9-30-05

   Even after two hurricanes, sky high gas prices, consumer confidence falling through the floor, Mr. Greenspan is hell bent on slowing down what he feels like is inflation in the economy! Despite a different set of circumstances then last quarter, he's not relented, nor shows any signs that he is nearing the end.

   Mortgage rates still haven't begun to rise dramatically; though the folks that have ARMS are feeling the pain. I think that with the raising interest rates, natural disasters and gas prices tipping $3 a gallon, the economy is finally going to take pause.

   In the hot months of the summer, the real estate market in Phoenix area has cooled. Not so much because of weaker demand, but because of strong supply. The number of houses on the market is up 40% in the last 6 weeks. The numbers are now reaching what historically has been the average. With an increase in supply, it's becoming a buyers market not a seller's market. Instead of a house having four bids in a weekend, it might be on the market for a few weeks.

   The wild speculation in our market has dimished. The change in the market will create less of an increase in prices over the next six months. Most of the people that I'm talking to believe we'll be flat for the remainder of the year, if not for the next six to 12 months. This is not a bad thing. After our prices have increased 20% to 30% in a year, a flat year is good. It's good to allow for the incomes to catch back up to the house prices. I'm not predicting everyone is going to get a 20% raise, but the gap is too large now, it needs to come back in to line.

   The 3rd Quarter brought in $1.2 million of new investor monies. I now have $8.6 million in the portfolio. I have 65 loans, with value equaling $14.5 million. I have purposely shied away from larger loans lately. When the market cools, the mid to high end ($250k to $500k) market slows first. I like having more diversity with smaller loans on houses that more people can afford.

   In this flattening market, getting the correct value on a house is essential. I am doing my best to ensure that when I loan money, the value that I'm placing on the house is reasonable. I am not expecting it to go up 20% in the time that I have the loan. I look at the price per square foot of the houses that have sold in the neighborhood and keep to that price. Being conservative at times drives away some business, but I think it protects our investment. I still have more demand for loans then I have supply for, so I'm not hampering the business. Some of my borrowers call me conservative; I tell them I'm realistic.

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

   Denny J. Chittick