Tag Archives: Real Estate Investment

Foreclosures continue to expand…

According to the website zillow.com 1/4 of all houses sold last quarter were sold for less than was paid. Not only are people dumping their real estate as fast as they can, foreclosures just continue to accelerate. It seems that the government bail out plan hasn’t had an immediate effect on the problem.

If you’re interested in taking a look as some of the many foreclosure listings you can access one of the top sites on the Internet for free foreclosure listings, including foreclosed homes in all 50 states, HUD foreclosures and Washington Mutual REO properties.

Flood of People Set To Walk Away From Their Mortgage

Panicked by rising foreclosures, banks and the government are willing to do just about anything to stem the tide. More regulations, rules, bailouts (primarily directed to the banks themselves) may slow the reckoning, but ultimately doesn’t the market need to do what the market does?

We’ve discussed this before here… The catalyst to the current economic crisis was real estate and although there are many other fundamental problems with the US economy (debt, trade deficits, weak dollar, etc.), real estate is the primary problem.

The trouble with realestate is that prices went up so much so quickly. Naturally, nobody complains when the market is driving prices up at an absurd rate. When things go the other direction (even falling just 5% so far), regulators and politicians act as though the sky is falling.

The tipping point: Walk Aways (AKA MilkWalkers)

Fact is things can, and probably will, get much worse. Right now, a number of market forces are doing their thing… correcting the market and driving down real estate values. These forces squeeze even the non subprime homeowners. Putting their biggest “investment” in the red.

Adopting the Milk And Walk Strategy

Underwater on their homes, reasonable, responsible homeowners must ask themselves if it’s worth sticking it out. At some point, more and more homeowners who could afford to pay their mortgage will simply stop. They’ll stay in their home not paying the mortgage for as long as they can. And when the bank says they need to leave, they’ll just walk away. This Milk and Walk strategy is shockingly effective. As more people discover it, it’ll become widespread.

In fact, I know two people that are doing this right now. One hasn’t paid a mortgage payment in 11 months. He’s still in “his” home that he “bought” two years ago for 2,500,000. He’s stalling the bank through a variety of strategies. At the end of the day, he’ll simply walk using a years worth of mortgage payments to fund his future rental home.

Barriers to Milk Walking…

As prices plunge there’s only a few things keeping people from pulling the plug on the mortgage payments and voluntarily going into foreclosure.

  • Future Prices Psychology: If the homeowner believes that things are bad now and only going to get worse, they’re far more likely to stop paying, milk the clock on the bank then just walk away. Each individual does what they think is best for them and their family.
  • Social Stigma: If homeowners think they can cut their losses and walk away from a bad investment without being looked down upon by other people they’re far more likely to do it. There might still be some negative view of people who walk away from their debts, but more and more it appears that homeowners are being cast in the role of victim. This makes it far easier for them to walk away from the “injustice of unscrupulous brokers, banks and appraisers.” As more people turn to a Milk the clock then take a walk strategy, others will follow in greater and greater numbers. The “social proof” that Milking/Walking can be done and that others are doing it will cause numbers to increase massively.
  • Availability of other options: Homeowners truly struggling probably won’t be too picky about the housing they’ll be in after they decide to walk, but better heeled homeowners will. If there are good rental housing options at reasonable prices then these folks are much more likely to make the decision and pull the plug. Given the available inventory of unsold homes on the market, I’m guessing many will have to be converted to rental. If this happens then these “MilkWalkers” might be able to walk away from a mountain of debt in their old home and actually UPGRADE to a better home as a rental saving thousands of dollars along the way.

Quite frankly, if this trend picks up I don’t see what can stop the downward spiral in the economy. It could be bloody. The trillions of dollars “lost” in this scenario would make the losses to date look like a rounding error. I think if the trend picks up, government officials might step in with a carrot and stick approach to solving the problem perhaps going to the extreme of making it a crime to walk away. That would certainly be a frighteningly high level of government intervention in our “free markets”, but so far they’ve indicated they’ll do just about anything.

Three Percent of Homes To Go To Foreclosure

Shocking information from Pew Center shows that 3% of homes will face foreclosure in the next three years.   It’s  far worse in some states like California which is projected to have 1 in 20 or 5% of all homes turn into foreclosures.   No, doubt the dream of home ownership has been shattered by recent economic twists and turns.

