9-30-06

   Yea! We finally received a simple pause! Now that the Fed has taken a pause for two meetings, the changes in rates can take affect and the market can decide what is best. Lately, the market has decided that rates should come down even further, as the 10 T-bill has continued to fall.

   With the Fed's change in policy and markets lowering rates, the mortgage rates have leveled off and even come down a bit. However, mortgage rates are still very low historically. Yet, that's not what is driving the real estate market. It seems to be a phychological effect more then anything.

   With the ins and outs of this quarter, I still added $400,000 to the fund. We now have $11.1 million in the portfolio. I hope to continue to grow a little bit each quarter.

   Now that summer is over and the supply of homes on the market has leveled off, activity on the buy side of the market is finally starting to show itself again. I've had more requests for payoffs in the last few weeks then I've had all quarter.

   The number of foreclosures over the past few years has dropped, (on a percentage basis) and that is mostly because of strong employment, good economy and loose lenders. Now with the lenders tightening their belts, adjustable rate mortgages rising, the number of foreclosures will rise. I would say a majority of them will be coming from the adjustable rate side. The homeowners that bought in to a cheap rate have seen them go up tremendously in the last year. This leads to more opportunities for my borrowers, however, we still need to see the supply of houses come down.

   You have heard in the press talk about a crash in the real estate market, though I've not heard of one anywhere in the country. There is some talk of a "soft landing", which basically means, prices drop and activity slow down for some period of time, months to years. Most experts would agree that in August of last year was probably the peak of the Phoenix market. We've seen it come down since, both in prices and activity. It's been a year and we'll see it continue for some time.

   I am paying close attention and scrutinizing every loan to ensure that the values in the area are what I think the house will sell for, thus making sure that I've got the right loan-to-value in place, which is the key to success.

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

   Denny J. Chittick