moore she may have to stop. "He knows that he is still a luxury that is on the chopping block," Mrs. Smith said as she sewed up a torn pair of pants.

Mrs. Smith wouldn't be the first customer Mr. Moore has lost to the economy. He lost a banker and an insurance agent, and other remaining customers have reduced their sessions. The 42-year-old and his wife are watching their spending, putting off plans for a $20,000 addition to the house and thinking twice about having a second child. "If I lose a couple more clients, then I will definitely be concerned," Mr. Moore said.

By many measures, the Smiths are fortunate. They can cover their mortgage for their modest, two-story brick house. They now buy generic cereal at Wal-Mart instead of brand names at Target, but they aren't worried about putting food on the table.

Still, the family embodies the downshift in consumer spending. "I understand that we need to spend money to get the economy moving," Mr. Smith said, but he doesn't feel like he can afford that.

The family has appreciated the one luxury Mr. Smith's layoff does afford: more time together. "We'll make it work," he said. "We have to make it work."

Tuesday, 27 January 2009

U.S. housing market may have turned a pivotal corner?????

This is article from Reuters dated January 26th 2008.

NAR (National Association of Realtors) has annouced that, in December 2008:

  • Existing home sales transaction has increased by 6.5% ---- annualized basis, it is 475,000 transaction, unexpectedly high transaction.
  • Median sales price has done done by 15.3% compared to December 2007 --- the largest decline since 1968.
  • Inventory has gone done by 11.7% or 368,000 units, equivalent of 9.3 month worth of inventory).
  • 30 Year Fixed Amortization mortgage has declined to 5.12% in Dec 2008, the lowest rate for a few decades.

I tend to agree that, in some locations, real estate price must have bottomed. It is also very interesting to note that, the deeper the price decline, more active the transactions. Below is the data from DataQuick regarding Dec 2008 transactions in major counties in California. I can say that bottom is very near in metro like San Bernardio where price have declined by 42% but transaction has gone up by 88% --- and median price has done down to $180,000.

County Sales Volume Median Price
All homes 7-Dec 8-Dec %Chng 7-Dec 8-Dec %Chng

Los Angeles 4,430 5,848 32.0% $470,000 $320,000 -31.90%
Orange 1,731 2,580 49.0% $565,000 $397,000 -29.70%
Riverside 2,503 4,435 77.2% $355,000 $209,000 -41.10%
San Bernardino 1,518 2,862 88.5% $315,000 $180,000 -42.90%
San Diego 2,468 3,325 34.7% $430,000 $300,000 -30.20%
Ventura 590 876 48.5% $525,250 $338,000 -35.60%
SoCal 13,240 19,926 50.5% $425,000 $278,000 -34.60%
Bay Area

Alameda 983 1,492 51.8% $540,000 $338,000 -37.4%
Contra Costa 971 1,788 84.1% $505,000 $252,500 -50.0%
Marin 193 165 -14.5% $760,500 $562,500 -26.0%
Napa 72 111 54.2% $590,000 $402,500 -31.8%
Santa Clara 1,265 1,265 0.0% $655,000 $436,000 -33.4%
San Francisco 445 366 -17.8% $731,000 $616,500 -15.7%
San Mateo 468 435 -7.1% $733,500 $537,000 -26.8%
Solano 360 733 103.6% $370,000 $213,500 -42.3%
Sonoma 308 534 73.4% $410,000 $300,000 -26.8%
Bay Area 5,065 6,889 36.0% $587,500 $330,000 -43.8%

My personal point of view on "bottom on US rea etate value" is yet to come. As I wrote my previous blog posting below, 1) bottoming schedule depends on the Metro area and 2) it takes until end of 2010 for some market to hit the bottom.

When does US Real Estate Hit the Bottom?

Ranking of Metro where Real Estate Price is Stable. - 2009 Real Estate Forecast

My rationale is that 1) foreclosure continuously increasing -- this is future sales inventory and 2) US economy continue to decline with pay cuts and higher unemployment.

