Local Trends, Forecasts and
Real Estate Information

My Neighborhood Trends is about to launch a new real estate site for local market trends. At My Neighborhood Trends you can Discover the Secret to finding the most current and accurate local real estate information on the web that forces you to make smart decisions. The core problems in real estate information today are: The Lack of current local information that is: accurate, reliable, and current so that you can to help the ideal time to buy or sell a home. The solution is to find a service that provides the most current trends and the latest local area real estate information and delivers this information in the quickest and most user friendly fashion possible. Look for our launch soon, and learn the truth about real estate and what will affect price changes in your future.

The book you hold in your hands can assure your success as a real estate professional. It offers you an amazing insight into the landmines which are in large part responsible for the real estate debacle we see now and it also introduces you to a never before available tool – The Home Value Predictor. This tool will give you micro data at the local level, both historical and predictive, that will set you apart as a savvy and super informed professional.

Clearly we are in unprecedented times. The good news is, there are opportunities available today that have never existed before. If you are one of the ones who has access to the tools that will help you take advantage of those opportunities, you can create your own financial legacy and assure well being for yourself and your loved ones.

To many, this may seem like the worst time to consider real estate investing, especially given the latest doom and gloom headlines. Having thrived in the real estate industry for over 20 years, I can honestly say things have never been this challenging. Realtors, builders, lenders and even the average buyer and seller feel the pain, as they worry about an uncertain future.

Like many, I can’t help but ask: Why didn’t more people and industries foresee the major 2007-2008 real estate declines in local markets? And how did it happen that seriously deficient mortgages have affected Wall Street and credit issuers all across the nation, and indeed the world?

The answers are varied, but they do have one common denominator – incomplete and/or inaccurate information which resulted in erroneous assumptions.

We’ve learned how mortgages were bundled into traunches and rated. The bundling of variously rated mortgages together was expected to have greatly reduced risk overall of mortgage backed securities. However, the fundamental premise of this bundling was seriously flawed. And now we see the ripples in the pond, as these securities fail to perform as promised.

As investors we wonder: Will house prices continue to drop? As of this writing, many experts believe they will. Indeed, famed Professor Shiller of Princeton (co-founder of the Case-Shiller housing index) believes housing prices still have a huge downward turn in store. What is still overlooked, however, is that even today’s best analysts are using failed data, so their predictions are suspect.

In 2007 prices fell nationally more than 5%. There are millions of vacant properties in the United States. Although foreclosure rates have already doubled (from 2006 to 2007), in parts of California and other former “hot spots,” it’s just the tip of the iceberg. Industry experts predict between 1.3 and 1.5 million foreclosures by the end of 2009 due to sub-primes and Alt-A’s. This will further increase excess housing inventory and force prices even lower—by as much as 10 to 15%. Going forward, there is yet another round of resets scheduled to hit in mid-2010 and beyond.
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Prior to its acquisition by Bank of America, Countrywide slashed its payroll by 12,000 individuals and tapped emergency reserve credit lines to help weather the storm. All but one of the large publicly traded builders posted losses in 2007.

In response, many builders have slashed both prices and work forces to compensate for falling demand. Some industry analysts predict that 54% of workers in the building industry will lose their jobs before the crisis is over. And we’re probably only half way through the correction as of 2009. In the end, this will likely be the largest housing correction since the Great Depression.

Like others, I am not without trepidation. Real estate is my livelihood. In 2005, I had to hire staff just to keep up with emails and answer phones, which never seemed to stop ringing. Today, like most real estate professionals, I pound the pavement and am simply grateful to hear the phones ring!

You might be asking: Who wants to buy when house prices are falling? Or invest in a MBS (Mortgage Backed Security) when the asset is declining and the expected yield is at huge risk? The question to consider is: what is the true yield of any asset when it is declining in value, and does the current risk matrix take true local risk into account?

Most importantly, are the risk analysts relying on historically false assumptions? To compound the global uncertainty, buyers do not feel safe in their jobs, lenders are reluctant to lend, and the rules of obtaining any kind of credit are changing almost daily.

The real estate market is not a mystical concept. Or is it? Like the stock market, real estate is predictable within a very specific range, when there’s access to currently accurate, reliable and relevant information available.

The key question is: But what is this range? When a database is ample enough to let us collect, sort, and filter economic and market information related to hyper local areas, including price movement, it is possible to identify profitable opportunities in any investment environment—even during a massive correction like the one we are currently in.

To thrive in any investment environment, what is needed is a real estate tool unlike any yet seen and far more advanced than the simple Automated Valuation Models currently touted as the “optimal tools of our time.” The Home Value Predictor is that tool.

Now for the good news. With the continuing flood of foreclosures and an already massive inventory, this is an excellent time to invest in real estate. To do that successfully, however, you need a tool that can sort, filter and ultimately analyze the most current information to help identify profitable properties at the hyper local level.

