Date 8/25/2008
Time 6:00 PM - 7:00 PM
Station Bloomberg Asia Pacific
Location International
Program Special Program

CATHERINE YANG, anchor:

The US bond market is heading for a third straight monthly gain thanks to the slowing economy and the credit market losses. 

So, is the US housing market recovery underway or is there still trouble ahead?  The latest existing home sales figures show a 3 percent gain in home buying in July, but American housing inventories remained at record levels.

And it’s not good news for the market so says our next guest.

Hugh Bromma is the CEO of Entrust Group, a real estate investment firm.  And he joins us now live from San Francisco.

So, Hugh, you are saying that it’s another six months before the housing bottoms out.  I mean, what makes you say so?

Mr. HUGH BROMMA (CEO, The Entrust Group):  Very simply, a one-time rise of 3 percent does not a trend make.  I think there are too many indicators.  We have too much inventory, we have 11 months worth of inventory that’s on the marketplace today.  (Graphic of US Existing Home Sales bar graph)  And all of the other indices are dropping, not rising.

So, I believe we have an anomaly.  The 3 percent increase also includes a lot of condos that were purchased in this particular mini-rally, if one were to call it that. 

But I think that we’ve got another six months before we see the bottom.  I don’t think we have yet to see that bottom just because of this one day.

YANG:  And what we know now that we didn’t six months ago is the housing markets outside the US are also facing problems.  Take, for instance, Europe as well as the UK.

Now, how do we know that the US housing slump isn’t any worse than in Europe and the UK?

Mr. BROMMA:  Well, we don’t know that it’s any worse.  It’s, of course, historically in the worst shape that its been, at least since records have been maintained.  But we know, for example, the UK is having real problems.  They are also having a credit issue in their own marketplace, the LTVs that are acquired for obtaining a loan have increased and we do see losses over there, as well.  And we see it really throughout the world.

YANG:  Lots of debate over what to do with Fannie and Freddie in the US. 

Do you think the government should nationalize or bail them out and if that’s resolved, do you think that it helps speed up the recovery in the housing market?

Mr. BROMMA:  Well, the way I look at it is it’s a little bit like the Chrysler bailout.  It’s something like, well, if you don’t do it then what happens? 

If we were to allow Freddie and Fannie to collapse, we’d have a huge collapse in the general economics of the United States.  There are trillions of dollars at stake.  It doesn’t make sense.

(Graphic on screen):

US Mortgage Finance Firms

Fannie Mae                  5.19                  up                    3.80 percent
Freddie Mac                 3.29                  up                    17.08 percent

So, this Band-Aid, if you will,  is something that probably will be helpful rather than be hurtful.

YANG:  Now, how are inventories looking?  When does the market get to work off the excess supply?  Overall inventories have been going up because of the higher number of foreclosures there.

Mr. BROMMA:  That’s right.  You know, we have 11--a little over 11 months worth of inventory and that has to be worked off and to get to levels where we were let’s say two years ago.  (Graphic of US Existing Home Inventories line graph)  It’s going to take a bit of time.

Again, we have to look at the inflation issues that are involved here, as well.  So, it isn’t just a simple matter of saying, OK, we’ll have inventories go down, but also what is the general economy, what are inflation rates, what are the abilities of individuals to be able to get into the market as homeowner purchases.

YANG:  Yeah, the very same questions that your clients are probably asking.  I mean, how are the preferences changing because half of your assets are invested in real estate, primarily residential properties, and the remaining divided among all types of asset classes, from stocks to limited partnerships in property and commodities.

Mr. BROMMA:  Well, what’s happening, we’ve noticed a shift over the last few months that our clients are, granted, becoming lenders as opposed to buyers.  Although we’re seeing a little buying activity, we’re seeing a lot of lending activity.  In fact, the amount of investment has reversed.  It’s gone into lending rather than purchasing of real estate.

(Graphic on screen):

The Entrust Group
Corporate Profile

$4 billion in retirement assets
50 percent invested in residential real estate
Self-Directed IRA administrator

So, there’s a nice up tick there for our clients.  They are seeing opportunities that they can make loans.  The loans that they make are generally non-conforming loans and it’s a good market for those individuals.

YANG:  Good to talk to you.  Thanks for that, Hugh.  Hugh Bromma of The Entrust Group in San Francisco.

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