Real Estate Opportunity Time
It’s fast approaching opportunity time for all those who patiently sat on their cash while the Real Estate market went stupid.It’s hard to imagine what went through buyers’ minds the past four or five years. Didn’t anyone tell them that cost does not equal value; the market is them and if they don’t pay the price it has to come down; that prices exceeded actual income potential; that mortgage products such as 40 year loans, adjustable rates - followed by rate increases that anyone could see on the horizon - and interest only loans are tell-tale signs that prices were higher than anyone can afford, higher than can be sustained? Did they believe the media pumping out nonsense about a soft landing and no crash, the need to jump in before it was too late?
Now the interest rates have predictably gone up. This alone reduces Real Estate values, just as declining rates increased it; but people who needed the lower rate and the interest only loan now face the payments that drove them to these sucker products to begin with.
Foreclosure is rearing its ugly head and currently investors are only buying about 35 percent of them - smart, they know what’s coming. This is only the beginning of the carnage. Fueled by external forces such as energy prices (gas is approaching $3.50 per gallon here), heating and cooling these monster homes, and, if your unfortunate enough to live in a state like New York, property taxes going through the vaulted ceiling, mortgage defaults are only beginning.
Add in the reduction in health care coverage by employers, the refusal to honor contractual pensions by simply eliminating them (and getting away with it), and real - not Government measured - inflation devaluation of the dollar, the money simply isn’t going to be there to pay the mortgage, and people will soon be handing the keys to the banks.
Fortunately we probably won’t all have to pay for many of the stupid people and greedy lenders this time around. Last time our taxes bailed out the banks which were eviscerated by loan defaults. This time the REIT’s investors will take it on the chin - at least those who haven’t gotten out by last week.
Since I called this a few years ago and now it appears I’m right on track, my recommendation is for the person with cash to continue to wait. Resist getting jumpy and enjoy watching it materialise before your eyes awhile longer. Watch the trends and the HUD foreclosures, and be prepared to act later next year. Things ought to be getting real juicy by then.
posted by Smith @ 3:36 PM
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