This is one of the best articles I have read regarding why the doom and gloom of the U.S. housing market has come to an end - Wall Street Journal.  This will only assist with more real estate sales in the Caribbean in the upcoming months!

By CYRIL MOULLE-BERTEAUX - 
May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high - but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 - or seven months of supply - by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to sub-trend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.  I welcome your comments about the article and how you believe it will impact Caribbean real estate sales!  Until next time…Fair Winds!

At the start of any sailing voyage, this is the mantra Jim Walberg uses when he raises the anchor and sets sail for another adventure!

This phrase, “Do not be fearful,” is one that I have not only used as a life long sailor, but in many aspects of my life.  It is the phrase that is used by both those staying behind and those on the sailboat as it leaves the anchorage or dock for another voyage.  My experience with this mantra is based on the fact that no one knows what will ever happen on a sailing adventure. The one constant is you know the latitude and longitude of your destination.  What happens from the moment you set sail to the moment you drop anchor at your destination is what is called “a sailing adventure”.

I could write a book about all of the “unexpected / expected” experiences that relate back to “not being fearful”. Well, I guess it is OK to be fearful, but a sailor doesn’t let the fear prevent her/him for setting sail, even knowing the challenges that will be faced during the voyage.  Someone that lets fear stop them from setting sail to a familiar or new destination is called a “landlubber”, not a sailor.  So, fear can either serve you or it can paralyze you.  I chose to have it serve me, even though I have been in some pretty scary experiences during my life time of sailing adventures.

One example of my 50+ years of sailing adventures was during a sailboat delivery on the west coast from San Francisco to Cabo San Lucas in Mexico. The sailboat was a MacGregor 65 that is a “rocket ship” that is only twelve feet wide and sixty-five feet long, and is primarily used for racing. It is not considered a “blue water” sailing vessel. It is just built for speed - 12 to 14 knots for a mono-hull! It is known to break up in even moderate seas because of it being so narrow and light. (If a MacGregor does break-up it doesn’t sink because it is filled with foam so it actually floats and one can hang-on to debris as a last resort while awaiting someone to save your ass.)

Off the Santa Barbara Islands our crew of four decided we better stress the boat to the max to see if there were any flaws that could be uncovered before we got into Mexican waters. Another important note - sailors do attempt to always find the “surprises” during a voyage before they are actually surprises.  Well, one showed up with all the sails out in a 20 knot wind. Within minutes the boom broke in half and I happened to be in the path of the broken parts. It hit me square on the head and knocked me out. (When we meet again you will now note the dent that is still on the right side of my bald head.) My crew mates acted quickly - another important trait of a sailor, and first made sure I didn’t roll overboard, and then lashed the broken boom together and re-grouped. As a sailor you need to constantly improvise during these types of moments which requires a curious and inventive mind. With the boom broken in half you can’t use your mainsail effectively. So, we rigged it to use the jib and “jerry rigged” the main so we had a small portion of it in the wind. We limped to a repair facility in San Diego harbor and set sail again to complete the delivery. We did deliver the yacht on time, in spite of the detour, and I added another story to my journal of sailing tales.

Well, enough of my musings for now. My point is that you can never explore new shores by standing on the dock wishing you could get their. You must get on board, set the sails, and be prepared for many sailing adventures between the launch and your destination.  Hum…maybe there is even some analogies in life that the sailing mantra applies, too - “Do not be fearful!”!!!    So, what about some of your tall tales from sailing adventures?

Late last July I began to inform the World about my passion for the Caribbean…

WOW! Yesterday I received a call from Marisa Katz who is doing an article for the London Financial Times regarding what is happening in the Caribbean real estate market, specifically in The Turks & Caicos. I asked her why she called me for this information. She stated that my Caribbean Islands Realty blog site, that I launched the last week of July, was viewed as one of the most credible and easy to read blogs in the Caribbean! I have to tell you that I was blown away.

You know that I have been hanging out in the Caribbean since 1975, sailing and participating in the real estate markets of the Virgin Islands. I still have much more to discover, but I DO know the Caribbean – from the Turks & Caicos to Aruba. And, I have my “shellback” earring as a symbol of sailing across the equator. All I am doing with this blog site is being a “…citizen journalist noticing what is going on in the world in which I live, work and play.”

My original intent with this blog site was to learn how to implement what I learned from the books “The New Rules Of Marketing & PR” by David Meerman Scott, and “Influencer – The Power To Change Anything”, by Kerry Patterson, Joseph Grenny, David Maxfield, Ron McMillan, and Al Switzler. My thoughts last July were to learn the rules and strategies of blogging on a site that no one would really notice, and then implement the strategies with my San Francisco real estate company. My game plan was to really focus on the Caribbean in about five years. However, the world discovered what I was writing about regarding the Caribbean, and the power of blogging surfaced in such a dramatic way that it has launched our Caribbean real estate business five years early!

Since late July we have signed over 15 marketing agreements with international Caribbean real estate developers who are creating full-deeded and fractional-deeded ownership properties. The access that has been created in the Caribbean for me with influential elected Caribbean officials, and the Caribbean sailing community has been amazing. Because of this access I did the internet reporting on my blog site for the Virgin Island Charter League’s 33rd Annual Boat Show in St. Thomas, USVI. That experience allowed me to interview Gov. deJongh, Lt. Gov. Francis, and Senator Hill from the USVI.

During those interviews I was able to introduce them to one of the key issues facing the charter yacht community – the U.S. law that limits the number of charter yacht guests that can be picked up from the USVI to six guests. If there are more than six charter guests they need to be picked up on some other island – 99% of them are picked up in the BVI. This issue alone robs the USVI of all the money spent by charter guests being picked up in the BVI for hotels, taxis, restaurants, souvenirs, etc. If the USVI were allowed to have charter yachts pick up seven or more guests it would significantly increase the tourist dollars spent in the USVI! Each of these elected officials listened to my opinions and are now in negotiations with the Virgin Island Charter League to see how this law can be changed – a very specific example of the POWER of blogging!

Who would have ever dreamed that this “Old Salty Dog” at 60 years old would ever be noticed by anyone in the Blogisphere? See…there is hope for all of us who are willing to notice what is happening in the worlds we are living and working in, and putting our experiences into writing. Until next time…Comments?