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May 2008
In This Issue:
Cartoons
Thoughts While Bored
I am NOT an Economist
Be Careful Bottom Callers!
The Spin Stops Here
Fannie Mae: The Next Shoe to Drop?
Oil
Stock Market
Charleston Data
Thoughts While Bored
* How come Obama never walked out of the "Hate" church?
* How did John McCain get such a hot Sugar Mama for a wife?
* What agent and company will be the first to start a foreclosure bus tour in Charleston?
* What sort of data is The Fed looking at to make their decisions?
* How come almost every politician is a lawyer?
* Dogs rule! They always give you unconditional love and never complain.
* Crime pays on Wall Street.
* Fishing just became much more expensive than golf due to increasing gas prices.
* What are you going to do with your stimulus check?
* How can our gov't afford these stimulus checks with a trillion dollar deficit?
* Did you know 2 million people are behind bars in America?
* Maybe we should build more prisons in the US instead of residential houses and condos.

I am NOT an Economist
Let me state that I am NOT an economist, although I did minor in Econ in college. I often get asked that
question. Besides, economists are generally wrong when they make predictions. The analysis and predictions I
have made in The CMR over the past two years have been very accurate. Instead of dabbling in theory and
models like most economists do I "hang out" in reality via supply and demand trend analysis. You would think
more economists would utilize this type of analysis since supply and demand is the first thing they teach you in
Econ 101. What really helps me see the trends is my background in real estate, appraisals and securities. The
real key for me as I have stated in the past, is the use of technical analysis, which I learned from the best at
Dorsey Wright & Associates when I worked for Wachovia Securities Private Client Group. There are only a
handful of us in the country that use technical analysis in real estate, where I fine tuned indicators on my own
time. Very few stock brokers use it in the securities biz as well. I am happy to say that I am currently a
member of an appraisal forum that is currently teaching appraisers how to use trend analysis in reports. These
appraisers are on the cutting edge and are leaders in their field but unfortunately 99.9% of the appraisers in the
US have no clue how to utilize these techniques. I love to learn and I am currently working on getting my
CCIM. I have one class down and three to go! I would encourage everyone who reads The CMR to continue to
expand your minds because "knowledge is power" and it will make you better at whatever you do.

I have to admit I have been real slack updating the monthly and quarterly reports on the website. Since there
are many new subscribers just click here if you want to check out some of the past reports that have been sent
out before you subscribed to The CMR.

I am going to jump around to a bunch of different topics this month. I am not going to put any Charleston real
estate sales and inventory data in this report since the Q1 2008 was just sent out and is now available at
www.charlestonmarketreport.com if you have not seen it yet.

Be Careful Bottom Callers!


The Charleston Post & Courier ran an article a few weeks ago titled Analyst predicts revival of housing market
next year.
Here are some of the highlights of the article:
Mary Graham, the chamber's senior vice president for public policy, also repeated her prediction of a rebound
in the new home market by early next year. She said last month, and repeated again Tuesday, that she thought
existing homes sales will start to turn around by the end of this year.

"I think we've already hit bottom," Ford said. "We've been going on about two years in this slump. I think we're
over it. I've heard more positive news from custom builders and volume builders since January than I heard all
last year."

My Comment: What data are they basing these predictions on?? I believe the Mrs. Graham and Mr. Ford are
at least one year early in their predictions. I hope they are right but I doubt it. The key for the national and
local housing market to turn around is lending/credit. The credit markets have to normalize before the
housing market will rebound. The reason this is key is that sales will never rebound if most potential buyers
can not get financing. Even once credit normalizes it will be tighter than the go-go days. We may see an L
shaped recovery where real estate sales remain stagnant after it bottoms out but only time will tell.

The Current Formula: Less sales = Increasing Inventory = Declining home prices = Negative Equity =
Increasing Foreclosures
It does not take Einstein to figure this formula out.
Charleston also relies heavily on buyers from out of town selling their home first before they move here so what
happens on the national real estate market scene is important to the Charleston Real Estate Market.

