Here was the question:

I would love to buy a piece of America now while prices are suppressed especially income producing real estate properties in the U.S. But, specifically, exactly how do you find and pick up some great deals on bank-owned and short-sale properties.

I would love to purchase a single family home in beautiful Palm Beach Gardens, Florida for only $65,000.  I just don’t think the vast majority of people — myself included — know how to find this type of property and then close the deal.

I guess I just don’t know the right people.

I’ll tell you how I got a great deal on a short-sale property.  My wife and I looked at many homes on realtor.com until we found a few properties that were good candidates for rental properties.  One of these was a nice property listed for $99,000.  This home was going for $250,000 a couple of years ago.

We called the listing agent directly and inspected the property thoroughly.  I suggest you work with the listing agent directly.  The listing agent will work extra hard for you because they will get the maximum commission by being the agent for both the buyer and the seller.

The owner of the single family home owed the banks $200,000 for his two mortgages.  We offered a low-ball offer of $55K and he accepted, because the bank was going to take the hit in the short-sale and he just wanted to get rid of the property.  The whole process took five months and the banks finally accepted $65,000 for the house.

An impatient person would have asked for their deposit back after a couple of months of waiting – and that’s why most short-sales don’t get completed.  The key to getting a fantastic deal on short-sale properties is to have plenty of patience.   Short-sales take time to close and can be frustrating at times, but you could truly get the deal of the century in today’s real estate market.

Best Wishes,

Ted Peroulakis

Source: How to Buy Short-Sale Properties

Usually it’s solved by the price of things coming down. But in the case of the housing market, things are a wee bit trickier…

Prices have started to fall, but many still can’t get the mortgage they need to get on the ladder.

I talked about affordability yesterday. I said that from our perspective it doesn’t matter precisely how much house prices fall. We’re confident they will, and our investment strategy reflects that.

Happily, though, a report today puts some numbers into the mix. Apparently, 28% of employed young people can’t afford even their cheapest local properties. In parts of London and the south west, more than 40% are priced out of home ownership.

Hometrack, who published the report, reckons that if prices come down 10%, then the average will drop from 28% to 22.5%. In other words, a fifth of those currently priced out will be able to get their hands on a front door key.

That’s what some (especially those in that magic fifth) would like to see happen. Will it?

Ah, if only economics were that simple! If only we weren’t plagued by all these pesky ‘ifs’ and ‘buts’. But we are. So let’s glove up and pick our way through the brambles…

Affordability is the key. The big thing dampening affordability right now is the tight-as-a-drum credit market. Mortgages you used to be able to get, you now can’t. Those you still can, meanwhile, are more expensive.

Professor Steve Wilcox, the academic who crunched the numbers for the Hometrack report, calculates that the cost of repaying a mortgage rose by 12% last year. But this situation could reverse.

I don’t think it will, however. At least, not enough to reverse the general house price trend, which will carry on downwards.

Today’s report gives us an idea of where prices might end up. But housing market forecasts are ten-a-penny, especially at the moment. I’ve read everything from a predicted 5% drop to an almighty 40% crash.

The trouble is, to put a hard, meaningful number on it, you have to make all sorts of assumptions which themselves are meaningless.

Will the lending market ease up, and if so by how much? How much will would-be buyers rely solely on their own incomes, as opposed to borrowing from other sources, such as relatives?

All these factors make it tricky to obtain a useful forecast for affordability. And then there’s sentiment…

What about those who’ve decided to rent rather than buy? Renting is comparatively cheap right now. But many renters are renting because they don’t want to buy an asset they believe will soon fall in value.

Even if homeownership becomes comparatively less expensive (prices fall, borrowing gets cheaper, or a combination of both), will that fear recede by a proportionate amount? Unlikely. By how much, then, and over what period of time?

Ah, now we’re into the realm of guesswork…

The good news, though, is that it doesn’t actually matter by precisely how much the housing market will fall. Watch the trends; don’t worry about trying to package the world into a neat, numerical model.

