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No recommendation until tomorrow.  All eyes are on the Federal Reserve Open Market Committee today.  At 2:15PM (EDT), 11:15 (PDT), they will release their interest rate decision and statement.  The fixed income securities market believe there is a 43% chance that the Fed will RAISE rates, to stifle inflation, in August and that there is a 61% chance that the hike will come in November.

The eyes will be on the Fed's commentary, though:

"We expect the Fed to keep the funds rate at 2% today but to shift to a more hawkish statement by placing more emphasis on inflation over growth risks," strategists at Credit Suisse wrote in a research report. "The Fed will likely use this meeting as an opportunity to set the stage for a potential rate rise in August."

If the Fed signals that rates could rise as early as August, expect mortgage rates to jump .25% higher, from today's 6.375% 30 year fixed rate, over the next few weeks.  If the Fed signals rate hikes are "possible" as a way to fight inflation, expect rates to stay level through in July (6.25% to 6.5%).  Finally, if the Fed shifts back to its anti-recessinary talk, we could see rates drop down to 6%.

As you can see, there are a lot of "ifs".  This is why today's Fed commentary is all important.  The Fed's ambiguity has traders convinced that higher rates are a foregone conclusion.  Here's the silver lining hidden in this dark cloud; mortgage rates are equal to what they were in July, 2007.  The Fed Funds rate was at 5.25%, then.  Today, the Fed funds rate is at 2.25%.  What that means is that mortgage rates SHOULD be able to withstand some 5-6 rate hikes and stay under 7%.

Alas, markets are discounting mechanisms.  We still think there is a lot of risk to higher mortgage rates until the commodities bubble bursts.

Have you considered the 92057 zip code in Oceanside for your next investment property?  We think there is a compelling argument for the long-term property investor.  Consider this question on Trulia Voices:

How is San Diego market doing now? Is it good time to buy investment/rental properties?
Which zip codes have best potential if I plan to keep the properties for long term (5/10 years)?

I said:

Do a home search for properties in the 92057 Zip code, on Trulia- keep it to under $225,000.  Most of these properties sold north of $400K, in 2005. While that was overblown, you can see that there is a lot of room there for growth over a 5-10 year period.  They were once valued that high, now they're about half of the 2005 values.   Now, click this link- Marine Corps NCOs receive about $1,500-$1700/month for housing (and they spend it).

$20% down on a $200,000 home will have a PITI of about $1,550.

That's positive cash flow, ladies and gentlemen.  The challenge for this investor will be that most of the homes were built in the 1970's so he can't get a newer home.  He will be able to avoid the Mello-Roos tax so that will make his cash-flow all the more juicy.

Will the property rise to its 2005 values?  It may take ten years, like the recovery from the last distression, or longer.  However, a down payment and closing costs would be about $45,000 to own this home.  The rents will cover the payments and a depreciation tax break wil be available to the owner. 

How will the investor receive a 10% return, over a ten-year period?  The Rule of 72 says that if the $45,000 doubles, to $90,000, in 7 years, the return will be a skosh over 10%.  This means that a sales price of $275,000, by 2015, will get the investor a 10% return.  Admittedly, 5.2% appreciation is a healthy return but we think an investor is buying the property right, at these prices.

Positive cash-flow mitigates a helluva lot of risk.

I think a little bit differently about marketing than Greg Swann does.  Not much, but we’re of slightly different mindsets.  I’m not scared to call a name a lead, a voice on the phone a prospect, a loan applicant a borrower, and a funded loan recipient a client.  I KNOW they’re people because I’ve always treated them as people. I don’t need a rip off of a Nike ad to tell me that.   Ain’t nuttin’ original about treating people who inquire about your services with respect;  Sister Brigid taught me that back in 1972.

Greg and I think a bit differently about vendors, also. While Greg envisions a world without vendors, I see them as a necessary evil.  My goal is to maximize the necessary (efficacy) while reducing the evil (money paid).  The problem with the whole vendor/practitioner relationship is that practitioners are looking for the little purple pill; the shortcut.  That’s what the charlatans prey upon.

We talked about this at Unchained. Mary McKnight taught us how the fish can find your bait,  Louis Cammarosano gave us a demonstration about how to cast our nets,  Steve Hundley taught us how to hook them, and Ron Cates taught us how to prepare them so that they’re edible. Moreover, David Gibbons taught us where the schools of fish are swimming so that you’re better prepared for the next big expedition.

All of them…”vendors”. Vendors inasmuch as they insert themselves in between the practitioner and the customer and get paid for it. They get paid for it because they deliver hungry people to your restaurant for less money than it would cost to do yourself.

