OFHEO House Price Index Shows Largest Deceleration in Three Decades! The bubble is bursting for high appreciating areas.
But, good news for some undervalued areas. Based on this report, where should investors invade next?
for full PDF report click here
http://www.ofheo.gov/media/pdf/2q06hpi.pdf
This is a great time to get your cash reserves built up because this decline is going to pick up speed very shortly’. Last week I counted 4 full pages of foreclosures in the only major newspaper in Southeast New England. That adds up to over 40 properties. The most interesting thing was the average age of the mortgage was 1 year. That is incredible! These people bought homes less than a year ago and are already in foreclosure. Why? The famous INTEREST ONLY LOAN!! That to me was the lighting of the fuse. The only way those mortgages could possibly work out for the home buyer was for prices to continue to rise at a crazy pace. Instead what HAS happened is interest rates have risen and house prices have dropped as a result these same homes will not appraise at what these unfortunate people paid for them. Banks end up with them and they don’t like owning real estate, eventually it gets dumped which throws more gas on the fire. I’ve seen it all before, like everything, nothing changes because people don’t change. Sit on your cash, only buy DEEPLY DISCOUNTED properties that you can flip FAST but be careful. Flips in a declining market have to be purchased for dirt. Great time coming for buy and hold real estate investing!!!
Although it’s good news, I wouldn’t say there was any bubble bursting. Only a couple of North Easter states showed actual DEPRECIATION of home values. What has happened is the deceleration (funny, that’s the title of the report) of the appreciation. So home values are still going up in almost all the states, it’s just going up slower.
That’s not a bubble bursting, that’s what’s called sustainable appreciation.
One of the problems is the complete lack of lenders who will act as a mortgage “advisor” to their clients. They throw people into a short-term fixed product ARM, an interest-only, or even a neg-am (actually a deferred interest loan) without explaining the proper way to use these products. The lender just tells them that by doing this the client can buy more home than otherwise would be the case with a traditional 30-year fixed (while getting a bigger commission for themselves!).
If the lender educated them on investing the difference between what they’d pay on the traditional loan (or even a fully amortizing product) and what their I/O or neg-am payment is, the client would be protected in a downward moving market.
More importantly, why would someone, getting involved in what is probably the single largest purchase of their lives, not educate themselves first? It’s a shame when people get burned and are forced into foreclose from a situation they could have mitigated.
Statistics and data can support almost any position. Here’s a case in point. Recent real estate data in Rhode Island claims a rise in median housing prices of 5% this year. In reality prices in this state are dropping.
When numerous 3-4 bed colonials 1 year ago in this market routinely sold for $450,000 now are lucky to bring $375000 that’s a 17% drop not matter how you slice it. Ranch houses, classic entry level homes have dropped from $250,000 to $200,000 = 20% drop.
Most of the housing data we see is provided by Realtors in any given market. Do your own homework especially now. Politicians are masters of data manipulation, we’ve all seen it done. This market (Northeast) is going to get worse before it gets better.
Yet if you read the newspapers around here you’d think these homes appreciated in value by 5% this year.
“Figures don’t lie but liars sure can figure!”
Keith
Dam skippy! To jump on any investment without a due diligence study using data from reliable sources? Just send me a check for the money and have done with it!
Nice piece today on CNBC about how much worse the housing market is than realtors and the industry have been letting on.
This is a topic that is definitely regional, but I think as far as the Northeast goes “watch out below” The media feeds these things and can make matters worse. Are you going to buy for asking price? Or make a bunch of low ball offers to see which fish bites. The problem with that for the market is each home that sells for a lower price affects the comps in that area. It feeds on it’s self. But isn’t that how a classic bubble usually bursts? Just my 2 cents.
This is all excellent news for me (I’m in CT). I am currently trying to pay down my debt and will be looking to buy my first property in a year or two…hopefully I’ll be timing it at rockbottom.