I also think the Charleston Metro Chamber of Commerce should be careful with their local predictions and
analysis. This is the same Charmber who relied on Al Parish to do their local economic analysis work for
years. Dr. Parish is about to go to the Pokie (Jail) for a couple of years for investment fraud where bilked his
clients out of millions of dollars. The guy was managing money or "claimed to be" and never had any securities
licenses. Not a very bright thing for a guy to do who has a PhD. You would think he would have more wisdom
than that.

Opposing views to Mrs. Graham and Mr. Ford:


"In general, most markets are pretty tough. We're still seeing pricing pressure out there and I think for the
foreseeable future we're still going to see it."
Beazer Homes CEO Ian McCarthy on conference call, May 16, 2008

[Toll Brothers] chief executive, Robert Toll, said traffic levels at its communities were "the worst that we have
ever seen."
"I don't think we're anywhere near a bottom in housing. We're going to have a big inventory of unsold,
unoccupied homes that's going to take three or four years to clear out."
Eli Broad, founder, KB Homes, April 28, 2008

"[T]he message is very clear: The single-family housing market is still deteriorating..."
NAHB President Sandy Dunn

"[T]he housing market has shown no evidence of improvement thus far. In fact, conditions have continued to
deteriorate in recent times..."
NAHB Chief Economist David Seiders.

I foresee this real estate market getting worse before it gets better, especially on the high end of the market. In
the Charleston Tri County we have over a year's worth of houing inventory right now and approximately 20
months of condo/townhouse inventory. I would probably multiply my inventory numbers I pull from the MLS
and tag at least another 5-10% onto them because many agents do not put all of the active listings in the MLS
and of course there are the FSBOs. Prices are dropping in many parts of Charleston. When you average all
the sales it does not look as bad as the rest of the country but it will get worse since we are almost past the
spring season....Trust me. The main reason it gets worse is as the economy worsens people lose jobs and many
homes were purchased at the top of the market during 2005-06 with ARMs that are now resetting with higher
payments that homeowners can not afford or refinance out of. Many of these homeowners face a scenario of
negative equity. (See graph below) So if you want to buy a home in Charleston or anywhere else make sure you
do your due diligence and do not get trapped buying an asset that could fall below the price you pay for it.
There are pockets in this market where there are good deals just make sure you and your agent understand these
scenarios.
Scary Graph of the Month

The Spin Stops Here!


One of the reasons I started The CMR two years ago was when I was an appraiser was I saw so much horrible
information being produced by different entities in the real estate industry that it made me want to start a site
where people could get reliable info. I wanted everyone to have a source of some truthful information about the
local/national real estate market and the economy. Yes there is a bunch of incorrect info out there.

Below is an example of the quotes the NAR has put out over the past few years that are just not true as the
market has weakened. If you are a member of the NAR you should write them and tell them to just start telling
the truth. The professional Realtors out there deserve better research from the NAR than what Lareah and
Yun have been providing over the years. Maybe the truth will set them free.

The funny thing about the graph and comments below is that David Lareah (Former NAR Chief Economist) just
recently said this recently in a May 6 Newsweek article:
Economist David Lereah was once the housing market's biggest cheerleader. Now he says the bust isn't near
over, and home prices still have a long way to fall. I wonder if he realizes he has no credibility among those of
us that do honest analysis of the real estate market.

"We're not at the bottom," he says. "[People] want it to be near the bottom, but we're not there yet. The leading
indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low? There's
still supply out there in abundance? This thing is going to get worse before it gets better."

Could this be a contrarian indicator that we are near a bottom????? What a change of opinion since his days at
the NAR.
Lereah says that the industry may begin to see a slight uptick in sales later this summer, which could signal the
start of the recovery. Home prices, however, will continue to fall. According to the latest numbers from the
Case-Shiller index, the average U.S. home has lost around 15 percent of its value since the market's peak.
"We're probably going to end up with a 20 percent [decline], but if I'm wrong it will be even more than that," he
says.

Each quote below corresponds to a numbered circle above.