Should Greg’s utopian prayer of zero acquisition cost be a virtue? Of course.  We should all strive for utopia.  His message, if I’m not mistaken, is that the brave new world is building pressure behind the dammed chokepoints so that the chokepoints have to evaluate their efficacy.  The smart ones are evolving their models to increase their efficacy while the irrelevant proclaim that we practitioners are all idiots.

Wanna know how I know this? I watched them call you “glorified delivery people, gatherers and order takers“….unless you submit to their idea of how the customer/practitioner relationship should be.  Now, the slight was meant for Greg as retribution for exposing their unoriginal thought but if you examine the content judiciously, you’ll discover that they perceive themselves to be the show- you’re just…a functionary.  Kinda like the umpires who think they’re bigger than the players.

They threaten you with a “life relegated to cold calling and door knocking” if they didn’t exist.  I submit (though it’s probably Inmanically Incorrect) that it would be well for you to do more of those activities, in this market, rather than to buy the next purple pill peddled by pernicuous pedagogues.

What I’m saying is that agents and originators are the craftsman and that vendors are (literally) tools. It was like that in Fred Flinstone’s day and it will be like that in George Jetson’s.  Vendors are levers so pick them carefully.   The good ones will help you get what you’ve always wanted; more money in less time.  The dimmed watts will try to intimidate you with the threat of extinction.

Will we continue to expose these charlatans for what they are? Ya damn skippy, we will.  We’re interested in helping people like us; grunts on the front lines.  We want to help you serve more people, make more money, and have more free time.    If you’re an agent or originator, we’ll give you the straight poop about vendors.  If you’re a vendor, come on in and demonstrate your value- if you have it, we’ll do the selling for you.

 

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Last year, Active Rain sponsored a contest called Project Blogger.  It was a fantastic idea where the A-list bloggers tutored some of the newer bloggers.  A competition was held and the winner was given a check for $5,000 to give to her charity. Mary Pope-Handy was awarded that prize; a worthy champion indeed. Ever the gracious winner, Mary shared an analysis of her experience with the community last April.

I mentioned that Greg Swann was looking for his apprentice, and Teri Lussier jumped at the chance.  Project Bloodhound focused on building a weblog for Teri and  "The Brick Ranch" was created.  Simultaneously, Greg enrolled Teri on the contributors' bar at Bloodhound Blog, a popular online edition of what REALTOR magazine might look like if the agents were in charge.  Teri turned into a fabulous blogger, alternating her warm commentary about life in Huber Heights, Ohio, on The Brick Ranch, with hard-hitting critical thought on Bloodhound Blog.  Teri was most recently featured with Laurie Manny at the Bloodhound Blog Unchained Social Media Marketing Conference for excellence in hyper-local weblogging. That original contest spawned our collaborative project, Real Estate Weblogging 101, an online "book about real estate blogging.

Project Blogger was perhaps the greatest gift Active Rain gave the real estate 2.0 community.  It was accomplished real estate professionals sharing their expertise, for free, with other real estate professionals.  That success caused the folks at Bloodhound to wonder when it was going to be offered again.  In true Bloodhound fashion, if Mohammed won't come to the mountain, we bring the mountain to Mohammed.  Teri Lussier wanted to give something back to the Active Rain community, so in the absence of Project Blogger...

Project Bloodhound is (re) born.

Greg Swann answering a question about what we're doing:

One or more hyperlocal weblogs for people relatively new to our world, along with all the other aspects of a well-rounded Social Media presence. The original Project Blogger was a contents pitting teams of mentors and proteges against each other. We’re talking about doing something similar, but with a cooperative, shared-learning focus.

Da Blogmutha, Cheryl Johnson offers her expertise:

I could cover some “HTML Basics and Photoshop for Beginners” angles.

 

Cheryl explains the stated purpose for our project:

Just what is the difference between the previous Project Blogger and the upcoming Project Bloodhound II

1.    In Project Bloodhound II, there are no winners or losers.  Excellence is its own reward.

2.    Project Blogger was based on one coach - one apprentice.  Project Bloodhound II will be based on the "It Takes a Village to Grow a Weblogger" approach.  Several members of the Bloodhound community have volunteered to share their particular knowledge and skills from design, programming and photography, to social media networking, to philosophy and history with any and all apprentices.

 

Eric Blackwell will be offering SEO advice:

I will gladly dump some time into helping folks get hooked up. Pay it forward is how I roll. Greg- you know my skillsets and abilities…I don’t have a ton of time, but will gladly help where I can.

Always happy to make new friends and have new fun- and learn new stuff along the way.

Teri Lussier wants to give back:

Anyone who commented here has something valuable to offer and while Greg might not cotton to collective think, I’ve seen it happen as one idea sparks another, and another, and it builds, sometimes that’s not a good thing, but here, with you all? It’s definitely a shot at brilliance.