However, in the metropolitan area like Austin Tx where there are little risk of price decline, we have great opportunity to purchase property at discount from distressed seller. In addition, in the rapidly-declining-market like Las Vegas, Phoenix or Riverside/San Bernardino, toward the end of 2009, we will have tremendous buying opportunity at the bottm of the market with good cash flow.

Happy Investing!!!!!

***** Distressed Property Opportunity !*****

I have secured a couple distressed sales properties in booming Austin Tx market. Contact me at if you are interested.


Sunday, 25 January 2009

London Real Estate Value Declined by 55% in JPY

I am visiting London right now for client meeting. Because of steep decline of GBP (British Pounds), at last, we don't feel like we are "overpaying". In addition, economy in UK is facing severe slow down due to meltdown of financial system and credit crunch. Therefore you can find tremendous bargains and discounts at retail stores and at restaurants. You can find the value in London now --- I highly recommend visiting London now!

Anyway, today I looked at properties in prime central London neighborhoods. In terms of GBP, it is said that there has been 20% decline from summer 2007- the peak of real estate market. If you go beyond prime central neighborhoods, property value has declined much further.

In addition, GBP has declined quite a lot since summer 2007. London real estate market is now crowded with foreign buyers.

The below is chart that show how much £3.0m property in September 2007 declined in key currencies. As you can see, in JPY, US$ and Euro respectively, it has declined by -55%, -43.5% and -42.2%.

Based on article from Financial Times, it looks like 70% central London real estate buyers are from overseas.

It is quite funny that, back in late 2007, at the time GBP was valued twice as much as US dollar, British buyers are most prominent ones in Manhattan real estate market --- such a reversal of fortune!

This clearly shows economic and cultural prominence of London and New York City --- so I think decline of London real estate is somewhat limited.

Having said that, I believe London real estate market faces the following challenges:
  • Due to economic slowdown, rental market has declined around 20%, making average gross yield at around 4-5% --- still quite high for historical standard.
  • It is extremely difficult to get financing, especially foreign buyers. Looks like you need to bring in at least 40%+ down payment.
  • Average Price Per SQF is hovering around $1300, compared to $1000 in Manhattan.
  • You have to invest minimum GBP400,000 in prime central London market.
Therefore, I personally see 10%-20% price adjustment over next 24 month.

Having said that, for those who own quite a bit of Japanese Yen, I think it is wise investment to own prime London property at this exchange rate. I truly believe that London will continue to play key role in global economy, politics and culture so real estate market will eventually recover.
Happy Investing!!!!

2009 Real Estate Market Outlook by Fortune Magazine

This is Fortune Magazine's forecast on 2009 real estate by metropolitan area. Fortune has come up with this figure with Moody's