I think you’ll hit it just right. A profitable way to find properties is this kind of market is to look at homes that have NO curb appeal. In a slowing market these homes are competing with lots of inventory. I look at lots of dogs and low ball them all. It’s a numbers games. Someone in that group will be in a position where they HAVE to sell. It’s much easier in this kind of market because a year ago owners of these dogs could still get top dollar, but that boat has sailed. Save your money and be ready. I would start looking now. We’re coming into a great time of the year up to buy houses for short money. The holidays are traditionally THE WORST time of the year to sell, having said that it is a great time to buy. I use the boat analogy. The best time to buy a used boat is 3 weeks before Christmas, go out look at ten, offer 1/2 asking price and you are gonna own a boat!!
This is all great news for buyers – but what happens once you’ve got it?
Say you’re investing for rentals. When the market is slow, i.e., lots of homes on the market and not many buyers, do you find that there is a corresponding decrease in the number of tenants as well?
Wouldn’t it follow that since buyers can find such great deals, that tenants are in a better position to buy?
HEY CHICKEN LITTLE IS THE SKY FALLING AGAIN!!
Darn right the bottom is falling out almost nationwide, That is why it is time to change your approach. There is no way I would think about fixing and flipping right even buy and hold is leary unless you are looking to hold for longer then 10 years. Theres a ton of new creative ways to still make a load of money in this industry just be different and stand out and do it.
I’m always looking for new ideas. If flipping is dead and buying and holding are dead what the heck is left??? You bring up a excellent point. I agree that flipping houses in a market that seems to be falling further every month is VERY difficult. I also agree with your buy and hold assessment of 10 years. So what other strategies are you using. A very smart friend of mine who has made a TON OF MONEY in anything he touches feels the stock market is getting ready to blast off. I don’t know?? I’m a real estate guy.
Hands down Real Estate is the place to be for me as well.
EXAMPLE:
House appraised at $250,000.00
Buy the house for $200,000.00
There are banks out there that will loan 90% with a 545 mid score.
Sell the property for $250,000.00
Owner carry $25,000.00
Pay off your note $200,000.00
Cash to you $15-20k (depending on closing costs Paid seller)
Interest barring note at 10-13.99% that note pays you 250.00 per month.
In and out of the deal in less then a week with the correct marketing 10 deals a month income of $2,500.00 per month times 10 months $25,000.00 per month. Never do repairs and sell the American dream…
Sorry if that was boring. It is easy to find buyers when you owner carry!
Can’t see how you can sell 10 houses a month in a market where average time on market is approaching 7 months.
I understand you’re selling to people with low credit scores but I’m not sure you can do those kinds of numbers in this market. Hey, I’m probably wrong, wouldn’t be the first or last time. I sure appreciate the insite. Thanks.
Look at it like this NOBODY is offering owner carry I only market to those that need it. Here is the great thing I need another 140 houses to fill my buyers lists. So many investors focus on trying to find deals…
NEWS FLASH YOUR DEALS ARE NO GOOD WITHOUT BUYERS
I focus on finding buyers the deals are easy to find. Then it is a game of matching. Oh really this is not the house you really want? Might as well buy something to build Equity in Right?? Great sign here
X__________________________
When a property appraises for $50,000 and 20% more than what it's selling for, then I can see how that would make a lot of money. I think those deals would be very hard to find, especially at the rate of 10 per month. Most owners hear that their house appraised for more, so they want more. Furthermore, wouldn't you need to pay capital gains tax? Even if you 1031 exchnange the thing, you still have capital gains on the amount that you carry. I don't mean to be a nay sayer, just clear this stuff up for me, please since I'd like to get RICH.
Funder,
We find them all the time here is the approach. Find someone thinking about selling.
Appraised at $250,000.00 minus REALTOR fees of 6% brings us to $235,000.00 minus Like you said 7 months holding for Avarage market time at $2,000.00 per month brings us to 221,000.00 Minus Repairs $15,000 brings us to $206,000.00
So Mr. Homeowner you would walk with $206,000.00 in 7 months or I can give you $200,000.00 tomorrow.
Remember 90%of our deals are short sales or bulk bought REO’s