What is the Mortgage Market Meltdown?
This refers to a culmination of factors that has led to massive tightening in credit standards among lenders. This tightening is due to an excessive number of mortgages that are both delinquent and in default. As a result of tighter credit standards and the devaluation of mortgage-backed securities, global investors are shying away from purchasing additional pools of loans, causing over 100 lenders to close and leaving many homebuyers and homeowners unable to locate financing alternatives.
Why should a real estate SELLER be concerned?
The pool of potential buyers will shrink as many individuals find it difficult, if not impossible, to obtain mortgage financing. Experts have speculated that the number of potential buyers will contract anywhere from 15%-30%. Sellers should also be aware that increased foreclosures can depress community values and result in a glut of local inventories, which could further drive down home prices.
So how many foreclosures are there?
According to www.foreclosures.com, there are currently 1,447,451 homes in pre-foreclosure; 832,281 homes are currently set to go to auction; and 1,217,885 homes have already been taken back by the lender. The number of homes in the foreclosure process as of July 2007 is double what it was as of July 2006.
What types of loans have been most impacted by credit tightening?
Subprime and Alt-A have suffered the greatest setback because these borrowers are at greater risk for defaulting. Subprime loans are those loans which have typically been taken by borrowers with poor credit. Alt-A type loans are for borrowers that typically have good or excellent credit but are unable or unwilling to provide documentation for income and/or assets.
What is the impact on the real estate market?
The National Association of Realtors estimates that home sales nationally will decline by nearly 13% in 2007. Median home prices nationally are projected to fall by 1.2% in 2007. According to the PMI Group, Inc., however, many local markets are experiencing price declines well in excess of that, up to a high of 11.44% in Miami. States that have experienced and will continue to face the greatest declines are California, Florida, Arizona and Nevada.
What should sellers and buyers do now?
Sellers should be realistic about home prices - the high prices of 2004 and 2005 are a distant memory. Home prices have taken a fall, and for those with houses currently available for sale, reductions may be in order to generate activity and offers. Sellers should demand that any offer from a buyer be accompanied by a pre-approval from a local mortgage professional.
Buyers need to be pre-approved - and frequently - as mortgage availability can change drastically, in some cases even daily. This is particularly true for those borrowers who have poor credit or are unable to provide income and/or asset documentation. Buyers should meet with a mortgage professional today to seek a pre-approval. They should be prepared to provide income and asset information including: two years of tax returns, including all schedules, W-2s, 1099s, up to three month's worth of liquid asset statements, and their most recent pay stubs.
What types of loans are NOT being impacted by this crisis?
Loans that are offered and treated as conforming type loans, traditionally under $417,000 in most states, although that number may be higher in some states. In addition, government loans including those offered by FHA and VA have not been impacted to date. For these loans, it is typically a requirement that a borrower provide full income and asset documentation.
Does that mean there is a "real" state "bubble"?
There When people speak of the real estate economy, they are using nationally-based statistics. So while the mortgage market tightening will affect some borrowers, it doesn't affect home values in the sense of a "bubble". The stock market is based on the national, even the world economy. The real estate market is based on local, and, in many cases, micro-local economies. What's happening in Los Angeles does not directly affect what's happening in Jersey city or Bayonne. With Hudson County offering strong employment, and proximity to New York City and employment, as well as an excellent transporation system, it still offers
a strong value to would-be home buyers.
There is greater population influx that outflux and this creates strong demand and keeps prices strong. True, certain factors such as interest rates affect all the markets. There really is no broad barometer to measure the entire housing industry in the U.S. Average prices, average new homes sold,
and average homes built nationally have little relevance to your market.
And, within a particular city that is doing well, there may be certain
neighborhoods doing poorly for a variety of reasons, such as over-building of new homes. Also, the values of million dollar homes dropping skews the average, or the overbuilding of new $650,000 homes, while the average $250,000-$425,000 home that most buyers shop for has not changed significantly/
So while statistics, calculations, and economic factors are relevant, so is common sense: Take a look around and see what's really happening. Talk to real estate agents, investors, and lenders in your area for a better picture of what is going on. If you are keeping your home for the long term, the current mortgage market is less important to you unless you are planning on selling.
Don't look at broad nationwide, statewide, or even city-wide statistics.
Be concerned with the average prices in the particular neighborhoods in which you buy houses, the average time on the market, and the changes in sales prices from last year to this year. The most important lesson to be learned from the recent credit crunch, is while teaser rates and ARM mortgages are great,be sure you can pay the note if rates go up, and you are really qualified. Don't buy more home than you can afford, and realistically be prepared to go full-doc and buying a home can still be achieved.
IS BUYING THE AMERICAN DREAM A GOOD INVESTMENT IN TODAY'S MARKET?
If we don't we're doomed to repeat them.
Yesterday The Hudson County MLS (HCMLS) issued it's productivity reports for 2008. The results are extremely interesting. If in 2002 a consumer decided not to buy a home or condo with his $250,000 savings this is what he would have after 6 years.
