Invest in Real Estate - NOT!
The stock market hasn’t been making anyone any money for a while so the best place to put your money now is in real estate - not.
How can I say that when the price of houses
has been going thru the roof. (good pun, huh?).
That was yesterday and this is today. The roof
is falling in and there are some good reasons
why this is happening.
Your friend (?) at the Federal Reserve, Sir
Alan Greenspan, reduced interest rates again
and again. Each time he did it made the cost of
owning a home easier to afford. Mortgage rates
dropped to 5.6% and as a result now 69% of
Americans own their home or share it with the
mortgage holder.
Fannie Mae and Freddie Mac got into a
hissing match to see who could give the easiest
qualifications for a mortgage. As the
requirements to qualify for a mortgage kept
being watered down so that almost anyone, even
someone with a recent past bankruptcy, could
qualify for a home loan. To reduce payments
lenders have started giving 45 year mortgages.
Is the house going to last that long? Of course
it will, but maybe not the mortgage holder’s
finances. As a result this easing of qualifying
drove up home prices.
To make it even easier lenders reduced
down payments and knew the applicant was lying on
the application about his income - and didn’t
care. The mortgagor sold the piece of paper
(mortgage) to Fannie Mae or Freddie Mac. Banks
gathered together mortgages they knew were sub
prime and sold them as a bundle to borrowers
who wanted a better than average return.
Sometime in the future we may hear the immortal
words of Mark Twain who said, “I am more
interested in the return OF my money than the
return ON my money”.
Recently we have seen the stock market
take a serious “correction”. Call it whatever you
want, but this is going to affect the housing
market. More than half of home owners have
stocks or mutual funds.
There is also the rumor that banks will
again be required to verify a mortgage applicant’s
income. Fudging no longer allowed.
As the real estate market softens we will see
more and more “walk-aways”. These are
investor-speculators who have put a few
thousand dollars down on a not yet completed
(or sometimes not even started) property with
the idea that when it was finished they could
immediately sell it for a nice profit. Suddenly
thousands of properties could be thrust upon
the market that will drive prices lower and
lower.
In Brevard county Florida home sales in April
are down 32% and condo sales dropped a whopping
81%. There are now 8,000 single family
residences available in that one county.
Speculators are hurting.
If anyone decides to invest in real estate
it would be wise to wait until the market firms.
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Al Thomas’ book, “If It Doesn’t Go Up, Don’t |
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