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Summerlin Asset Management announces that pending home sales are at elevated levels in August, and continue pattern of strong annual gains.

Investing in Real Estate Notes

Investing in Real Estate Notes

Real estate notes are the investment vehicles of the future.

After reaching a two-year peak, pending home sales fell in August but are at elevated levels compared with a year ago, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 2.6 percent to 99.2 in August from an upwardly revised 101.9 in July but is 10.7 percent above August 2011 when it was 89.6. The data reflect contracts but not closings.

Contract activity in July 2012 was at the highest level since April 2010 when buyers were rushing to beat the deadline for the home buyer tax credit.

Lawrence Yun, NAR chief economist, said some volatility can be expected in the monthly readings. “The performance in month-to-month contract signings has been uneven with ongoing shortages of lower priced inventory in much of the country, and across most price ranges in the West, but activity has remained at notably higher levels this year,” Yun said.

“The index shows 16 consecutive months of year-over-year increases, and that has translated into a higher number of closed sales. Year-to-date existing-home sales are 9 percent above the same period last year, but sales were relatively flat from 2008 through 2011,” Yun added.

Existing-home sales this year are expected to rise 9 percent to 4.64 million, and gain another 8 percent in 2013 to nearly 5.02 million. With generally balanced inventory conditions in many areas, the median existing-home price is projected to rise about 5 percent in both 2012 and 2013.

The PHSI in the Northeast rose 0.9 percent to 78.2 in August and is 19.9 percent above August 2011. In the Midwest the index declined 2.6 percent to 95.0 in August but is also 19.9 percent higher than a year ago. Pending home sales in the South slipped 1.1 percent to an index of 110.4 in August but are 13.2 percent above August 2011. With broad inventory shortages in the West, the index fell 7.2 percent in August to 102.5 and is 4.2 percent below a year ago.

Housing starts are forecast to stay on an uptrend and reach 1.12 million next year, but will remain well below long-term underlying demand with builders facing obstacles in obtaining construction loans.

Growth in the Gross Domestic Product should be 2.5 percent in 2013.

Home Sales, Prices Both Up in August

On September 19, 2012,

Existing-home sales last month were up almost 8 percent from July and home prices were up 9.5 percent from a year ago, to $187,400.

“More buyers are taking advantage of excellent housing affordability conditions,” NAR Chief Economist Lawrence Yun said in his national press conference today in Washington in which he released the latest home sales figures. “Inventories in many parts of the country are broadly balanced, favoring neither sellers nor buyers. However, the West and Florida markets are experiencing inventory shortages, which are placing pressure on prices.”

Home prices are up partly because the mix of housing is shifting toward more normal sales, with distressed sales comprising a smaller share of the market. But prices are also up because of appreciation, which NAR data as well as other price indexes show. Case-Shiller and the Federal Housing Finance Agency both show prices up based on repeat sales, which track price changes without regard to changes in the sales mix.

The positive sales and price trends come despite lenders’ continued tight underwriting practices. Yun said these overly tight policies could pose problems five years down the road, since mainly households with strong incomes and good credit profiles are getting loans today. That means a few years down the road, as homes appreciate, households with less income and less strong credit profiles won’t have been able to take advantage of today’s low home prices and historically low interest rates. That would leave many responsible households that could be successful owners today unable to get on the home ownership ladder.

Forthcoming rules, such as the qualified mortgage (QM) rule, which the Consumer Financial Protection Bureau (CFPB) is writing to meet requirements in Wall Street reform legislation enacted two years ago, could exacerbate the problem, Yun said. NAR wants the rule to be flexible enough so lenders can make safe and affordable loans to responsible buyers, but there’s a concern that the rule could be too restrictive and only those with the best credit profile would be able to get affordable financing.

Summerlin Asset Management continues to believe that a more normalized real estate market will evolve in 2013 as prices stabilize off an over correction to the down side. Supply of homes on the market for sale has decreased substantially, while home buyer demand has increased steadily.

In summary, the management team at Summerlin Asset Management believes this current data supports our opinion that home prices have normalized and will remain flat for the next 24 months. Our channel checks confirm another wave of foreclosures will hit the market in the latter Q4 of 2012, however there remains strong demand from home buyers waiting to buy slightly discounted lender-owned homes. This environment creates an ideal investment environment for Summerlin Asset Management and its clients. We remain steadfast in our thesis that purchasing first position debt at a steep discount is the best investment vehicle in the residential real estate marketplace today.

Investing in private mortgage notes is the highest and safest way to earn double digit returns on your money. To learn more please go to http://www.investinsam.com and visit our A Rating BBB Business Review online.

Should you have any further questions, please call our corporate offices at (928) 854-7747

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