Rank Metro 2009 2010
1 McAllen-Mission TX 2.8% 8.0%
2 New Orleans LA 0.6% 4.2%
3 Fort Worth-Arlington TX -0.4% 3.1%
4 Birmingham, AL -0.6% 2.0%
5 Pittsburgh -0.9% 2.2'%
6 EI Paso -0.9% 1.9%
7 Rochester NY -1.1% 1.90%
8 Dallas-Irving -1.2% 2.3%
9 Indianapolis -1.3% 2.3%
10 Buffalo NY -1.3% 2.5%
11 Wichila KS -1.5% 1.0%
12 Columbia SC -1.6% 0.5%
13 Little Rock AR -1.6% 1.2%
14 Oklahoma City OK -1.9% 0.7%
15 Austin TX -1.9% 0.7%
16 Youngstown OH -1.9% 3.8%
17 Tulsa OK -2.1% 2.1%
18 Omaha NE -2.1% 1.1%
19 Houston TX -2.3% 1.7%
20 Alban NY -2.4% 0.6%
21 Syracuse NY -2.4% 2.0%
22 Greenville SC -2.4% 0.1%
23 San Antonio -2.6% 0.6%
24 Gary Id -2.6% 0.5%
25 Dayton OH -2.6% 1.6%
26 Greensboro-High Point NC -2.7% 0.1%
27 Grand Rapid MI -2.8% 3.3%
28 Cincinnati -3.1% 1.8%
29 Toledo -3.1% 2.8%
30 Atlanta-Marietta -3.3% 0.9%
31 Cleveland -3.3% 3.4%
32 St. louis -3.4% 1.3%
33 Columbus OH -3.4% 1.6%
34 Nashville -3.5% 0.00/..
35 Kansas City -3.6% 0.6%
36 Louisville -3.9% 0.3%
37 Akron -4.0% 1.7%
38 Knoxville TN -4.1% -0.2%
39 Memphis -4.4% 2.9%
40 Lake/Kenosha counties IL-WI -4.7% 0.3%
41 Milwaukee -5.0% -1.0%
42 Charlotte -5.90% -1.6%
43 MinneapoIis-St Paul -6.0% -0.5%
44 Baton Rouge -6.00% 0.70%
45 Raleigh -6.20% -0.50%
46 Richmond -6.80% -1.90%
47 Chicago -6.80% -0.20%
48 Springfield MA -8.20% 1.70%
49 Detroit·Dearborn -8.20% 2.10%
50 Albuquerque -9.20% -1.40%
51 Philadelphia -9.50% -1.50%
52 Seattle-Believue -10.10% -1.20%
53 Essex Count. MA -10.60% 2.90%
54 Poukeepsie NY -10.70% 1.00%
55 Wilmington DL -10.90% 0.20%
56 New Haven -11.10% -1.70%
57 Camden NJ -11.30% -0.60%
58 Farmington Hills-Troy MI -11.70% -8.20%
59 Providence -11.70% -1.90%
60 Worcester MA -12.10% 1.80%
61 Allentonw PA -12.30% -4.40%
62 Cambridge-Newton MA -12.50% 1.60%
63 Salt Lake City -12.60% -3.60%
64 Nassau / Suffork -12.60% -4.50%
65 Tacoma -12.80% -2.30%
66 Denver ·12,9% -1.5%
67 Virginia Beach ·13.3% -4.1%
68 Edison NJ -13.4% -4.7%
69 Hartford CT ·13.4% -2,5%
70 Newark-Union NJ -13.6% -1.7%
71 Honolulu '14.1% -3.1%
72 Oxnard CA -14.4% 3.8%
73 Bethesda-Gaitherbur MD -14.6% -1.6%
74 Portland-Beverton OR ·14.8% -4,8%
75 W Palm Beach - Boca Raton -14.9% -3.0%
76 Sarasota-Brandenton FL -15.1% -2,5%
77 San Francisco- San Mateo -15.1% 0.4%
78 Baltimore -15.20% -5.8%
79 New York City -15.20% -3,5%
80 Boston Quincy -15.4% -1.0%
81 Jacksonville ·15,6% -5,4%
82 Stamford CT -15.8% -2,4%
83 Tampa-St. Petersburg ·17,0% -3.8%
84 Tucson -17.4% -4.6%
85 Las Vegas NV -17.5% -2.8%
86 Phoenix -18.3% -1.6%
87 San Jose CA -18.5% -4,5%
88 Oakland CA -18.6% -3.7%
89 Fort Lauderdale FL -18.8% -4.6%
90 Orlando-Kissimmee -19.8% -7.1%
91 Washington DC ·19.9% -5.7%
92 Bakersfield CA -20.9% -2.5%
93 San Diego CA -21.1% -2.9%
94 Fresno CA -21.6% -3.3%
95 Santa Ana-Anaheim -22.0% -3.5%
96 Sacramento -22.2% 2.3%
97 Miami-Miami Beach -22.8% -6.4%
98 Riverside CA -23.3% -4.8%
99 Stockton CA -24.7% -4.0%
100 Los Angeles CA -24.90% -5.1%

Here are key findings!

