Real Estate Investing

For the first time in years, I took a vacation last week.  While I tried to tune it out, I sort of followed the news.  There was some good news last week in that mortgage rates dropped to 5.94 percent.  However, the stock market had tanked.  The politicians attacked, then retreated.  And there were other bad stories about fires, robberies, and the wars in Iraq and Afghanistan. It was definitely a great week to get away from it all! 

The news is better this week.  Today the stock market is working hard to rebound.  Fingers are crossed that my daughter’s college savings comes back before she heads to college in the Fall. 

I read that former Federal Reserve chairman Alan Greenspan has weighed in on the housing market and is predicting the recovery to begin in early 2009. 

Greenspan wrote that the recent slowing in the rate of decline in U.S. home prices is the first positive note in the year-long trauma and that eventually, frozen credit markets will thaw “as frightened investors take tentative steps toward reengagement with risk.”

“More conclusive signs of pending home price stability are likely to become visible in the first half of 2009,” he wrote.

Three cheers for that diagnosis!

Meanwhile the Florida housing market seems extremely affordable right now.  I watched a lot of the real estate shows and there are some VERY nice homes in the Emerald Coast area. 

Here are four homes priced under $200,000.

$189,000

$172,000

$149,000

And for a mere $99,900 …

A few moments away from this mobile home is why people have paid the big bucks in the Florida market.

Working with a new homebuyer, we looked at our first house yesterday.  It was a bank foreclosure and needed about $20,000 to $30,000 in repairs:  new roof, new floors, lots of additional work that would add up quickly.  Time was of the essence since the listing agent informed me that she already had another offer.

He wanted badly to immediately write a contract because bidding against someone else causes a desperate sense of urgency that is not always necessary.  We took this morning and looked at six more homes - all of them were equal or better than the first one and didn’t need a lot of work.

“Buying a house should not be like buying a candy bar in the check out line of a grocery store,” said Michael Hendrickson, a property manager and real estate agent in Middle Tennessee.  “A lot of buyers see something they like and immediately want to purchase it without due diligence.”

Michael compared buying a candy bar with buying a house, “An attractively wrapped chocolate bar is high in calories, cholesterol, and fat and definitely not good for you in the long-term.  That’s the house a buyer sees, but there are many more houses (and candy bars) on the shelf.  You do your research and find that a peppermint patty is better because it has no trans-fats.  And there are a lot of peppermint patties on the shelves too.”

The same goes in today’s housing market.  You might see one you like, but it’s important to look at all the information on the wrapper.  Just down the road could be a new construction that’s move-in ready for just a thousand dollars more than what you’ll ultimately pay for remodeling the original home.  The benefit?  You won’t have to put on a new roof, new carpet, new paint yourself, and can probably get a builders warranty and be comfortably settled in your new home within 30 days.

When you go to the market, everyone looks for sales but sometimes bubba cola can not replace the real thing.

It’s a candy store for buyers.  Shop wisely.

Photo from here.

Home sales did worse than expected in August and signal that a housing market recovery could still be a distant dream rather than a short-term reality.  Not only did existing home sales drop 2.2 percent, but the median existing home price fell 9.5 percent to $203,100, according to FinancialTimes.com. 

Even more grim, the number of properties in a distressed sale is astounding,

“There has been no meaningful change in the level of activity since late last fall,” said Ian Shepherdson of High Frequency Economics.“The NAR estimates that 35 per cent to 40 per cent of all sales are of distressed property, so underlying private activity is weaker than the headlines and there is little sign of imminent improvement.”

Meanwhile investigations are underway into the cause of the subprime lending mess said to be the first domino to fall in the liquifying economy.

Federal investigators have expanded their investigation into the collapse of the subprime mortgage market to include Fannie Mae, Freddie Mac, Lehman Brothers and AIG - four companies at the heart of the market turmoil.

Enforcement officials are under growing pressure to hold companies and individuals responsible for the worst financial crisis since the Great Depression.

These investigations may help to satisfy some of the anger felt by many Americans over what appears to be a bailout for irresponsible financial management.  No matter the fault, however, the rescue plan may not be enough to give housing the boost it needs for a strong recovery.  MSNBC.com reports,

Despite the Bush administration’s historic and head-spinning $700 billion rescue of the financial industry, it will do little to ease lending standards so more homebuyers can qualify for loans, nor has it had much affect on mortgage interest rates so far.

Houses are sitting empty all across the country and the longer the homes remain dormant, the more value they lose.  Vandals, gangs, and mother nature tend to turn neighborhoods with high foreclosure rates into blighted areas.  The Christian Science Monitor recently told about a man arrested for building a new house made entirely of pilfered materials.  The story went on to say,

As the housing dominoes fall far from Wall Street, growing urban “ghost towns” of vacant houses are resulting in a costly crush of weeds, trash, and dereliction on a scale unseen in American cities since the Great Depression, economists say.

With all this brewing, I’m wondering why there isn’t more talk about a moratorium on foreclosures - at least for a month or two to allow the government and investigators time to sort through the loans, to keep homes from being abandoned and empty, and to allow everyone to take a deep breath and settle down a bit.