FALL 2009

INSIDE THIS ISSUE

Lender’s View page 1
Remember TARP? page 2
Strategies page 3
CENTURY 21 NEW MILLENNIUM | THE PATH HOME
Summary page 4

DEAR NEIGHBOR,
“Real Estate is Great at CENTURY 21 New Millennium!”
We greet every caller with this message. Each email we
send concludes the same way. We now wear buttons
which invite all to “Ask us Why” Real Estate is Great.
Why, you ask? In our market, when measured against
the last four years, and viewed relative to the rest of the
country, Real Estate is indeed Great!
Recessionary periods typically have a more moderate,
less sustained impact on the Washington DC Metropoli-
tan Area than the country as a whole. Make no mis-
take; it’s been very tough, but consider Detroit, where
foreclosed homes are being sold in lots of one hundred
for about fifteen hundred dollars per. Of course in
Michigan, unemployment has topped seventeen percent
and continues to climb. Unemployment in the Washing-
ton DC Metropolitan area is relatively stable at around
six percent.
Compared to here, decline in Florida values have been
considerably more abrupt and only now are beginning
to show any sign of recovery. How bad? In many Flor-
ida markets, lenders are just not willing to lend on con-
dominiums; period. While lending standards have tight-
ened considerably across the country, for us, financing
is available on all property types. The absence of fi-
nancing severely limits the buyer pool but creates a
significant opportunity for those with cash.
Those qualified to purchase continue to have an incredi-
ble opportunity. Locally, our market has become much
more competitive for buyers. Within lower price ranges,
multiple offers are common and sellers should be en-
couraged by a trending increase in values. While in
many areas, the majority of sales continue to be fore-
closed or short sale properties, “like” properties are
selling at considerably higher prices than they brought
at the beginning of this year.

GOVERNMENT INTERVENTION AND THE LENDER’S DILEMMA

Most would agree that this recession began when
the housing bubble burst. Certainly, this is why banks
became stressed. The steep decline in property
value is further complicated by preceding years of
relatively lax lending standards with high loan to
value ratios. When leveraged, even a modest decline
in a home’s value will erase an owner’s equity posi-
tion. This leaves the lender increasingly exposed
when the homeowner is unable, or unwilling to pay.
Few anticipated the potential for such significant
revaluing of real estate. The most common method
for applying leverage to a purchase was the
“Piggyback” loan. The purchaser would obtain a
conventional first mortgage for eighty percent of the
home’s value. They would simultaneously
“piggyback” a second mortgage for an additional
twenty percent, or the balance of the purchase price.
Considering that many markets have experienced a
value adjustment of over fifty percent, it is clear how
exposed those holding the second mortgage are.
Federal regulations require banks to maintain spe-
cific capital ratios. Capital ratios simply measure the
relationship between a banks assets and liabilities.
“Mark to market” accounting regulations required
institutions to value their loans (assets) at their cur-
rent market value. This valuation is likely considera-
bly less than face value of the asset when acquired.
Why? In the case of a bank holding a twenty percent
second mortgage on a home that is now worth less
than eighty percent of the purchase price, the value
of this non-performing asset would be zero. In harder
hit markets, the value of the eighty percent first mort-
gage has diminished considerably as well.
Banks unable to maintain required capital ratios are
deemed to have failed. Ordinarily, the government
steps in, takes over the failed bank and completes an
orderly liquidation. Because real estate values fell so
far, so fast, this time the potential for failure was
systemic and even the largest institutions were at
risk. Government intervention via TARP legislation
bought banks time but did not touch the “toxic as-
sets.”
A myriad of government programs are now in place;
each intended to encourage real estate acquisition
and minimize inventories. Banks will not become
fundamentally healthy until the value of their collat-
eral, residential property, improves. The “toxic as-
sets” remain toxic and on the books of the banks.
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MARKET TRENDS | UNDERSTANDING THE BIGGER PICTURE

REMEMBER TARP...IS IT WORKING?

TARP , the “Toxic Asset Relief Program” was an early, bold and large scale government intervention to avert the systemic failure of banks. It’s intent was to
purchase “toxic assets”, (under collateralized and non-performing mortgage loans), and get them off the books of banks. Instead, TARP morphed in to a
program using taxpayer dollars to restore bank’s capital ratios by acquiring equity stakes in undercapitalized banks. Subsequently, “Mark to market” regula-
tions were relaxed, effectively lowering the standard a bank must meet to be considered compliant.

While effective in stabilizing participating banks, TARP left the toxic assets on the balance sheets of at risk banks. This treated the symptom, not the dis-
ease. Banks holding nonperforming loans are no longer required to price these assets at “fair market value”, unless an event occurs which diminishes the
face value of the loan. Foreclosure and short sale transactions are two such events, thus requiring banks to record the actual loss. Loan modification keeps
the borrower in the home and in most cases, will allow the bank to keep the asset on their books at face value.

Legislators expect TARP banks to place priority upon modifying loans rather than foreclosing. This expectation will have a limiting effect on inventory levels,
support value restoration and improve the position of at risk homeowners and banks. Every dollar of home price appreciation is one less dollar of “toxic as-
set.”

