december 2007 charleston market report

8/9/2019 December 2007 Charleston Market Report

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www.charlestonmarketreport.com

December 2007

"Save What We Can!"

Mount Pleasant Update

This update is sponsored by Kool Aid and The Barnum & Bailey Circus.

For the out of town readers this update relates to the way certain aspects of The Town of Mount Pleasant (MP)is currently being run. It is hard to understand everything I am getting ready to talk about unless you live here.If you want to get up to speed just go to www.charleston.net and type in "Eminent Domain" or "Shem Creek" to


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get a sample of the MP Madness. You can also go to www.townofmountpleasant.com and read the TownMinutes if you are bored.

Now to the really confusing and odd story regarding Shem Creek.Below is a good synopsis of what has been going on:http://emdo.blogspot.com/2007/11/reaction-varies-in-ok-tire-land-fight.htmlYou can also go to www.charleston.net and type in "Shem Creek or "Mark Mason" in the Search field for somelocal articles.

Here are the two most recent articles regarding the odd turn of events:http://www.charleston.net/news/2007/dec/07/timing_questioned_shem_creek_buy24291/http://www.charleston.net/news/2007/dec/06/town_pay_m_land24216/

Below are some Pics of the land under dispute:

Here are some basic assumptions on my part:Mason and Smith walk away with approximately a $4mil gain which they can 1031 tax free into another deal.This was a good move because they are now out of the "Hornets Nest" called MP Gov't and have their cash.Move on guys and do a developement where there is some sanity. Having a trial over this land in the public eyeis not good for any of the people involved. Most of us locals are sick of hearing about it anyway. It really turnedinto a circus but what else is new with politics in MP. The future park will also be a great addition to preserving

the beauty of Shem Creek and save MP some green space. The argument regarding the park is the $6 mil pricetag for a park worth it? That decision belongs to the citizens of MP. 700 who signed a petition said "yes" butwhat about all the other MP citizens?

The deal for MP does have some issues and hear is why IMO.* MP gets zero tax revenue from this property. I would assume they need it with all the houses sitting on themarket over there for sale.* You can only fit so many picnic tables on 1 acre.* The real estate slow down must have placed some kind of strain on MP tax revenues.* Where are you going to park??? The OK Tire Property is only one acre and the adjacent Shem Creek parking


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lot is always full because of the restaurants on Shem Creek.

So now that this fiasco appears to be over lets play name that Park!!!!

Here are my ideas:* We Did Not Want You To Know What Was On Our Hard Drives Park* Where Do We Park Park??* Eminent Domain Park

* Condemnation Park* Mount Pleasant County Council Park* Mayor Hallman and County Council Park* Mason & Smith Park* We Had 700 MP Signatures for this Park* $6 Million Park* $2 Million, No $2.285 Million with a Low Ball Appraisal, No $6 Million Park* Do Not Worry Our Cops Write So Many Damn Traffic Tickets They Will Pay For It Park* We Make Our Own Rules No Matter What Anyone Says Park* We Have the Hardest Working Town Attorneys in the Country Park (I hope they do not bill by the hour!)* The Secret Park

* OK Park* Tire Park* OK Tire Park* No Land Park* The Park* Noisy Park* Reactive NOT Proactive Park* Poor Planning Park* $6 Mil....So What It Is NOT Our Money Park

You are welcome to send me your ideas for "The Park" name and I will send them to MP County Council.

Unfortunately, they will probably hold a secret meeting one day and determine the name themselves. I lookforward to the Ribbon Cutting Ceremony. That will be some photo op!

Regardless of what anyone thinks of Mr. Mason and Smith they had the insight to purchase the land a couple ofyears ago before the town of MP. Their plans for Condos/Boatslips forced MP to get off their duffs and make anoffer for the park. If they had done nothing the OK Tire Building would never be removed. Give them credit forcoming to an agreement with MP when they could have continued to play hardball and probably would havewon in court. Kudos to MP, Mason and Smith for getting the deal done.

My recommendation, for what it is worth, is for the voters in MP who are frustrated with the town's way ofdoing things lately is to make your voice known at the polls at the next election. You know who the good

County Council Members are versus the ones drinking Kool Aid.

Good Luck MP!!!! :)

All Real Estate is Local?I am tired of hearing this slogan. From a Supply and Demand perspective it is very important what is going onall over the country especially if you live in Charleston. The reason is that we have many buyers that want tomove to this beautiful city. Many of them cannot or will not buy a home here until they sell their current houseoutside of Charleston. Every full time real estate agent has probably run into this scenario. So it is realimportant the national real estate market cleans itself up sooner rather than later. Also, when you have a creditcontraction like our country is currently experiencing it has a nationwide impact on home sales.


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Housing Bottom?How many times have we heard various individuals in the real estate business locally and nationally say wehave found a bottom? My question is what are they basing their comments on? Do they have proof a bottom hasformed in real estate? What agitates me more than anything is when real estate agents try to push a client intobuying a home by saying, "We have already hit the bottom hear in Charleston. You should buy this home now."This statement is not true and agents making these comments should not be in the business because you aredeceiving your own clients. Although we have not hit a bottom in Charleston yet still does not mean there are

not good purchase opportunities here locally. Please make sure you use an honest and experienced agent if youare looking to buy right now.