The media tells us that the market is in a complete melt down. Yet, five million homes were sold in 2007. And in 2009 many of the sold homes were sold as short sales (meaning the lenders agreed to take a lesser payoff than the mortgage called for.) This provided fantastic opportunities for savvy investors or buyers. Even if we assume that only 1% of those sales were genuine profit opportunities, it means that 50 thousand units transacted represented ample profits.

This book is not about lists of available foreclosed homes. Nor it is about current deals, or how to make you feel like you have just attended a Tony Robins seminar.

Rather, this book is about the creation of an accurate analytic system – the Home Value Predictor – which is a tool that lets you, as a real estate professional or buyer, understand a property (and its immediate local market) from the micro ground level up.

The information you hold in your hands provides a comprehensive understanding of factors that WILL influence a property’s present and future value – and therefore assure your success in the market.

This book has two parts. Part I will explain why the market is crashing on all fronts, and Part II will afford a solution that will help you thrive in any local market, armed with detailed and comprehensive current local information.

Opportunities are prevalent, but you must know where to look. What the mass media overlooks, and where you can profit, are the still very stable “micro-climates,” where foreclosure rates are low, job stability is high, and school districts are sound.

What many of us are up against is that the media generally tends to overlook these possibilities in the current climate. The reason is simple. The media, like many consumers, only has access to free information and the free information is historically faulty or incomplete.

If lenders had access to the most current, relevant, reliable and accurate information, at a hyper local level, there might not be almost 18 million vacant housing units, today’s record foreclosures and a looming sub-prime loan crisis that could literally drag the entire economy into depression.

It all comes back to the data. While a great deal of local property data is available and free, this data is not sufficient in its current form to accurately predict the soundness of a real estate investment.

In this book, you will learn what went wrong and why. We will analyze the role that builders and lenders played in the current crisis. I will also review our current real estate tool options and why they failed to help us predict this entire mess. Finally, you will learn what the ideal real estate tool looks like (the Home Value Predictor) and how it can help any real estate professional, investor, or buyer thrive in this or any market.

The fact is that real estate represents a growing portion of many of our investment portfolios. Its importance will grow in the coming years as more institutional investors
re-enter the market and begin to thrive once again.

Now, just imagine that you had a tool that could zero in on the most profitable stock opportunities in the coming year—and that it actually worked.

This book introduces just such a tool as applied to real estate and our intent is to help you grasp its power, precision and reliability. Our goal is that this tool will guide investors through the complex world of real estate like never before. Anyone using this tool will become an instant expert with all the latest, most relevant and most accurate micro local economic and market information available, with a means to make sense of it. And you, as a user of this tool, can guarantee yourself a very prosperous future.

Finally, our tool is designed to let you know the future value changes down to the Census Block Group level.

This is my passion, and why I wrote this book. What began as a graduate school project for me soon turned into an obsession that has inspired me for the past several years. With this tool, I am confident than anyone can thrive even during these hard times and in any market.

Now, let’s learn what really affects home values and determines price movement.

Home buyers and investors often make their home purchase and property investment decisions based solely on appraisals and MLS-based information about housing prices. They assume that those sources provide accurate and reliable information that reflects the true market value of the properties they intend to buy, and all relevant current local information. However, this assumption is very incorrect.

Appraisers have been under tremendous pressures from mortgage brokers to overstate home values. These pressures were especially evident during the past decade, given the exceptionally aggressive mortgage lending that lead to the creation of the housing bubble. As appraisers receive over 95 per cent of requests for their services from mortgage brokers, it is obvious that many succumb to the pressures and artificially inflate housing prices. Moreover, appraiser can inflate home values by ignoring problems or comparing appraised homes with inappropriate comparators. As a result, if they rely on appraisals alone, home buyers may actually pay more for a home than what a home is actually worth. And in fact, many buyers actually did.

The Home Value Predictor™, which looks at current local socio-economic, demographic, and financial forces behind the changes in home values at the block level, is thus a more reliable indicator of actual values of homes at any particular time in any specific local market. It is also more useful as a decision-making tool than the information provided from appraisers or MLS sources because it offers a perspective into future trends in housing prices.

More in my new book The Missing Keys to Thriving in Any Real Estate Market

As always, appreciate your comments and feedback.

The Gaussian copula function, developed in early 2000s by the mathematician David Li, appeared for many financial institutions as an excellent tool to standardize and simplify the risk assessment process. This regression model allowed for complex risks to be modeled into a simple function that made it easy for credit analysts to determine the risk in a pool of securities. Adopted by credit rating agencies and even regulators, the model quickly became widespread. However, the simplification of the conventional due diligence process ignored various risks inherent in the securities. These risks accumulated over time and consequently lead to the greatest financial meltdown in the modern history.

For those who want more detailed analysis, a good article on this is at Wired Magazine. http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all

More in my new book The Missing Keys to Thriving in Any Real Estate Market

As always, appreciate your comments and feedback.