The outlook for the UK economy is bleak. It’s not just housing — today we read that the purchasing managers index (PMI) for the service sector fell to 49.8 in May, down from 50.4 in April. A PMI of 50 represents stagnation — neither contraction nor expansion.

So basically, our service industries expanded ever so slightly in April (not good), but contracted a little in May (worse).

You don’t want the fate of your investments to be tightly bound up with the British economy. Because the British economy’s going down. Instead, look for companies making money in expanding foreign markets.

As our research director Theo would surely say: “The UK stock market is your window on the world. Use it!”

The fight for Congo’s mines…

Gold. Copper. Diamonds. Uranium.

Congo has them all, in abundance. And the Chinese are desperate to get their hands on this mineral wealth. They’re investing a whopping $9 billion in the Congo economy.

Below, Garry White explains why. But first, a word from Manraaj Singh, our emerging markets wizard:

“Pow!”

Thanks, Manraaj.

Of course, Manraaj has a LOT more than that to say about Congo. Right now he’s putting the finishing touches on a recommendation that will give you exposure to the very richest mines in this resource-rich country.

“If I’m right about this investment,” he says, “it’s going to offer the sort of profits that makes China’s deal with the Congo look small!”

For more details, read today’s free edition of Profit Hunter HERE.

China to build “10 New York Cities” — and this is the commodity they’ll need!

Garry White was full of beans at this morning’s meeting. Our commodities man was at a mining conference yesterday, and he’s come back brimming with verve and new ideas.

“One guy there was saying China’s building the equivalent of 10 New York Cities. Well, they’re gonna need a lot of steel, a lot of concrete, and a lot of electricity once they’re up and running.”

Which means one thing. Coal!

“If you don’t have coal in your portfolio, you’re missing out on potentially the biggest commodities bull run of the 21st century so far,” says Garry.

Discover how you can play this trend with an investment that not only puts coal in your portfolio, but also gives you a claim on cash from mining monsters BHP Billiton and Rio Tinto!

Until tomorrow

Ben Traynor

Source: House Prices Need To Drop 10% For First-Time Buyers To Get On The Ladder

You’re sure there’s one down there. It’s just a question of where…

I’m going to leave that analogy hanging, teasingly, while I move on briefly to talk about a dead French economist…

In the nineteenth century, Léon Walras sought to explain how markets work. He conjured up the concept of an auctioneer, who sets prices and volumes. The Walrasian auctioneer calls out prices for various goods; suppliers say how much they’d be prepared to supply at that price, buyers how much they would buy.

If the two don’t match, the auctioneer calls out a different price. He keeps at it until all the sums add up. Ta-da! We have a market equilibrium! Everything works.

The process by which the auctioneer finds equilibrium is called tâtonnement, although sometimes it’s referred to as ‘groping’, which is far more illustrative.

It may seem (and, to me at least, is) a little odd that Walras, to all intents and purposes, invented a central planner to explain how the free market works.

“At least Walras’s market-meddler was fictitious!” joked Garry White at our meeting this morning. As Garry explains below, German politicians are trying to tinker with the market in an all-too-real manner — and the Indians already have!

But while it may seem just an intellectual flight-of-fancy, the tâtonnement mechanism does provide a useful framework with which to analyse certain situations. One of these is the housing market.

The term ‘housing market’ is a bit of a misnomer. There is more than one ‘housing market’ — it is segregated, by region, by specific location, by type of property.

At the most basic level (or should that be most complicated level?), there are as many ‘housing markets’ as there are houses for sale. Each house is unique (with the possible exception of those on a new build housing estate).

The supply of each house is fixed, at one. The active, realised demand for a house will also be one — there may be several potential buyers, but only one will bag the property. There is a market for each and every house, and the supply is always one.

The mechanism by which a price is agreed in each ‘housing market’ is similar to that of an auction. This is where tâtonnement comes into its own — because both house buyer(s) and house seller ‘grope around’ until they find the equilibrium price.

