Another Real Estate market crash may soon be upon us...

     As the title of this post insinuates, I believe that we may be on the verge of another Real Estate market crash, despite the down market.  Our own fear or apprehension to participate in the market may end up being the cause.  Let me explain:

A brief history lesson
 
     Up until the mid 20th century, US Dollars were backed by commodities such as gold and silver and, therefore, had a finite supply.  Money could not be printed at will since it needed to be backed by these commodities which were finite.  The investors that withdrew all of their money from the stock market during the crash that caused the Great Depression were simply holding on to it rather than reinvesting and so the cash basically dried up.  The depression was caused by the fact that no money was being spent, and therefore, no money was made by the manufacturers to pay their employees.  Now, President Richard Nixon signed a bill in 1971 which ended the backing of US currency by gold and created a new system where the Dollar was backed by debt.  This is what causes the value of our currency to decline over time, also know as inflation.  This also means that there is no limit to the amount of money that the government may print in order to stimulate the economy or bail out banks or large car companies from their imminent demise, they may print at will. 

More recent history
 

     The stock market, as we all know, began to bubble in the 1990s due to the DOT COM craze.  It grew to it's largest point in history due to speculation in all these new companies and reached it's peak in and began to decline in March of 2000.  As a result of the declining market, many investors began pulling their money out which caused the market to fall even more and caused even more investors to exit the declining market. This mass hysteria caused the stock market to crash and lost many investors money that took their entire lives to save.

     As a result of the stock market crash, the government decided to lower interest rates in order to stimulate the economy and keep it afloat.  They had learned their lesson from the crash that caused the Great Depression back in the 1920s and 1930s when the problem wasn't the value of the US Dollar, it was the absence of the Dollar.  The lower interest rates caused many people that couldn't afford a home prior to this period in time to suddenly qualify and the buying began.  The banks, motivated to write as many new mortgages as possible, began allowing many very questionable buyers to qualify with interest only mortgages, adjustable rate mortgages and other loans with great starting terms, but unforseeable destructive terms later on, which is partly what caused the current recession.  Investors, seeing the feeding frenzy, began doing what they do best, taking advantage of the demand, and began buying up properties to flip.  With the motivation of buyers desperate to buy a home, demand was soaring and, therefore, prices soared.  When the bubble finally burst, many a homeowner found themselves upside down in a home worth half of what they had paid for it and an unmanagable mortgage payment.  Banks began to foreclose, prices dropped even further in response and we found ourselves in our current market situation.

The crystal ball

     Now, why do I believe that we are in for another crash?  Well, since the market is extremely slow right now, prices have stabalized and we are flooded with foreclosures that noone is buying, Real Estate investors are buying them all.  They can't resist the deep discounts that are available and the potential millions to be made from a population either too afriad to buy or waiting to buy because they think prices will fall further, and are therefore renting.  Now, as we discussed above, the government has flooded the economy with bailout dollars that didn't exist prior to the recent market crash and is currently in negotiations to raise the defecit ceiling to provide more money for the budget.  The resistance of the House of Representatives will cause the government to seek out other forms of funding, one of which will likely be income from raising interest rates.  When the interest rates bagin to climb, we who were waiting patiently for prices to fall further will make a mad dash to buy a home while they can still secure a 5 or 6 percent rate as the rate continues to climb.  Who will we be buying these homes from?  You guessed it, from the same investors that bought them all during the recession, who will now be setting the prices and creating a new bubble.  This bubble will inevitably burst causing another crash, quite possibly worse than the one that we're currently in.

      Will this new crash occur?  I believe it will, but I also believe that it can be prevented.  Participation in today's housing market will help to clear off the inventory of distressed property currently available and will help to stabalize the reeling economy.  Interest rates will likely still rise, investors will likely still sell, but the impact can be far less if buyers are already happy and secure in their deeply discounted property aquired through taking advantage of the current down market.


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Homepath: Fannie Mae's gift to investors

     I've been a bit reluctant to post about this particular topic.  I was informed shortly after I received my Real Estate license that, as a licensee, I'm no longer eligible to participate in this loan program, and thus it's been a sore subject for me.  The fact remains, though, the Fannie Mae Homepath program is a godsend for investors in a period when most banks won't even talk to us, let alone underwrite a loan for an investor property.  I'd like to take a few minutes and summarize the benefits of using this program to buy a home.

     The Homepath mortgage and Homepath Renovation Mortgage are loan programs backed by Fannie Mae as a VA or FHA loan are backed by the VA or FHA.  None of these entitys actually issue loans, they merely guarantee the money for the loan to the banks that underwrite them for the benefit of a qualifying debtor.  Fannie Mae properties, those foreclosed upon and which are now being sold by Fannie Mae, can be found on the Homepath website for just about every area in the US.  Not only are most of the homes listed here being offered at extremely great discounts, but some also qualify for Homepath financing either with a Homepath Mortgage or with a Homepath Renovation Mortgage.  For the average consumer, one can receive a great deal with terms such as (copied from the Homepath website):

• Low down payment and flexible mortgage terms (fixed–rate, adjustable rate, or interest–only).
• Down payment (at least 3 percent) can be funded by the borrower’s own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer.
• No lender-requested appraisal.
• No mortgage insurance; ask your lender for cost details on loans without mortgage insurance.
• Expanded seller contributions for closing costs allowed.
• Available for primary residences, second homes and investment properties.
• Many condo project requirements are waived; ask your lender for details.

     Now, for the subject of this post, note the line that says available for primary residences, second homes and investment properties.  The investment property portion is the godsend for those of us that invest, since they will allow one to make a 10% down payment AND still provide seller concessions for closing costs for single family properties that don't require the renovation financing.  For single family properties that do require renovation financing, you can expect a 15% down payment requirement, and for any multi-family property, you can expect a 25% down payment requirement.

     Agents, whether we are working for an investor buyer or for an average consumer buyer, we are doing our clients a disservice if we're not checking this inventory for a deal for our clients with a great mortgage to go along with their new home.  Furthermore, a $1,200 bonus is available to selling agents who submit an initial offer on or after June 14, 2011, and close on the HomePath property by October 31, 2011.  Just remember, selling agents must request the agent bonus at initial offer submission in order to receive it.

    So, in summary, whether you're an investor or a first time, second time or so-on home buyer, push your agent to check this inventory for a property for you, you could end up with a better deal than you could have imagined and the loan that you receive will likely beat anything you could have found on conventional terms.  Once again, the Homepath website has tons of great information and will allow you to search their inventory.  Check it out!

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