The Tri County Existing Residential Sales Momentum Chart shows zero evidence of the Charleston marketbottoming out right now. This is the updated chart through the end of November 2007. I usually only put thesecharts out quarterly but I just wanted to prove my point instead of just sticking my finger in the wind andmaking untrue statements like other people in our industry currently do right now.

The National Market has not bottomed yet either. Below is a chart from www.housingalerts.com, a website thatI have done some work for. This is a subscriber based site that tracks 381 markets around the country usingmillions of real estate transactions from the government. The site uses technical analysis to evaluate local,regional and the national real estate market. If you would like info on a subscription to Housing Alerts feel freeto email me at [email protected]. It is a unique real estate analysis tool to help various people in ourindustry make critical buy and sell decisions by using the irrefutable law of supply and demand. As you can seebased on historical real estate corrections we still have a little ways to go before we hit a bottom.


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"An Analysis of Real Estate and Economic Trends"

The Mortgage FreezeI am not even going to say much about Bush's Proposal because it is such a joke. It will only help a very smallpercentage of the people who need it. I believe the market should take care of the ones who are caught in theseloans. If they got bamboozled by a shady mortgage broker then take them to court. IMO, the only way we alllearn is by making mistakes. Yes, I know it sounds cruel but it is the truth. Most people in trouble were to lazyand greedy to do their own due diligence. The bottom line is that whenever you have a remote possibility of ahigh interest rate you should rent instead of own. Clean up your FICO score and get your financial house inorder first and then buy. This mortgage plan is really a push by the government to get some votes. Most of thepeople affected are in crucial electoral vote states which include, California, Michigan, Ohio, and Florida.

USA "Debt Nation" For SaleWere you aware that 785 businesses were acquired by foreign investors for $129 billion this year throughAugust?Here some recent deals:* Abu Dhabi's bid to buy 20% of the Nasdaq* Abu Dhabi gives Citigroup $7.5 billion to bail them out and acquire 4.9% of the stock. You know Citigroup isdesperate when the current CEO Robert Rubin, whom I assume is Jewish, travels all the way to the Mideast toget a handout from a rich Arab. You know Abu Dhabi got a great deal when they give Rubin the loot! If youread about the details of this transaction then you know Abu Dhabi got one hell of a deal. The InvestmentAuthority will receive equity units that pay an 11 percent annual yield -- a high price for Citigroup, whosedividend yield is 7.3 percent. They will then be converted into Citigroup common shares at a price of up to$37.24 a share between March 15, 2010, and Sept. 15, 2011. NICE! That dividend will certainly pay for somemore wives for the Abu Dhabis courtesy of Citigroup.* Abu Dhabi purchased 9% of Apollo Mgt.* China spends $3 billion for a stake of The Blackstone Group.* Locally, Jafza International out of Dubai just purcased a 1,300 acre tract in Orangeburg to use as a logisticsand development center.* China tried to buy Unocal for $18 bil but never pulled the trigger* Sovereign Wealth Funds are estimated to be currently worth $3 Trillion and continue to grow!

Obviously, the world we live in now is "flat" from a business and economic perspective and these deals willhelp the U.S. Economy. The issue is that as the dollar continues to fall these countries with Sovereign WealthFunds will continue to use their Petrodollars and budget surpluses to buy up more U.S. Companies at a deep


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discount when available. The economy as we know is changing very quickly. Get used to it.

The CartoonTake your pick as to who you feel is holding that fire hose. Some prime candidates would be the CEOs of majorbanks, brokerage firms, mortgage insurance firms and mortgage companies who all got caught up insecuritizing mortgages on a large scale. The bank that is on fire in this cartoon could be Citibank, Wachovia,BofA, HSBC, UBS, Merrill, ETrade, Northern Rock, JP Morgan, Bear Stearns.....you get the picture.

Unfortunately, we have a banking cirisis on our hands right now. The U.S. Banking system has always beenportrayed as sound and secure. Well 5 years of a severe addiction to credit, a real estate market jacked up onloose lending, and risky derivative strategies now have placed cracks in the system. The suits in thesecompanies that "Took a Walk on the Wild Side" are now being exposed and their stock prices have beenslammed. Many of these companies are already out of business and high profile CEOs such Chuck Prince fromCitibank and Stan ONeil from Merrill have been told to "Hit the road Jack."

The current problems we are experiencing are larger than a subprime problem. Alt A and Prime mortgages arecaught up in this "lending bubble" also. Just like I said in a previous article called Mr. Gordon Gekko You HaveCredit Cancer and It Is Spreading is holding true. Unfortunately, cancer and fires spread. This "credit fire" or"credit cancer" has spread to pension funds, local muncipalities and banking institutions all over the world.