Tracking NAR Spin
1. "There's no question there is a strong demand for housing from a growing population." -David Lereah, NAR
Chief Economist
2. "For the foreseeable future, the demand for homes will continue to outstrip supply" -Al Mansell, NAR
President
3. "We've been expecting sales to remain at historically high levels, but this performance underscores the value
of housing as an investment and the importance of homeownership in fulfilling the American dream." -David
Lereah, NAR Chief Economist
4. "We are returning to more balanced markets between home buyers and sellers. We feel confident that
housing is landing softly as rates continue to rise." -David Lereah, NAR Chief Economist
5. "This is part of the market adjustment we've been discussing, with a soft landing in sight for the housing
sector. The level of home sales activity is now at a sustainable level. Overall fundamentals remain solid" -
David Lereah, NAR Chief Economist
6. "Higher interest rates are slowing home sales, but we see this as another sign of a soft landing for the housing
sector which remains at historically high levels." -David Lereah, NAR Chief Economist
"After five years of booming sales, we are now experiencing normal market conditions across most of the
country most owners can expect steadier gains in home values for the foreseeable future." -Thomas M.
Stevens, NAR President
7. "Over the last three months home sales have held in a narrow range, easing to a level that is near our annual
projection, which tells us the market is stabilizing" -David Lereah, NAR Chief Economist
8. "Now sellers in many areas of the country are pricing to reflect current market realities. As a result, there
could be some lift to home sales, but it'll likely take some months for price appreciation to rise." -David
Lereah, NAR Chief Economist
9. Existing-home sales stabilized at a sustainable pace in August -NAR
10. "The worst is behind us as far as a market correction" this is likely the trough for sales. When consumers
recognize that home sales are stabilizing, we'll see the buyers who've been on the sidelines get back into the
market" -David Lereah, NAR Chief Economist
11. "It looks like we're moving beyond the low for the housing cycle last fall, and buyers are responding to
historically low interest rates and competitive pricing by home sellers. In addition, a tightening inventory of
homes on the market is supporting prices." -David Lereah, NAR Chief Economist
12. "Fundamentals have improved in the housing market and buyers see a window now with historically-low
mortgage interest rates and competitive pricing by sellers," -David Lereah, NAR Chief Economist
13. "We also may be seeing some losses as a result of the subprime fallout. However, this is masking improved
fundamentals in the housing market, with lower mortgage interest rates and motivated sellers." -David Lereah,
NAR Chief Economist
14. "Buyers who've been on the sidelines may want to take a closer look at current conditions in their area if
they wait for sales to rise, their choices and negotiating position won't be as good as they are now." -Pat V.
Combs, NAR President
15. "The rise in sales and prices in the Northeast region on a fairly consistent basis in recent months is
promising because this was the first region that underwent sales and price weakness after the boom. Now, it
appears that it will be the first region to climb back, indicating that other regions could follow a similar path." -
Lawrence Yun, NAR Chief Economist
16. "The unusual disruptions in the mortgage market, including a significant rise in jumbo loan rates, resulted in
a fairly high number of postponed or cancelled sales?Once we get through these disruptions, we'll get a better
sense of where the actual market is in late fall as conditions begin to normalize," -Lawrence Yun, NAR Chief
Economist
17. "Existing-Home Sales Rise in November, Market Likely Stabilizing" -NAR
18. "Home sales remain weak despite improved affordability conditions in many parts of the country, but we
could get a quick boost to the market if loan limits are raised in combination with the bold cut in the Fed funds
rate," -Lawrence Yun, NAR Chief Economist
19. Existing-Home Sales to Stablize Before Upturn in Second Half of 2008 -NAR
Source:
Tracking Realtor Spin
James Bednar
New Jersey Real Estate Report
http://njrereport.com/index.php/2008/04/09/tracking-realtor-spin/

Fannie Mae - The Next Shoe To Drop?


Effective June 1, 2008 Fannie Mae will roll out their new underwriting guidelines and they are going to be
difficult for originators and borrowers to deal with because Fannie is getting stricter with their lending standards
due to the recent lending implosion. Fannie also has had its leverage guidelines increased by OFHEO in a
weakening economy. With home prices declining around the country and a quasi government agency that is
poorly managed being given the green light to increase its leverage is a very dangerous sequence of events.
When you combine the Fannie Mae's recent Q1 2008 earnings and take a peak at the big picture you may have
the making of another "Anatomy of A Collapse." Let us all hope and pray this collapse does not occur because
then the real estate market would really get messed up. I foresee the nationalization of Fannie and Freddie in
the future via another government bailout.
Fannie Mae does not use foreclosed properties in its price index. Thus, FNM significantly understates home
price declines.