$250,000 invested in 2002:
Bank Savings.....approximately $305,000 in 2008
Stock Market.......no change after 6 years or less???
The volume of sales in 2002 and 2008 in both the HCMLS and NJTAXRECORDS.COM have about the same amount of sales in both data bases. The following is the average sale prices for both.
HCMLS
2002 $257,000
2008 $395,000
NJTAXRECORDS.COM
2002 $216,000
2008 $392,000
If this consumer purchased a home in 2002 how much would the consumer be worth today?
Think about it: it gives you a place to live, a tax shelter for your income, and something you will eventually owe free and clear when you retire. The majority of people's wealth is in the real estate holdings that they own. Please contact me today and let's discuss how today's lower prices and outstanding low interest rates make the reality of home ownership still very affordable and very possible.
Do You Believe The Dire Media-Predictions?
There will always be cynics and skeptics who will tell you that the real estate market is going to crash - these kind of people have always been around…
Meanwhile, the successful investors are still "in the game" buying and holding onto their properties as they continue appreciating in value.
Here's an example of how (for years) the media has criticized real estate investing…
Dire Media-Predictions:
| "The prices of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline." - Time Magazine, 1947 "Houses cost too much for the mass market. Today's average price is around $8,000 - out of the reach for two-thirds of all buyers." - Science Digest, 1948 "The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000." - Business Week, 1969 "You might well be suspicious of 'common wisdom' that tells you, 'Don't wait, buy now…continuing inflation will force home prices and rents higher and higher." -NEA Journal, 1970 "The median price of a home today is approaching $50,000… Housing experts predict price rises in the future won't be that great."- Nations Business, 1977 "The era of easy profits in real estate may be "The golden-age of risk-free run-ups in "Most economists agree…[a home] will become little more than a roof and a tax deduction, certainly not the lucrative investment it was through much of the 1980's." - Money Magazine, 1986 "Financial planners agree that houses will "A home is where the bad investment is." - |
In spite of all of these so called "predictions", people continue to build wealth with investment properties and save a lot of money on their taxes each year…
If you want to succeed, find someone who is already doing it and model them. You don't need to re-invent the wheel because the wealth-building system that I follow is a proven, tried and true investment-property strategy that WORKS!
The Benefits Of Investing In Real Estate
Interest rates are historically low. An economic stimulus package is around the corner. Prices have dropped in some cases. More people are returning to renting vs buying because of tighteting credit standards, which helps you as an investor. With all of the mixed-media messages surrounding us these days, it's confusing for people to know where to invest their money (be it stocks, bonds, a 401K or real estate).
In my experience there's no better way to save a bundle on your taxes (while simultaneously building your wealth) than through investing in real estate…
Here's why…
· Huge Tax Benefits - Properties typically appreciate while the IRS allows you to write your properties off as depreciating.
(This one benefit alone allows me to write off thousands every year!)
· Using "Good Debt" to Build Wealth - "Good Debt" is debt that makes you money where as "bad debt" does not, it just makes your further in debt… The benefit of "good debt" is LEVERAGE because you don't need to have a lot of money to get started - you can start with the equity from your home.
· A Balanced Investment Portfolio - You've heard the expression, "don't put all your eggs in one basket", well the same applies to investing. By investing in real estate (in addition to other investments such as your IRA, 401K, stocks and bonds) you will have a stronger and more stable investment portfolio…
· A Personal Retirement Plan - Can we even count on Social Security as a retirement option any more? When managed correctly, investment properties are a very good potential source of passive income for when you retire.
· Deferment of Capital Gains Tax - When you sell an investment property, if you made more money than you bought it for, that's called your "Capital Gains" and Uncle Sam will tax you on that gain. However, the government allows you to transfer that gain into another "like kind" property by using a 1031 tax exchange. This allows you to bypass taxation by deferring the financial gain into your next investment.
· Instant Equity - It's possible to find investment properties that are $5k, $10k, $15k (or more) below market value. When an investor buys properties like this, he or she can instantly use the equity from this for additional buying leverage.
· Long Term Growth - My method for real estate investing is about buying and holding properties for the future because I know that their value will almost invariably continue to increase!
Don't Listen To Anyone That Tells You -
You Can't Succeed By Investing In Real Estate!
Maybe you've seen the late-night TV infomercials on "How to Get Rich Quick by Investing in Real Estate" and thought to yourself, "Is this stuff for real?". In my opinion, most of these campaigns are just designed to sell you a bunch of expensive information - rather than real world investment properties.
The key to winning at the "game of real estate investing" is to surround yourself with positive, forward-thinking people who are already doing it themselves. People who will support your vision for building wealth - and "coach you" to succeed.
You and I have a responsibility to prepare for our retirement by making our money work for us - and buying investment property is one of the most effective, long-term, tried and true ways to do this (provided you make wise investment decisions and manage them properly).
My job is helping regular people (just like you) - to successfully find, purchase, and maintain high-quality, "wealth-building" investment properties - making sure that we carefully evaluate your financial needs first, so that the next investment you make - makes sense for you!