But there’s a problem right now. The auctioneer isn’t doing his job properly. He’s not finding the equilibrium often enough.

The problem can be summed up in three words — not enough groping. Many buyers are exiting the market, unhappy with the terms they’re being offered on mortgages, or convinced that prices will come down.

Equally, some sellers are pulling out too, preferring to stay put or else rent out the property (because the flip-side of fewer people wanting to buy is more people wanting to rent. Good if you’re a landlord).

Somewhere beneath our feet is the notional ‘housing market’ equilibrium. A generally agreed idea of how much a certain type of home should cost. But, right now, the market, and everybody in it, doesn’t know where that is.

To return to my rock climbing analogy, there’s only one thing we really can be certain of. If and when we find an equilibrium, we’re going to find it with our feet, not with our hands.

IPO — “It’s Probably Overpriced!”

Europe’s largest rail group, Deutsche Bahn, is planning an Initial Public Offering (IPO). They’re after £6.4 billion — a truly massive sum, I’m sure you’ll agree.

But Theo Casey’s not impressed. He’s generally distrustful of IPOs, as he explains in today’s free issue of Fleet Street Research.

Theo does, however, reckon there are opportunities to be found on the Continent.

“There’s a lot of value in Europe right now. Why do you think Warren Buffett’s gone shopping there?”

Today, Theo looks at investing in Europe, and asks whether the time is now right to hire a white van, load up on cheap European stocks and ferry them back to Britain, telling Customs they’re “for personal use”…

Tell this German to shut up

“Uwe Beckmeyer is a fool!” says Garry White this morning, in his usual forthright manner. Suffering fools gladly has never been an item on the Garry White ‘To do’ list.

Who is Garry talking about? I’m glad you asked (glad I did as well). Turns out, Beckmeyer is a German politician, a member of the Social Democrat Party, Gerhard Schröder’s gang.

Beckmeyer wants to ban futures trading in the energy market. Yep, you read that right. A mechanism designed to enable end-users of energy (e.g. airlines) to predict future costs is now seen as an undesirable thing.

“It’s just market-meddling,” says Garry. “If they get this through, it’s going to wreak havoc with the world economy, ours included.”

Garry doesn’t deny that high oil prices are a problem. And, yes, a lot of recent movement has been down to speculation.

“But this is barmy! A total knee-jerk reaction!”

Unfortunately, though, Beckmeyer’s not alone. The Indian government has already implemented bans on futures trading. The market-meddling has even stretched as far as the USA.

If this sort of measure gains popular support, Garry reckons it will spell doom for the world economy as we know it.

Until tomorrow

Ben Traynor

Source: What Leon Walras Tells Us About The Housing Market

Forbes reports that yesterday “Fannie Mae executives told analysts that 43.0%, or $946 million, of the $2.2 billion in losses incurred during the first quarter involved Alt-A loans. They also said that the company’s ‘Alt-A book will continue to drive an outsize portion of our overall credit losses.’

Alt-A loans appeal to lenders because they yield higher rates on prime classified mortgages and are backed by borrowers with stronger credit ratings than subprime borrowers. But they carry extra risk for lenders due a lack of documentation–including limited proof of the borrower’s income.

“The US housing finance system needs replacing,” says Martin Hutchinson.

“The mortgage broker’s incentive is to maximize loan volume — pretty much regardless of whether or not the borrower can afford the loan. Falsification of documents, suborning of appraisers, and other similarly reprehensible machinations becomes a normal course of action in such a situation, as does turbo-charging the housing market to valuation and sales levels it cannot sustain. A system in which prices are forced up to unsustainable levels and fraud is rampant is broken, and needs to be replaced with something better.”

The current vacation from reality on Wall Street may last a few more days, or even a couple weeks, but it seems as though a whole flock of black swan events is circling the sky over Financial-land and is about to blot out the sun. By black swan, I refer to the concept popularized by Nassim Nicholas Taleb in his book of that name, namely unexpected events of great power that tend to change the course of history.

