6-30-10

   The second quarter has been a roller coaster. We had the surge of buying before the first time tax buyer credit goes away, a big increase in first quarter GDP, much higher than most economists thought, some employment gains… then we have the biggest drop in new home buying in May in 40 years, GDP looking flat in Q2, and no more big employment gains! But take heed, there is some good news!

   The big drop in home buying was new homes. What silly fool wouldn't think there would be a fall off. If you could buy something one day for 8k cheaper than you could the next day, wouldn't you buy it? We are in the spring and summer selling season, there will be a bounce back, and good riddance to government involvement in the real estate market! GDP is going to be positive. Who wouldn't take that any time last year! Just this morning there was a report that more CEO's than in the last four years were planning to hire this year. We didn't go down in a straight line; we won't go up in a straight line. Try to take all this negative news with a grain of salt.

   Here are some positives you don't hear. Corporate balance sheets have never been better, even compared to boom years! They have been smartly not hiring unless they have proven demand. They are now seeing it and they will begin to hire. None of the government assistant programs have worked or made a measurable dent in the fallen housing market. The latest big government program which will give AZ $125million (yes, your tax dollars coming here!) and will help a whopping five thousand home owners. To put that in perspective, that's one month's worth of foreclosures in Maricopa County. Foreclosures, last quarter, I told you were flat and started to decline, but we needed a few more months before I would call it a trend. Well now I'm calling it a trend. We are finally on the back side of the beach ball, although it's the size of Pluto! We've had a straight year of per square foot increases in selling price. This is a small number, $8 or so, but heck after what we experienced from 2006 to 2009, that's great!

   We have had back to back months of over nine thousand condo/house sales. In June it will drop off, but we'll continue our strength into the fall. Yes, there are some challenges. However, we are past the worst, we are getting better, and a chance of a double dip in my opinion is less than 25%. We just never grow out of these things as quickly as everyone would like!

   Uncle Ben didn't raise rates, nor give a hint that it would happen. Mortgage rates are at 4.96%, holly molly! We are building new homes at the same rate when we had ½ the number of denizens in the country. Can anyone say shortage? Perhaps in 2012 we'll have run in real estate again. I hope not, but that's what is getting set up.

The portfolio stands at $20.6 million. We added 800k this quarter. I had some ins and outs and I will be adding some new money the first day of next quarter.

   I have updated the pictures of the current properties on the website. Thanks again for your trust, investment, and referrals.

   Denny J. Chittick 

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