The Real Estate Boom
He went on to cite a pool of loans made by Washington Mutual made in July ‘07. Out of nearly 1800 loans, by Feb ‘08 - 7 months later - over 6% were 30 days delinquent, 4% were 60 days delinquent, 3-1/2% were 90 days delinquent, 12% were in foreclosure proceedings and 3-1/2% were already REO - meaning that the homeonwer never made a single payment on the loan! Nearly 30% of those loans are in trouble!
And are these “deadbeats”? The average credit score of these borrowers is 704. The average loan amount is $519,000. And are these 110% loans? NO!! The average loan to value on these loans is 77%! The media’s perception that only inner-city, financially illiterate poor people are in trouble is a myth.
So what’s going on here? Because values have depreciated, the homeowner is unable to sell if they need to move (job transfer, divorce, death, marriage - you know, the things that people do in the process of living their lives.) They can’t refinance because they’re upside down - the loans they already have are more than the home is worth. In fact, the only thing they CAN do is walk away!
The speaker’s premise is that there IS a real estate boom - only it’s in REO’s!
So what are the implications for the average consumer? Well - as home sales go down, rentals go up. People need to live SOMEWHERE. For those that have cash to invest, now is the best time that I’ve seen in over 20 years to jump into the real estate investment game.
I’m sure that reading this, you are saying that prices MUST continue to drop. However, from my perspective - from being out pounding the pavement and kicking the bricks - it feels like we are already hovering very near the bottom. At least in the Chicago market. And this is all I do everyday: eat, drink, breathe and sleep what’s going on in the industry.
What I’m seeing is that - even in this market - when a property’s price hits ”the sweet spot” it is being sold in a matter of days. Why is that? How is that possible? Well, rents are rising - and in some areas they are rising dramatically! (A major shift from 3 years ago when landlords were desperate for renters.) If an investor is able to extract enough rent to cover expenses of ownership and realize a satisfactory ROI, then he’d be crazy NOT to buy.
This is not a market to do “flips” - or, as they say in the stock market, for the “momentum” investor. You must be prepared for a long term “buy and hold” position. Contact me if you want to look at some good candidates.
“All Things With Exuberance!”
mary!
