The latest housing numbers aren’t pretty. But they’re about to seem a lot better. Here’s why that’s happening. The whole key to correcting our crappy housing market is to eliminate the excess and surplus inventory of homes. (And getting rid of the foreclosures).
The issue we are seemingly unable to address is what to do when a homeowner either can't make his payments, or simply wants out of his contract because as far as he can see, the house isn't worth the money he agreed to pay, back when he bought it. In either case the homeowner is what we call, underwater.
Banks are increasingly offering underwater homeowners a way out that’s less familiar than the well-known process of foreclosure. Instead, they’re employing a strategy called a deed-in-lieu of foreclosure. Here's how that works, a homeowner (currently paid up on their mortgage or not) can voluntarily sign the deed of their home over to their lender. In exchange, the loan is canceled.
It’s different — but not that different — than a foreclosure. It lets an underwater homeowner out, and saves everyone the legal hassle of a foreclosure. It extinguishes a debt that might have been a bad idea for the purchaser in the first place. But getting a borrower off the bank's hook may not cover all the bases; banks may report the deed-in-lieu to the IRS and to credit bureaus, although a lender’s credit might not be as harmed as it would under a foreclosure.
The bad news is it still means that housing supply is ratcheting up. But it's good news for banks, who can avoid legal expenses and it creates the illusion that foreclosure rate are dropping. In the mean time former owners are being driven to renting.
Undoubtedly, the illusion of declining foreclosure rates will play a role in pretending that the economy isn’t so bad, especially during next year’s presidential election. But make no mistake. Housing prices continue to reflect the underlying reality of the economy.
Banks are increasingly offering underwater homeowners a way out that’s less familiar than the well-known process of foreclosure. Instead, they’re employing a strategy called a deed-in-lieu of foreclosure. Here's how that works, a homeowner (currently paid up on their mortgage or not) can voluntarily sign the deed of their home over to their lender. In exchange, the loan is canceled.
It’s different — but not that different — than a foreclosure. It lets an underwater homeowner out, and saves everyone the legal hassle of a foreclosure. It extinguishes a debt that might have been a bad idea for the purchaser in the first place. But getting a borrower off the bank's hook may not cover all the bases; banks may report the deed-in-lieu to the IRS and to credit bureaus, although a lender’s credit might not be as harmed as it would under a foreclosure.
The bad news is it still means that housing supply is ratcheting up. But it's good news for banks, who can avoid legal expenses and it creates the illusion that foreclosure rate are dropping. In the mean time former owners are being driven to renting.
Undoubtedly, the illusion of declining foreclosure rates will play a role in pretending that the economy isn’t so bad, especially during next year’s presidential election. But make no mistake. Housing prices continue to reflect the underlying reality of the economy.
And house prices are probably lower than they have been at any time in the last 50 years (adjusted for inflation). Now is the time to buy in and hold—if you can. I know my opinion until now has been that the market has been awful, but when you think of real estate as an investment, now is the time to buy.
Now is when you can get the lowest financing rates. Now is when the selling prices are scraping the bottom, and now is a time when more Americans need to rent. So buying one or more homes right now with the idea of holding them (as an investment) as rentals is an excellent idea.
For investors with the financial resources to obtain a loan, the willingness to put in some hard work, and the patience for a long-term investment, real estate is now a great buy.
Today's good news/bad news: The supply of homes will dry up over the next year. So expect fewer foreclosures and more “bank owned” properties (think “deals”). If you get in now, plan to buy and hold for the long term investment--don’t expect to flip a property for huge profits anytime soon. Real Estate is not that liquid, but it's also not likely to be going down (like gold) anytime soon.
For investors with the financial resources to obtain a loan, the willingness to put in some hard work, and the patience for a long-term investment, real estate is now a great buy.
Today's good news/bad news: The supply of homes will dry up over the next year. So expect fewer foreclosures and more “bank owned” properties (think “deals”). If you get in now, plan to buy and hold for the long term investment--don’t expect to flip a property for huge profits anytime soon. Real Estate is not that liquid, but it's also not likely to be going down (like gold) anytime soon.
Dane Hahn is a real estate professional with Tarpon Coast Realty, call him at 941-681-0312, or at dane.hahn@gmail.com. See him on the web at http://www.danesellsflorida.com/
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