DEFINING YOUR STRATEGY

Real property is a commodity. Values are deter-
mined by the pool of ready, willing and able buy-
ers; not sellers, not REALTORS®. The greater
the number of homes on the market, the more
pressure buyers will impose upon prices.
Real estate remains a local business. The eco-
nomic challenges we face are global. Govern-
ment programs intended to stimulate recovery are
not surgical. They apply the same prescription to
our market as they do Detroit and Florida. Obvi-
ously, we are much more prone to recovery.
Consider the freefall we saw in the stock market;
Index values declined over fifty percent from their
high, but have now rebounded over fifty percent
from the lows. Unless sold, the value of these
assets are today’s market value.
The same principle applies to our homes. Any
depreciation or appreciation in the value of a
property is only realized when sold. We are well
off the bottom in most regional markets and
trending is positive.
We recently represented a seller that had little
interest in trying to keep their home. When we
listed the property as a short sale in April, com-
parable sales suggested a value in the $130,000
range; the seller owed $195,000. We obtained
and presented an offer to the bank for $135,000.
To the banks credit, they offered the seller a loan
modification, fixing their payment at 31% of the
seller’s income for the term of the loan; the seller
declined. In July, the bank declined the short
sale because the most recent sale of the same
townhome was $195,000 . This seller has now
been foreclosed upon and the property is under
contract with a list price of $205,000. The seller
made a mistake.
Sustainable economic recovery requires that real
estate values improve across the country. The
fundamental cause of this recession is the decline
in real property value. Government will continue
to pressure lenders to modify loans rather than
foreclose. Inventories will continue to shrink.
Buyer side confidence has returned and demand
continues to swell.
We will benefit exponentially from Government
Initiatives necessary to restore values in Detroit
and Florida. If considering a purchase; do it now.
If considering a sale, select your representation
carefully and evaluate every alternative before
acting. Values will improve and staying the
course may be the best answer. I know; a REAL-
TOR® doesn’t often say that.

SALES VELOCITY VALUE TREND

Obviously we have turned the corner in terms of the number of homes for Declines in inventory and increased buyer activity are having a positive
sale as well as the number of homes being sold each month. The trend impact on values. This is good news for sellers, banks and taxpayers.
will continue to create a more competitive market for buyers, further dimin- Even modest gains bring some sellers back to a positive equity position
ish inventory and impose upward pressure on prices . and reduce the toxicity of non-performing loans for banks.

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 This Orlando Condominium sold on July 6th, 2005 for
$206,200. Following foreclosure, it was listed this summer
for $38,900. It is now rents at $950 per month on an annual
lease.
MetroWest, an upscale Orlando golf community is located
within twenty minutes drive time from the entrances to
Walt Disney World, Universal Studios and Sea World. Lo-
cation, location and location are the three most important
aspects of real estate!

THE BUYER’S OPPORTUNITY | IT’S ALL ABOUT TIMING

MANAGING YOUR PORTFOLIO

Earlier this year, we detailed in our newsletter a property in Manassas
Virginia that sold in January for $120,000. The acquiring investor then
rented the home for $1,500 per month. Three years ago that property
sold for $430,000. Today, the market values that property at nearly
$200,000. Many of our clients successfully added to their portfolios with
similar purchases.
Obviously, the Washington DC Metropolitan area is well on it’s way to
recovery. There do, however, continue to be significant opportunities in
distressed markets across the country. Florida, and other east coast
resort areas, are popular retirement destinations and vacation prefer-
ences for those that reside in the Mid-Atlantic region.
Lenders in many parts of Florida are not making loans secured by con-
dominium properties. This lending standard limits the pool of qualified
buyers, minimizes demand, and therefore significantly diminishes their
value. When buyers are able to again secure financing, demand will
surge and these assets should outperform the overall market.
Many of our clients view this market cycle as an opportunity to secure
retirement, investment or second homes at distressed pricing. The
potential for capital gain is significant as are cash flow potentials when
acquiring at these values. It’s very likely much more fun than owning
IBM!

ACQUIRING PROPERTY WITHIN YOUR RETIREMENT ACCOUNT

There are stringent regulations that apply to owning real property within
your self directed qualified plan. Obviously, we recommend that you
consult your legal and tax professionals if considering this strategy. The
concept, however, is fairly straight forward.
Just as you choose which stocks and bonds you hold within your plan,
you direct your plan custodian to acquire the property you select. The
acquisition cost and all expenses must come from funds within the plan.
If you choose to rent the property, all income must come back in to the
plan.
Using the condominium above as an example, let’s assume your plan
purchased the unit for list price,$38,900, plus closing costs, paying
cash. The plan’s monthly expenses for taxes, insurance and condomin-
ium dues are $550. Your plan then rents the unit for $950.
Since all expenses and income stay within the plan, your plan now
earns $400 per month of $4,800 per year; tax deferred. When you sell
the property, the capital gain stays within the plan; tax deferred. If held
within a Roth IRA, the income and capital gain are tax free. The annual
return exceeds 10% without regard for a potential capital gain when
selling at a later date.
Owning real property within your qualified plan adds diversity to your
portfolio. Real property has little potential to become worthless and
today’s prices are attractive. While somewhat unconventional, the strat-
egy itself is compelling. Please call me if you wish to explore this oppor-
tunity further.
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CENTURY 21 NEW MILLENNIUM | REAL ESTATE NEWS

SUMMARY
If you are considering a real estate transaction, thorough analysis and competent representation are
essential. We are in a transitioning market. There is potential for profit, as is there risk of loss. If we
understand the underlying facts, we can continue to make good business decisions; logically and
without emotion. I am a real estate professional and accept responsibility for keeping my friends,
neighbors and business community informed as to all aspects of things affecting the real estate por-
tion of their holdings.

If you are currently listed for sale, this is not a solicitation. If you have a real estate question, I will be
happy to answer it, or find the answer. If you have a real estate need, I will appreciate an opportu-
nity to compete for your business. Our team is very good at what we do...our results demonstrate
that. Don’t settle for less.