THE PACIFIC TRUST REPORT

May 6, 2011

To Our Clients, Colleagues and Friends:

• Clear Capital released its monthly Home Data Index Market Report today and reports that home prices have officially double dipped nationally .7% below the prior lows experienced in March 2009.  This has happened despite the best efforts of the government to stimulate the housing market. 

                Why is it that housing prices cannot seem to find footing?

                1) Underwriting guidelines are so restrictive that many would be home buyers simply can't qualify to purchase a home.

                2) HVCC appraisal guidelines continue to undermine property values.

                Despite the best efforts of the government to stimulate the housing market with housing tax credits, stimulus money and low interest rates, these "supply side" (the supply of qualified home buyers that is) restrictions are proving to be           more powerful than any "demand side" stimulus the government puts in.  Lenders have stated that underwriting guidelines will loosen up when unemployment improves.  Fed Chairman Ben Bernanke thinks it may take 3-5 years     for unemployment to return to more normal levels.  If he is right, be prepared for a long, drawn out housing recovery. 

• If the government truly wants to get the housing market to recover which will ultimately lead to a much broader and sustainable economic recovery, why are they not creating more lending options with Fannie and Freddie?  The GSEs are already under federal conservatorship, so why not allow them to offer loan programs like HomePath to non-Fannie Mae owned homes?

• In case you hadn’t noticed, mortgage rates are down by about .375% over the last two weeks. 

• Does the US government over-subsidize home ownership for its citizens?  Let’s look at the incentives a US homeowner gets just for buying a home:

                Mortgage interest paid is tax deductible

                Points and some fees paid in obtaining a loan are tax deductible

                Sell for a $250k profit if single, $500k if married without paying capital gains taxes

                Property taxes paid are tax deductible

                Private Mortgage Insurance (PMI) is tax deductible

                $8,000 tax credits for simply just buying a home at all

                Do people really need that much inducement from the US government to own a home?  Would the 2/3 of Americans who own a home suddenly decide that owning a home of their own is not worth it if they couldn’t write off virtually      every expense related to owning a home? 

• The interest expense on the US debt in 2010 totaled nearly $414 billion dollars.  If interest rates on treasuries rise just 2%, that will cause an increase in interest expense of nearly $200 billion per year.  That would put the total cost of carrying the US debt load in line with the entire annual defense budget.

• Speaking of defense budgets, here are annual defense budgets of the world’s largest spenders:

                We cannot seriously address our budget deficit issues without first getting defense spending under control.

·         Military spokespeople are calling Bin Laden's death a "pivot" in the war on terror.  I believe the most hopeful aspect of his death and recent Middle Eastern uprisings is that our children may grow up in a world where the face of the Middle East is no longer this:

                But rather the hopeful and inspiring uprising of the people in Tunisia, Egypt and Libya in demand of freedom from oppression and an accountable government:

                Side note - Isn’t it weird how many Middle Eastern young men dress like they belong on the cast of the Jersey Shore? 

·         Are any of you real estate agents telling your clients to adjust their tax withholdings after they buy their first home?  Most first time home buyers know that the interest they will be paying on their new home is tax deductible, but they don’t take action to adjust their withholdings so that they see a larger percentage of every paycheck.  We usually include a W4 form with instructions on how to adjust their withholding allowances with all of our thank you letters we send to our first time home buyers who close their loan with us.

                Real estate agents, if you have renters who are concerned about the payment shock of going from renting to buying, you may want to show them the calculations of how much more of a paycheck they will each month due to the tax advantages.  You can get a sample scenario at www.CloseYourOwnLoan.com/Purchase/TaxAdvantages.aspx

·         A Wells Fargo executive recently made comments at the Mortgage Banker’s Association conference stating they felt that gainfully employed young Americans were continuing to wait to purchase a home until the job market improves and because they felt the housing market had not yet bottomed.  With home affordability near an all time high, will the employed and qualified younger generation wait themselves right out of the best opportunity to buy in their lifetimes?

• Friday Funnies:

                I listed a maintenance free house.  In the last 25 years there hasn’t been any maintenance.

                Did you hear about Robin Hood’s house?  It has a little John.

                Houses today don’t have enough closet space.  Sure they do.  They’re just called guest bedrooms.

• Trivia: The floors of buildings are called stories because early European builders used to paint picture stories on the sides of their houses.  Each floor had a different story.

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