To a large extent, the current housing market downturn is the consequence of exceptionally lax lending standards that amidst ample liquidity resulted in the creation of a housing bubble. The bubble burst once the unsustainable and artificially-inflated prices eroded affordability and the economic slowdown caused many borrowers with weak credit quality to default on their mortgage payments. The problem with the housing market was thus a reflection of a systematic failure of the credit system that overemphasized certain elements of risk management, such as FICO scores and risk-based models for credit rating, and ignored other factors that determine the capacity of mortgage borrowers to finance their obligations.
Before the bubble burst, many mortgage lenders focused primarily on quantitative risk indicators, such as FICO scores, when making their lending decisions. Yet, they failed to account adequately for other factors that influence borrowers’ capacity to service mortgage debt, such as down-payments, incomes, or future interest rates, and all current local variables which represent the flow of businesses, jobs, people, and capital, which influenced future price trends and movements that directly affect local markets and credit risks…

More in my new book The Missing Keys to Thriving in Any Real Estate Market

As always, appreciate your comments and feedback.

Seven False Assumptions – That Caused the Housing Crisis
False Assumption 1: Real Estate Has Always Gone Up in Value, Thus It Will Continue to Go Up in Value

Real estate prices in the United States have historically been on an upward trend, rising on average 1.6 percent in real terms between 1970 and 2005. However, this does not mean that prices increased every year in that period and by the same percentage in all locations within the country. For instance, between 1990 and 1995, inflation-adjusted prices of homes in the United States declined by 1.1 percent. If any individual purchased a house for residence or investment in that period and sold it before the market recovered, he or she may have realized a capital loss on that property because prices declined.

Moreover, the claim that real estate has always gone up in value, and thus it will continue to do so is a generalization that may not necessarily apply to specific localities. Real estate markets are local markets, in which any market’s stability and growth are affected by location-specific factors that influence supply and demand and therefore home values. Consider, for instance, the recent spurt in foreclosures, which has had a disproportionately heavy toll on real estate markets in, say, California and Nevada. An increased supply of distressed properties in those markets lead to large drops in home prices. However, foreclosure activity within each state may be concentrated in specific local communities, such as the Silicon Valley in California, which has seen a surge in unemployment.

Furthermore, there are over 1,200 Census Block Groups or hyper local markets in Silicon Valley. Income ranges from under $20,000 to over $400,000, prices range from under $100,000 to over $2,000,000, and the number of Short Sales ranges from near zero, to over 20% for some Census Block Groups. In addition, the medians are not correlated to the ranges, and the medians have changed over 8% since the yearly data was published by the free vendors that many sources quote.

Thus, any such local markets, including that in the Silicon Valley, CA, may have seen larger declines in home values than the state of California as a whole. Besides, these precipitous declines in California or Nevada may be taking place against home price increases in other parts of the United States. One example is Cambridge, MA, which recorded a 16 per cent annual increase in prices last year.

The Home Value Predictor™ ™ integrates various local market data into a model that forecasts price movements down to the level of a particular local community. Its broad and block-level market forecasts thus help avoid making investment decisions based on generalizations about real estate prices for the nation as a whole or for any particular local market.

Launching this month, I hope…
As always, appreciate your comments and feedback.

Here is the list of seven false assumptions that caused the housing crisis:

False Assumption 1: Real Estate Has Always Gone Up in Value, Thus It Will Continue to Go Up in Value

False Assumption 2: Existing Systems for Risk Management, such as FICO Scores and Rating Agencies, Are Adequate.

False Assumption 3: The system of Gaussian copula function was adequate and reduced risk of MBS.

False Assumption 4: Appraisals and MLS information are adequate to assess local risk and make a buying decision.

False Assumption 5: Licensed Real Estate Professionals, and the Web, Have the Most Current Information Available.

False Assumption 6: There is No Need to Have Current Local Information, Demographics, Economics, or Hyper-Local Forecasts, Since Macro Metro Yearly Data Is Adequate.

False Assumption 7: The Current Systems for Access Risk and Rates of Return of Real Estate Portfolios ARE Adequate.

Next will be a brief description of each of these false premises, which are explained more in my new book titled The Missing Keys to Thriving in Any Real Estate Market

As always, appreciate your comments and feedback.

Macroeconomics Role in the Housing Crisis – Part 3

Not only did the macro data (with huge flaws at the local level), fail to foresee the crisis, but also the flawed macro data was “presumed” to be a trend line to extend into the future. A good example of this is at CNN Money http://money.cnn.com/popups/2006/biz2/newrules_bestinvest/index.html which projected the Florida MSA (Metropolitan Statistical Area) to go up in value another 72% in 2005. This represents a compounded false belief and information, all due to a lack of current local information.

Is it fair to say this directly caused the housing crisis? You can combine the many factors that have been blamed for the housing crisis, such as, deregulation, false trust in the Gaussian copula function, and Credit Default Swaps, and claim a more direct influence. However underlying all of these are false assumptions based on reliance on macro data. The resulting false conclusions supported all of these various factors that multiplied the errors. I am of the firm opinion that if we have good local data to assess any specific market we could have come through the last few years in much better condition. If you think there are other fundamental factors underlying our housing crisis I do want to hear your views. My goal is to find the keys to prevent you from making poor real estate investment decisions in the future. Your comments are appreciated.