Real Estate Investors - Red Alert   by Mark Walters

Real Estate Investors - Red Alert

How's the real estate marketing doing? Is the huge jump in home prices that is evident in some areas symptoms of a value bubble? Good questions, yes?

Two things to keep in mind when surveying the market:

1. All real estate is local, 2. Real estate is cyclical.

Here in Arizona some residential areas have seen as much as a 30% jump in value in the last 8 to 12 months. The word about increasing Arizona home values has spread across the country. We recently sold a home to an out of state buyer who never looked at the property. His agent is just buying homes, because the buyer is sure prices will continue to escalate.

In the case of another of our houses a buyer offered $2,000 above our asking price on the day we posted a for sale sign on the property. We were asking more than we expected to get!

At the same time we received a telephone call from a relative living in California. He was very excited because his brother-in-law was sure he would get rich by buying a couple of Arizona homes. Should her do the same, he asked?

Such events have all the earmarks of a price bubble... if only in Arizona. On the other hand...

On a recent trip to Buffalo, New York, the local newspaper ran a story explaining that home sales were up. In the same article it revealed that the median price of a home had dropped. In other words, people are hurrying to buy homes that are dropping value. There's more...

Mortgage Banker's Association data shows that adjustable-rate and interest-only mortgages accounted for nearly two-thirds of mortgage originations in the second half of last year.

Loans of that type help push up housing prices, because they carry lower initial monthly payments, enabling borrowers to purchase more expensive homes. Basic economics... if more people can buy homes there is more demand... More demand means higher prices.

The rise of interest-only loans, coupled with acceptable higher debt levels for borrowers and tightened bankruptcy laws will probably soon lead to an increase in foreclosures.

If you are buying a home with an interest only loan and the value of that home drops... it is very easy for the borrower to just walk away from the payments. After all, they've built no equity in the property.

Both the Clinton and Bush administrations have pushed a policy of low interest rates and easy mortgage loan qualifying. If every voter has a home they are happy and will vote for the party in power seems to be the limit of political thought.

The truth may be that the government is setting people up for failure and financial pain. Far to many people are buying homes they really can't afford. When interest rates rise... as they surely will... all those adjustable rate loans will act like debt-traps. Interest rates will go up while wages remain stagnate. The result? More foreclosures and financial ruin for many.

There are international forces at work that will not continue to support our government's wild spending habits by buying its low interest bonds. Interest rates must rise. sooner or later?

Bubble or normal cycle... it makes little difference. If you are an investor consider selling some of your properties to raise cash for the awesome opportunities ahead. You know, buy low - sell high.

In our opinion, there is still profit opportunity if you buy at least 30% below current market value... with owner financing.

Prepare now for the coming wave of preforeclosure opportunity. We recommend the guide to preforeclosure profits you will find here http://digbig.com/4dmff
 

About the Author

Mark Walters is an investor-entrepreneur helping other investors from his Web pages at http://www.Lease-Option-Sub2.com
Submitted: 2005-05-19