6-30-09

   What a difference a quarter makes! In the first quarter we were in a deep recession with 5%+ retraction in the economy. The Dow hit a number not seen in over a decade. The government was rolling out one plan after another to stabilize the financial system and stimulate the economy. The programs that were meant to put a footing under the financial markets worked. Three months ago, no one would have guessed that we could have had banks raise equity like they have, with their stocks roaring back and the market itself up 30%! We have officially averted Armageddon.

   The Phoenix metro real estate market is, well I hate to use such an enthusiastic term, but it's on a tear! ( Think MJ making "bad" ="good") Last quarter I had mentioned that the number of houses sold was 60% over last year in January and February and 77% for March. The sales numbers have continued to climb. April and May saw 8500 and 9300 houses sold, respectively. June most likely will end above that number. These are fully twice what the numbers were last year, and higher than any month during the peak. The best news out of this torrid pace of buying is that it's lowering inventory! In December we had over 55k homes for sale. We are now down to 38k and falling every week. This is giving price support. I had mentioned last quarter that I had seen it in some areas of the valley. Now I see it nearly valley wide. There are even now a few areas that are showing some price increase. Though tepid, it's finally changed direction. It doesn't seem to be slowing either. "Pending," which is a house in escrow, is over 13,500. The number of houses going into foreclosure has slowed, to 700 in a month, rather then 700 a week. We are seeing huge numbers of first time buyers coming in, out of state investors, and those few folks that still have good credit and want to move up and take advantage of the cheap prices. You may have heard that mortgages are up 1/2% in the last few weeks. That is true, but they are still cheaper than they have been in a several years.

   It's been great to see this demand. Many of my borrower's biggest complaints are that they can't close the houses fast enough. FHA has a requirement that any change in title has to be seasoned for 90 days before they will loan on the house. What correlation can be drawn between the ability of the new borrower to repay the loan over the next 30 years and the amount of time the previous owner has held title is beyond me. Their intention was to eliminate fraud. I don't see how that would be effective. With so many first time home buyers using FHA right now, many of my borrowers have to sit for 90 days before they can sell the home. The other challenges are appraisals. With the new HVCC appraisal rules, we are seeing appraisals 20% off from the agreed upon purchase price. Thanks Cuomo! That is a big help to us. The appraisers are using REO and short sales as comps, and they often don't visit the home physically to see what work as been done versus the disrepair REO home that is on fire sale across the street. These are just some of our hurdles.

   As far as the overall economy is concerned, I believe this quarter's numbers won't be as bad as they all thought they would be, and the third quarter has a small possibility of actually being positive. Now the politicians will take full credit for turning around our economy! Hail to the chief! However, here are the numbers; they passed a $787 billion stimulus plan. By government reports only 17% of that has actually been spent. That is $133 billion into a $13 trillion economy, or just .01%! I doubt it had any affect at all, other than make the politicians look good!

   The next few weeks you'll have some better economic numbers. Unemployment claims have probably peaked, public companies will be a bit more optimistic, and I'm sure the US Consumer will start spending a little more. Who knows, our perpetually negative news media might have to actually report some good news!

   I had a little more request for funds "out," but received "in" a net of $800k. We are up to $17.8 million. I'm hoping that with a bit more optimism in the near future, we'll continue to grow. The simplest part of the business is putting the money to work on good loans.

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

   Denny J. Chittick