  • Out of 100 MSA, 52 MSA will see 10%+ property value decline. 6 MSA sees 20%+ decline.
  • The biggest decline is expected in Central Valley and in Sounthern California.
  • Famous bubble area such Las Vegas, Phoenix and key Metro in Florida also face 20%+ decline.
  • While NYC area has resisted real estate decline, they begin to fact 15%+ decline in its suburbs.
  • Real estate market in Pacific Northwest Cities such as Seattle and Portland has been steady. However, starting 2009, they face 10% / 15% decline respectively.
  • McAllen Tx and New Orleans LA are only two MSA that shows property value apprecitions. Austin, my main investment market sees "very minor" decline at -1.9%.

I think this forecast is directionally correct. So, my advaice for those who are considering real estate investments in the MSA with 15%+ decline is "wait and see" for a while. I think it take at least 2-3 quarters to see the bottom of the market. Enjoy happy investing!!!!!!

Saturday, 24 January 2009

Ranking of Metro where Real Estate Price is Stable. - 2009 Real Estate Forecast

In previous posting, I have introduced the MSA(Metropolitan Stastical Area) where price decline deepest. This positing is about the ranking of MSA where real estate price is stable. This forecast is also issued by Moody's and and percentage of declined is from Q2 2008.

Rank Metro Area Decline from Peak Bottom Expected
1 McAllen, Texas 0% N/A
2 Syracuse, N.Y. 0% N/A
3 Pittsburgh, Pa. -0.30% end 2009
4 Buffalo, N.Y. -1.00% mid-2010
5 El Paso, Texas -1.00% mid-2010
6 Tulsa, Okla. -1.10% late 2009
7 Houston, Texas -1.10% late 2009
8 Charleston, S.C. -1.10% late 2009
9 Little Rock, Ark. -1.20% mid-2010
10 Birmingham, Ala. -1.20% early 2010
11 Fort Worth, Texas -1.70% mid-2010
12 New Orleans, La. -2.10% end 2009
13 Dallas, Texas -2.10% Late 2010
14 Austin, Texas -2.40% End 2009
15 Rochester, N.Y. -2.40% early 2010
16 San Antonio, Texas -2.50% late 2010
17 Augusta, Ga. -2.60% end 2010
18 Baton Rouge, La. -2.70% late 2010
19 Memphis, Tenn. -2.80% end 2009
20 Oklahoma City, Okla. -2.80% late 2010
21 Albany, N.Y. -3.00% late 2010
22 Indianapolis, Ind. -3.20% late 2010
23 Columbia, S.C. -3.50% end 2010
24 Scranton, Pa. -4% mid-2010
25 Omaha, Neb. -4.30% mid-2010

Here is key findings!

- MSA in above "stable" ranking shares two characteristics; 1) No visible real estate bubble; 2) Fairly healthy regional economy.

- Again, key MSA in Texas (such as McAllen、El Paso、Houston、Austin Dallas/FW、San Antoniao) doing very well. In these market, I consider very low risk in further price decline.

- Rust Belt MSA(such as Syracuse、Pittsburg、Buffalo、Rochester、Scranton)'s real estate price is forecasted to be stable. In these MSA, due to decline of manufacturing industory, there have been siginificant decline of job and populated ----- it has kept real estate from appreciating.

- One notable trend is that major MSA in North Carolina(such as Charlotte and Raleigh) is out of ranking. Up until recently, NC MSA were considered real estate blight spot. However, economic slow down caused by financial (Charlotte) and textile (Greenville) industory seems to cause major decline in real estate price in NC.

Anyway, I think MSA listed above is fairly safe price to invest as long as you can purchase "prime location" properties 10-20% below fair market value. As transactions are still very slow, it is great opportunity to buy at significant discount!

Enjoy Happy Investing!!!!