All I’m asking (if I may) is that you keep your mind open to learning and also sharing. If you try something, whether it works or not, share it in a comment thread. There are no judges this time around, no popular vote to woo, just us, paying it forward because that’s how we roll, as Eric says. back at ya, Eric.

I'll try to direct folks how to use social platforms and utilities to promote your local blog and connect with members of your community.

We're trying to kick the bums out of the business while making the good people better, through online interactive marketing.  Blogging is a key component of your online marketing efforts so it behooves you to perfect the craft.  If you're interested, we'd love to have you.  Contact Teri Lussier to join the fun.

PS:  In Cheryl's post, "It Takes A Village To Grow A Weblogger" a prominent real estate blogger (and former Project Blogger coach) offered that her post "read like a commercial" which, indeed it does.  However, since the offer "don't cost nuttin", it would be more accurately described as a "public service announcement".

We thought Project Blogger was a great idea and intend to continue the tradition of paying it forward...

...with or without the spotlight.

PPS:  If you have an interest in participating, the work will be hard.  Greg Swann is a brilliant writer and expects excellence.  Teri Lussier literally rewrote the manual for upstart blogging with her contributions to Real Estate Weblogging 101.  Cheryl Johnson is a detailed task master as is evidenced by her painfully detailed instructional posts on Da Blogmother.  I evangelize the gospel of ubiquity in my social media efforts, and Eric Blackwell knows how to make posts jump in SERPs.  It's free but it won't be easy..

Contact Teri to be considered for an apprenticeship.

We're still advising all borrowers to lock all mortgage rates at application. The risk of the Fed raising rates far exceeds the opportunity for lower term rates. Watch this one minute video to understand what exactly has been happening in the mortgage markets, since May 2, 2008 and what I think WILL happen in the near term future. Brian Brady Mortgage Planner 858-777-9751

Glenn Kelman, Redin CEO, likened what Redfin is doing in real estate brokerage to what Amazon did in book retailing in a USA Today article, published earlier today.  The Seattle-based company has attracted some $20 million in venture capital and projects itself to be profitable in all of the markets it serves.

Founded six years ago, Redfin rattled traditional brokers' cages when it hired Glenn Kelman as CEO.  Glenn adopted a "maverick" posture, debating Move.com's Allen Dalton and appearing on TV program 60 Minutes.  I met the man last summer, in the speakers' lounge at the Inman Connect San Francisco conference; he was the featured speaker at Bloggers Connect.  My first thought was that Glenn was quite likable.  I couldn't understand why he was "crying victim" to traditional real estate brokers.  The fact that Redfin agents are REALTORs led me to query why he didn't temper his victimization and just sell real estate. 

Glenn acknowledges that he "broke a few eggs" in the USA Today article:

All has not been rosy, though. Early on, Redfin alienated many in real estate by attacking business as usual in the field.

During a 60 Minutes TV interview last year, Kelman called real estate "the most-screwed-up industry in America," which led to harsh criticism from brokers in blogs and at real estate conferences.

"We saw ourselves as a crusader for consumers, but we poked fingers in the eyes of the traditional real estate industry," Kelman admits. Now, Kelman says, he's more diplomatic, learning "to be an advocate for consumers and still work closely with other brokers."

Last fall, we saw a much different Glenn Kelman: 

1-Long criticized by Greg Swann on BloodhoundBlog, Glenn wondered if Greg would collaborate on some ideas with him.  I commented about the 180 degree turnaround at World Wide Wealth Advisors:

The answer?  Both Glenn and Greg share a common philosophy that real estate brokerage, as is practiced today, is broken.  While their respective approaches to the problem differ, they do agree on that one thing.

2- Glenn willingly opened his kimono on Guy Kawasaki's blog and outlined the challenges Redfin was facing on the road to profitability.  Score another point for Glenn for acknowledging the problem Redfin was having. 

3-Redfin added a service that had them acting more like a full-service brokerage then an alternative compensation model, was criticized, then fired Carol Hian, a San Diego-based Redfin Blogger, for violating its culture of respect.  A responsible move, indeed.

4- Recently, Glenn Kelman delivered the keynote address at the BloodhoundBlog Unchained Social Media Marketing Conference, sponsored by Zillow.com.  He gave a two-hour presentation about the Redfin business model for all agents and brokers to see.  It was nothing short of excellent!  What I found to be most interesting was that broker/owners lined up to speak with him after his keynote; clearly, the broker/owners were interested in maintaining profitability.

Now, Glenn's a Bloodhound and I'm laughing my ass off in delight.  I've come to like, respect, admire and never underestimate Glenn Kelman; neither should you.

I met a young real estate agent today to discuss working with his buyer clients to obtain real estate financing.  A sharp young man less than six years out of the Naval Academy, he admitted that the Redfin website offered him better search tools than the Sandicor MLS.  He described how he used it for his investor clients.  This astounding revelation confirmed what the USA Today article revealed- young folks like to use Redfin.  That is bad news for the 50-something real estate brokerage community.