From Kevin Depew at Minyanville.com:


"The fine print at the bottom of the slide is important because it speaks to the use of the case-Shiller index
versus Fannie Mae's own index upon which their price projections are based. According to Fannie Mae,
because the Case-Shiller index is value-weighted, it places greater weight on higher cost metropolitan areas.
Fair enough.
Using the Case-Shiller index methodology, Fannie Mae says its projections would move from a 7-9% home
price decline for 2008 to 10-13%, and from 15-19% peak-to-trough to 20-25%. There's just one catch with
those projections increases. They strip out the impact of foreclosure sales.
As Fannie Mae observes, "Foreclosure sales tend to depress the S&P/Case Shiller index relative to the Fannie
Mae index."
Below is the most recent stock chart on FNM:

Here are the recent Fannie Mae highlights:

May 6: FannieMae Q1 net loss $2.19 billion; expects worse for next year. Cuts dividend, raises $6bn
capital. Shareholder equity now below 0--> regulator said it will loosen restrictions on Fannie Mae's
capital once the company has raised the $6 billion. FreddieMac reports May 14.
OFHEO Annual Report, April 15: FannieMae and FreddieMac "remain a significant supervisory
concern." OFHEO director Lockhart in March: companies may need $10 billion each.
March 24: Federal Home Loan Banks allowed to increase purchase of Fannie&Freddie guaranteed MBS
by $150bn
March 19: F&F regulator cuts the companies' surplus capital requirement to 20% from 30% to help
expand their combined $1.5 trillion in mortgage investments and revive the home-loan market. Initiative
is expected to provide up to $200 billion of immediate liquidity to the mortgage-backed securities
market--> together with lifting of cap limits (see below) this should allow the GSEs to purchase or
guarantee about $2 trillion in mortgages this year.
Shenn: The regulator to Fannie Mae and Freddie Mac removes limits on their combined $1.5 trillion
mortgage portfolios, despite $3.55bn loss at FannieMae, $2.45bn loss at FreddieMac (with more losses
expected.) Agencies hold or guarantee about $4.9 trillion in home-mortgage debt.
Interest rate on new prime mortgages is based on 30year Agency-backed MBS minus 1-year Treasury
bill--> spread widened to 22year high in March on credit concerns.
Source:http://www.rgemonitor.com/175?cluster_id=7169
Oil
One of the predictions I made for 2008 in the Q42007 CMR that was emailed on 1/20/08 while oil traded for
around $88 per barrel was:
* "Oil will hit $125-$150 per barrel. Sell your Suburbans in Mt. Pleasant soccer moms!"
Not bad huh? I guess it depends whether you were long Crude or are just trying to afford filling your car or
truck up each week.

Perception is reality. Confidence in the consumer is clearly shaken by the sharp increases in food and gas
prices. The CMR has talked about this way before the main stream media picked up on it. We all feel poorer
when the neccesities in everyday life such as gas and food erode our monthly budgets. Since oil prices are the
root of this problem I feel real estate will have a difficult time recovering until these inflationary trends end.
Why? One of the main reasons food prices are increasing is because of the increase in fuel prices. It is a trickle
down effect where the retailers have to pass on the increase in transportation costs to the consumers via raising
the retail price of everything in the grocery store.
A major problem with oil is that it basicly funds our enemies around the world such as Iran and Venezuela and
terroism from such sources as Saudi Arabia. George W. Bush and all the politicians say we are "addicted to oil"
but nobody comes up with any solutions for alternative energy. All we do is cry and complain about how
expensive gas and oil is right now. We put a man on the moon over 40 years ago and we invent new technology
daily but we can not seem to find an alternative fuel source for our cars. I find it ridiculous and suspect. Heck,
I have been in golf carts that go almost 30 mph so why can't we make them go 70-80 mph and make cars out of
them?
The reality is that Canadians pay approximately the equivalent of US$4.92 per gallon of gas and the Europeans
pay approx. $9.00 per gallon. Here's something that should make you nervous-this is the first year that
emerging markets will use more oil than the U.S. I'm talking about countries like China, India, Russia, and parts
of the Middle East. According to the International Energy Agency (IEA) those countries are expected to
consume 20.67 million barrels a day this year, an increase of 4.4%. The IEA predicts that U.S. demand will
contract 2% to 20.38 million barrels daily.
Remember that there are three billion of them and only 300 million of us. Per capita, we're still using a lot more
oil than our friends in India and China. The really bad news is they want to use oil the way we do.
*Chinese drivers bought 5.5 million cars, minivans and SUVs and three million commercial vehicles, up from
just 1.6 million vehicles sold in 1997.
*Sales are expected to grow 15% to 20% this year.
*In the future, China's auto sales are expected to grow by one million vehicles annually through 2015.
*Meanwhile, India is poised to zoom past China as the world's fastest-growing car market. Sales of passenger
cars in India increased 12.17% to 1.5 million in this past year.
*As a result, China's oil imports are expected to nearly double by 2020, and India's oil imports are projected to
more than triple over the same time period.