* Florida's Local Government Investment Pool, a fund for local FL governments, was frozen to stip a rush ofwithdrawals by panicked investors. Until recently, the fund had $27 billion. Last month it fell $15 bil due tomortgage related losses and mass withdrawals and a couple of days ago the fund lost $3.5 billion!

* Montana's school districts, cities, and counties withdrew $247 million from the state's $2.4 billion investmentfund after officials said the rating on one of the pool's holdings was lowered to "default" level.* Recent bank writedowns include:UBS- $10 billionMorgan Stanley - 3.7 B in 4th qtrBarclays - $2.7 B

Bear Stern - $1.2 BHSBC - $3.4 BMerrill - $8.4 BCiti - $15 BGM - $39 BThere are others but you get the picture, right?

We are witnessing the breakdown of the banking system right now. Not only has residential paper been effectedbut commercial paper is shrinking by hundreds of billions each month right now. Sure the Fed will ease the FedFunds Rate probably by 25bps and the Discount Rate by 50bps today but the problem is that cutting these rateswill not help spur the necessary economic growth to get us out of this mess. Housing needs to turn before the

economy gets back on its feet. Many high profile analysts are still calling for a 10-15% drop in housing pricesbefore they see the real estate market taking a turn. I agree with them and the price correction needs to be higherin some markets before buyers will come to the table. Indeed, it's fair to say that the recent housing bubble wasjust the climax of a home price boom that began decades ago fueled by an ever-larger infusion of credit, anever-taller mountain of debt.

There are three kinds of assets in the world:

Level One Assets are actively traded. You can know exactly how much they are worth based simpy on theirprice in the open market.


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Level Two Assets are not actively traded. But they are similar to actively traded assets to give you a reasonableestimate of their value.

Level Three Assets are the most slippery. In addition to having no active market, they are unique because thereis no reliable way to estimate their true value. Instead, all that banks and regulators can do is guess. And theonly tools they have to support their guesswork are unproven mathematical formulas.

That is the situation investors are facing with level three assets right now.

Thousands of local governments, banks and individuals have no idea of exactly when, where or how muchthey're losing. And it is this unusual level of uncertainty that's creating the conditions for a money panic.

Some of Wall Street's Largest Firms Have MoreLevel Three Assets Than They Have Capital

Specifically, according to data compiled by the Financial Times:Merrill Lynch has $27.2 bil in level three assets, the equivalent of 70% of it's stockholders equity. In otherwords, for each $1 of its capital, Merrill has 70 cents in assets of questionable and uncertain value.

Goldman Sachs has $51 billion in level three assets, or 130% of its equity.

Bear Sterns has sunk its balance sheet even deeper into the level-three-asset hole, with $20.2 billion, 155% ofits equity.

Lehman Brothers is in a similar situation - $34.7 billion, or 160% of its equity. And ...

Morgan Stanley tops them all with $88.2 billion in level three assets, or 250% of its capital. That's an unwieldy$2.50 cents in level three assets for each dollar of capital. It implies that, in the absence of new capital infusionsall it would take is a 40% loss and Morgan Stanley's capital could be 100% wiped out.

Bottom line: The huge Wall Street write-downs you've heard about to date are among the largest in historywhich could be just the tip of the iceberg.

All told, there are 968 U.S. commercial banks that invest in derivatives. But among them, 963 banks hold ameager 1.5% of all the interest-rate and credit derivatives in America.


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In contrast, just five banks hold an amazingly large 98.5% of all the interest-rate and credit derivatives.

That has to be the worst concentration of risk of all time! Nice job of risk management banker boys! I just keepasking myself and my business partners how these Wall Street Firms could be sooooooo stupid.

The five banks: JPMorgan Chase, Bank of America, Citibank, Wachovia and HSBC. How much risk are theytaking? No one knows for sure. But therein lies one of the primary problems.


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Sources:Money and MarketsFinancial Times

Even with all the problems we are experiencing right now we still live in the best country in the world! If

Hillary becomes President I am outta here!

On a more cheerful note I would like to wish everyone a Happy Hannukah. Merry Christmas and Happy NewYear!

Charleston Real Estate SnapshotClearly the worst segment of the market is on the Condo/TH and SFR high end (>$600k) right now. Theinventory numbers have increased this month because real estate is very seasonal. The holidays are always slowfor real estate sales.


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DisclaimerThe research done to gather the data in The Charleston Market Report involves examining thousands oflistings. With this much data inaccuracies will occur. Care is taken in gathering and processing the data andinformation within this report is deemed reliable. IT IS NOT GUARANTEED. The real estate market iscyclical and will have its ups and downs. Past performance cannot determine future performance. The purposeof the Charleston Market Report is to educate you on current and consistent market conditions by reportingleading 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 otherprofessional services. If legal, tax or other expert assistance is required, the services of a competentprofessional are recommended. This is a personal newsletter reflecting the opinions of its author. It is not aproduction of my employer. Statements on this site do not represent the views or policies of anyone other thanmyself.

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

december 2007 charleston market report

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