I have no doubt that their existence stokes the ire of traditional real estate agents.  Lenders like me just don't understand this. We compete on price every day.  While solid advice and superior execution are qualities that distinguish lenders, price, nonetheless, is an issue for many consumers.

Disarm a customer with a value proposition that diffuses the Redfin claim of superior negotiating skills. This shouldn't affect you.  Rather than banding together "as an industry" to criticize the Redfin model, compete against them by carefully demonstrating that your negotiation skills are far superior to theirs (stop lumping yourself in with everyone else) and develop on-line customer-facing technology that rivals Redfin's. The consumer of tomorrow wants the best real estate agent for her!  If you can demonstrate that you are that agent, rather than Redfin, you'll limit their market share to "geeks with nice homes" (Glenn Kelman's quote).

So...what's it all mean?  It looks like Redfin is here to stay.  Their superior website search is something that the fragmented real estate brokerage community has not been able to emulate.  Their  task-oriented employees are projecting superiority of performance to the clients.  Most importantly, they're attracting the home buyers of the future.

Glenn ain't going away.

Mortgage rates are headed higher.  Lock all rates at application, regardless of closing date.

The trend is clear; the Fed believes it has done all it can to stave off the banking crises and is now focusing its efforts on inflation.  This morning, retail sales were up and the dollar is strengthening.  If stagflation is the fear, the current strategy of targeting core inflation may be abandoned for the more radical Paul Volcker-style approach to tame inflation. 

While I believe the higher mortgage rate cycle will be shorter than the 80-s style interest rate hikes, it's clear to me that Bernanke is talking differently than he did in 2006 and 2007.  The effect?  We could see mortgage rates rise as much as 2% in the next two years.  I still believe that a five year ARM will offer the best solution because interest rates move in cycles; I think we'll see mortgage rates under 6% again in 2011.  Today?  The trend looks like we're headed higher.

What then, should be your strategy?

1- If you were thinking of refinancing your home loan, apply now.  There will be little periods of weakness in rates this year and you should jump on any chance you have to get a 5/1 ARM under 6% or a 30 year fixed rate under 6.5%.

2- If you can't get the home loan you want today, get your documentation to me anyway. Secure an approval that is good for 90 days and wait for those periods of weakness to lock in the right rate.

3- If you were thinking of buying a home, mortgage rates are about as good as they'll get for the next two years.  Get pre-approved, contact your REALTOR and start looking.

 

Brian Brady

(858)-777-9751

brian(at) californialoanconnection (dot) com

 

For faster service, apply online, fax your most recent paystub, 2007 and 2006 W-2 form, and most recent bank statement to 858-605-4230, and call me immediately.

Yesterday, I wrote about the possibility of a Canadian mortgage crisis akin to the American mortgage crisis.  It would have been less controversial to side with the CBC decision to cancel its renewal of "Hockey Night In Canada" theme song.  To my brothers and sisters in The Great North:  It was a warning, not a criticism.

I'm not alone in my warning.  Here are some articles offering caution:

The Canada Mortgage and Housing Corporation (CMHC) warns of slowed housing starts:

"Strong economic fundamentals such as continuing high employment levels, rising incomes and low mortgage rates will provide a solid foundation for healthy housing markets this year," said Bob Dugan, Chief Economist for CMHC. "Most of the pent-up demand that built up during the 1990s has now been fulfilled and residential construction activity will gradually move in line with Canadian demographic fundamentals. These factors will continue to exert downward pressure on housing starts, which will decline to 199,900 units in 2009."

Michael Shapcott at the Wellesley Institute notes the housing affordability problem in Canada:

The housing affordability gap the difference between actual incomes and the incomes required to afford a private rental unit is growing. And, as the affordability gap grows, renter households have less money to pay for other necessities such as energy, food, medicine, transportation and clothing.

Mark Argentino from the Mississauga Real Estate Blog, reported that the CMHC expects demand for housing to put downward pressure on prices.

Garth Turner documents the decreased housing resale volume and excessive leverage carried by Canadian homeowners on Greater Fool.

HouseHuntVictoria pleads with the CMHC to boost reserves for impending foreclosures:

One fact remains undeniable: never before has the Canadian taxpayer been more exposed to private lending practices than it is today. And as the real estate market winds down and inevitably contracts from its unprecedented expansion, Canadian taxpayers may well end up "insuring" the bad lending practices of banks, private mortgage lenders, the speculative buying activities of would-be real estate investors and the poor insurance decisions of CMHC who agreed to back them.

Does any of this sound like America in 2005?  This is a warning Canadian investors not a prophecy.  If you're heavily invested in Canadian real estate, it may make sense to diversify and take advantage of the currency disparity by investing in an already decreased asset.