Housing Prices Continue to Fall

In 2008 I published a book entitled, “Creating Wealth in Declining Real Estate Markets – How to Get Rich in the Best Real Estate Market in 25 Years.” Little did I know the real estate market would, or could, get worse!

All indicators support the argument for continued falling prices for US real estate. Jeff Cox, a CNBC writers confirms this when he writes:

It's official: The housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression. Prices have fallen some 33 percent since the market began its collapse, greater than the 31 percent fall that began in the late 1920s and culminated in the early 1930s, according to Case-Shiller data.

The news comes as the Federal Reserve considers whether the economy has regained enough strength to stand on its own and as unemployment remains at a still-elevated 9.1 percent, throwing into question whether the recovery is real.

"The sharp fall in house prices in the first quarter provided further confirmation that this housing crash has been larger and faster than the one during the Great Depression," Paul Dales, senior economist at Capital Economics in Toronto, wrote in research for clients.
According to Case-Shiller, which provides the most closely followed housing industry data, prices dropped 1.9 percent in the first quarter, a move that the firm interpreted as a clear double dip in prices.

Moreover, Dales said prices likely have not completed their downturn."The only comfort is that the latest monthly data show that towards the end of the first quarter prices started to fall at a more modest rate," he said. "Nonetheless, prices are likely to fall by a further 3 percent this year, resulting in a 5 percent drop over the year as a whole." Prices continue to tumble despite affordability, which by most conventional metrics is near historic highs.

The rate for a 30-year conventional mortgage is around 4.5 percent, just above the historic low of 4.2 percent in October 2010. The ratio measuring mortgage costs to renting is 7 percent below its norm, while the price-to-income ratio is 23 percent below its average, Dale said.

Yet other factors are constraining the market. After the fallout from the subprime debacle, in which millions lost their homes when they defaulted on loans they could not afford, banks changed underwriting standards. More than four in every five mortgages now require a down payment of 20 percent, and credit history standards have tightened. At the same time, foreclosures continue at a brisk pace, pushing more supply onto the market and pressuring prices downward.

Then there is the issue of underwater homeowners—those who owe more than their house is worth—representing another 23 percent of homeowners who cannot leave or are in danger of mortgage default. Indeed, the foreclosure problem is unlikely to get any better with 4.5 million households either three payments late or in foreclosure proceedings. The historical average is 1 million, according to Dales' research.
(http://www.cnbc.com/id/43395857)

So what does this mean for the real estate investor? What does this mean for someone considering a new home purchase? Should you wait?

I suggest that now is the time to be securing real estate – and as much as you can safely handle. In most areas, rents are high, vacancies are low, and there a lot of housing available at bargain basement prices.

Is there is risk? Sure! There is also a risk to if you don’t take action.

The current real estate market is now “worse” than that of the Great Depression. While my heart goes out to those whom have lost their homes, there is opportunity for great rewards for those whom will begin to see, and act, on low prices and low, low financing interest rates.

There will be several millionaires created in this market. Will you be one of them? Or, will you sit on the sidelines and reflect later, I shoulda, woulda, coulda.

Where’s Your Best Investment?

Where should you put your investment dollars today? Is
real estate a good vehicle or is something else better? Investing
falls into two basic investment types. You can invest in paper or
you can invest in real estate. Paper investments include just
about everything except real estate. Even bullion, rare coins,
and art work could be considered paper investments. I include
them in this category because, unlike real estate that has
regular cash flow, they are assets that have no regular cash
flow. You have to sell them in order to realize any return on
cash investment.

The major difference between investing in real estate or
any paper investment boils down to a fundamental principle:
leverage. Let’s say that you have $50,000 to invest. You can
read books, take a course, search the internet, talk to brokers
and do all the due diligence required to invest in a stock.

You find a stock you like and purchase it. You take
$50,000 and purchase the appropriate number of shares. If the
stock increases 10 percent in value over the course of a year,
you have a return of $5,000. Not a bad investment. You enjoy a
10-percent return on your cash investment.

Here’s the big difference in real estate in very simple
terms. You take that same $50,000 and you can purchase a
property with a value of $250,000. You purchase the property
and put 20 percent down ($50,000). You secure a loan for
$200,000 and find a tenant who will make your payment.

Assuming the same 10-percent appreciation in asset you would
enjoy a return of $25,000. In other words your return on cash
investment would be 50 percent rather than 10 percent.
This is what’s referred to as leverage. Interestingly, you
can actually do much better than 10 percent if you shop wisely.

If you find a motivated seller, you could possibly enjoy more
than a 100-percent return on your cash investment. You can
find a motivated seller who will now sell a $250,000 house for
$200,000. My company regularly makes offers of $.50 on the
dollar—using very little cash in the process. How’s that for
leverage?

Which 10-percent return would rather have? Remember
you can outsource property management and maintenance. I
do. If you build a good “Success Team,” it can help you find
good buys on property and loans with favorable terms. If you
build your team right, you can also learn ways to buy real estate
using little of your own cash making your investments virtually
risk free. On top of all that, you can qualify for some very
favorable tax incentives for investing in real estate, which will
lower your tax burden and you enjoy more spendable cash.

If you want to learn how to invest in real estate using
safe, sound investment strategies, you might want to contact me
and ask about my 10 week Basic Real Estate Investing. Your Road to
Riches?