For the moment, with the crisis “contained,” and the Banker Boyz getting ready to air out their Hamptons villas for the coming season, we are once again primed to be blindsided by potent random events that nobody saw coming. The trouble is; there are enough potent potential fiascos already visible on the horizon.

The mortgage fiasco is still just gathering steam as it moves from the non-payment stage to the default and repossession level on the grand scale. Even the political wish to bail out feckless mortgage holders will stumble on the mammoth clerical task of administrating the process, especially since we’ve barely begun to sort out who actually holds the mortgages after they’ve been minced into a fine mirepoix of securities off-loaded onto countless dupe “investors” ranging from municipal funds in obscure corners of foreign nations to countless public employee retirement plans.

No matter how the authorities try to “nationalize” the sucking chest wound of bad mortgages, the body of finance will flat-line — and the American public will get stuck with the bill from the intensive care unit. Those who, for some weird reason, continue to pay their way and meet their obligations, will be none too pleased to pay for misdeeds of the deadbeats and their banker-lenders. This portends a taxpayer rebellion, which may translate into a voter rebellion.

It’s too bad the current presidential candidates have been unable to address the unfolding economic nightmare. Their collective silence on the matter suggests that they don’t have a clue what to say about it. As the nightmare plays out and black swans flock in to blot out the sun, and the hedge funds come a’tumbling down, and more big banks blunder into black holes, and businesses big and small across the land shutter up their operations, and the unemployment rolls swell, and families are thrown out of their houses even when bailouts are supposed to be saving them (but the bureaucracy can’t get the paperwork done in time) — well now, they are going to be one pissed off bunch of people. What will they do at the conventions? Our outside the conventions?

In the deeper background of all this is the all-important oil story that nobody in politics or the media wants to pay attention to. Notice that in the fervid unloading of assets this past week, as investors dumped their positions in the commodities markets, the price of oil remained stubbornly above $100-a-barrel.

Peak oil is for real. The supply can’t keep up with global demand, even if the U.S. portion of global demand dips a bit. And more portentous sub-plots develop in the story every month. Export rates are falling at a steeper rate than depletion rates. In other words, the countries with all the oil aren’t exporting as much of it. The exporting nations are not only buying more cars and running more air-conditioners, they also need to use more energy to lift the oil they’ve got out of the ground.

Another sub-plot is the fact that the equipment used world-wide to drill for oil and recover oil and move oil around the planet — all that equipment is now so old and rusty that it can barely do the job, and it is going to start failing altogether unless investments are made to replace it, which nobody is making.

By the way, Americans blame the familiar private oil companies for all the trouble with oil in their lives — Exxon-Mobil, Shell, et al — but they don’t seem to know that oil nationalism is in the driver’s seat now. The old private “majors” are only producing five percent of the world’s oil. The rest is coming from the national companies — Aramco, Petrobras, Pemex, et blah blah — and the very operations of the oil markets are entering a phase of radical instability as they move away from auctioning their stuff on the futures markets and start making long-term favored customer contracts instead.

The bottom line is that high prices for oil is hardly the only thing America has to worry about. Pretty soon the US will have to worry about getting the oil at any price — meaning, we’re in for shortages and supply disruptions sooner rather than later.

Also unbeknownst to most of America, the financial markets reflect all this instability around the basic resource of oil because industrial economies like ours are set up in such a way that they can’t run without cheap and reliable supplies of the stuff. So the least little twitter in the reality-based world of peak oil means that everything to do with money and capital investment will naturally go crazy, since our expectations for increased wealth — i.e. “growth” — are predicated on the activities driven by oil.

It will be interesting to see what new machinations are unveiled this week. Whatever else this catastrophe is, it’s a good show from the cheap seats.

Not only will this bail out come from tax payer pockets, but it could also push up mortgage rates in the future as banks would have to worry about one more risk. The risk of government changing the amount owed on the mortgage. So what will they do to deal with that risk?

Keep interest rates higher.

Ah, I can’t wait to read about the next bailout…