Click Here for a cool graph on the history of oil prices.

Another reason behind the surge in oil prices has been The Fed's policy of cutting rates which has weakened the
US Dollar. Many economists believe that the Fed will halt cutting rates and maybe even start raising them due
to inflation concerns. This would be good news for the dollar if it occurs. Clearly the cuts from the Fed are not
helping the US Real Estate market as home prices continue to decline in most markets and we all are
experiencing the pain of inflation. Maybe the Fed will get a clue and fine tune their policy.

Each of the red numbered arrows reflects the size of Fed interest rate cuts in the last six monetary policy
decisions. Each box encapsulates those trading days surrounding the decision.
Source:Money and Markets

Stock Market
Sell in May and Go Away?
"According to the Ned Davis (NDR) database, starting in 1950, $10,000 invested in the S&P 500 Index every
May 1st and then liquidated every October 31st would only be worth $10,026 today. That's right: had you
stayed out of the stock market from November through April and only been in the market from May through
October, you would have had no change during the last 57 years. 21 of those years would have been negative;
36 were positive. This happened during the same period that stock prices were rising about 75% of the time and
markets made extended upward moves.

Another Accurate Prediction from The CMR


On 1/208/08 I wrote:
*"The stock market is oversold and there will soon be a nice rally in what appears to be the beginning of a
bear market. This rally may be spurred by the Fed dropping rates 75-100 bps. Got cash?"
* Since then the S&P 500 is up 7.5% while we are in the midst of a recession and credit crisis.
Again, this is why I use technical analysis. If I listened to the doom and glood of the main stream media I
would never had made that statement.
* Instead of dropping rates 75-100 bps The Fed dropped them 200 bps. OOPs! That is why I call him Ben
"Bunyon" Bernanke.
Charleston Data
Just like The Factor with Bill Oreilly The CMR "Is Always Looking Out For You." I found this cool website
for rent data which you can check out at www.zilpy.com. Below is a rental heat map for Charleston. Really
cool stuff!
Just in. It's over! Do the math honey!

Pic courtesy of The Drudge Report

Thanks,
brad
Disclaimer
The research done to gather the data in The Charleston Market Report involves examining thousands of
listings. With this much data inaccuracies will occur. Care is taken in gathering and processing the data and
information within this report is deemed reliable. IT IS NOT GUARANTEED. The real estate market is
cyclical and will have its ups and downs. Past performance cannot determine future performance. The purpose
of the Charleston Market Report is to educate you on current and consistent market conditions by reporting
leading market indicators with the support of traditional real estate data.

This information is offered with the understanding that the author is not engaged in rendering legal, tax or other
professional services. If legal, tax or other expert assistance is required, the services of a competent
professional are recommended. This is a personal newsletter reflecting the opinions of its author. It is not a
production of my employer. Statements on this site do not represent the views or policies of anyone other than
myself.

Investing in real estate is not a get-rich-quick scheme nor is there any guarantee you will make a profit. Every
effort has been made to make this report as complete and accurate as possible. However, there may be
mistakes. Therefore, this report should be used only as a general guide and not as the ultimate source for
making money in real estate.