What about those that don’t go into foreclosure?

Plummeting real estate values will dominate the landscape as more and more homes are seized by banks and liquidated at far lower values.   Neighborhoods likely will deteriorate.   “Wealth” will be destroyed.   If PEW is right, it looks like those on CNBC who predict we’re at a bottom are very wrong

The credit crisis started in housing and will continue to expand as housing values continue to deteriorate.   Until we reach a floor in real estate values, how can we not see continued erosion of the credit markets?

I think the cycle of pain is just getting started.

Real Estate Market Near Bottom, Not Even Close

It’s difficult to see any upside to the US real estate market. Unless of course you’re a buyer. Last month it was reported that foreclosures are up a staggering 60% from the same month a year ago.

Even worse it was recently reported that housing prices have a long way down to go. One expert (The CEO of Fannie May, no less) predicts that housing prices have only fallen 30% as far as they will go. That means the pain has only just begun!

Hard to imagine real estate prices falling another 70%, but one things for sure, it’s a rough time to be a seller.

On a personal note, we recently sold one of our (non-investment) homes in Asheville, NC. We bought the house about two years ago, near the market peak. We sold it for about 20% less than we paid. Like many sellers, we were happy to have sold the domain even at a loss.

Foreclosure mess expected to get worse

Over the last several weeks numerous sources have reported that the foreclosure situation is bad and expected to get far worse.    Even in states like New Hampshire which wasn’t as effected by the real estate boom as say California,  it’s expected that 6,000 will face foreclosure this year and potentially more next year.

California is probably the hardest hit state due to the huge number of highly leveraged investor purchases.   Foreclosure Listings for California on FreeForeclosureDatabase.com currently number greater than 10,000.

Two questions come to mind:

Have we reached the bottom of the market?   If not, how much further down will the market go before we reach the bottom?


What effect will a government bail out have on the real estate market?

My belief is that we’re far from a bottom in real estate.   I’ve read several estimates that the market needs to correct 30% or more before we hit bottom.   The last report I saw said that prices have only dropped by <6% so far.   If that’s correct we are at the very beginning of this corrections and there’s going to be a lot more foreclosure listings before this is all said and done.

Regarding a government bailout… it’s too soon to tell.   I think it’s a horrible idea in general.  My small government feelings aside, the plan hasn’t been fully revealed so there are a lot of gaps to fill in.   It could help provide some support for housing prices, but it will certainly have unintended consequences which will likely only push the reckoning day down the road a little further.

It’s time to be a foreclosure investor

If you are an investor, you may already know that real estate offers many exciting areas for revenue and profits, but unless you are considering foreclosure properties as well, you may not be getting the most for your property dollar. Under current market conditions, it’s important to be a bargain hunter, and with the boom in foreclosures there’s a real opportunity for well positioned investors.

In general, a foreclosure is a real estate property that has been repossessed, usually because the owner was not able to make mortgage payments. Once the lender legally repossesses the property through a legal process known as foreclosure, the property can be sold again to investors and other property buyers. There are several sellers you can turn to for a foreclosure:

1) The government. When a home owner defaults on a home loan insured by the government, the government pays the lender for the money lost through the loan. In exchange, the lender hands the home over to the government agency and the government then sells the property in order to make up the money that has to be paid to the lender. From the government, you can buy an HUD foreclosure, a VA foreclosure, and a Fannie Mae foreclosure.

2) Banks and other lenders. When a home loan is not insured by the government, the lender has all the responsibility of a bad loan. This means that when the owner defaults, the lender repossesses the property and tries to sell it themselves or through a third party.

3) The owner. When an owner knows that foreclosure is imminent, they still have the option of selling the property as a pre foreclosure and paying off the lender. This saves their credit and may give them some cash. Buying a pre foreclosure can be risky but can also give an investor some great deals in real estate.

However you buy a foreclosure, you can expect certain benefits. Most of the time, a foreclosure is sold under it’s market value, which means that you can buy this sort of property very inexpensively. Since a foreclosure may have been neglected for a while and since the seller wants to get rid of it fast, you can expect savings of 5% to 50% and more when you buy a foreclosure. This means that you enjoy instant equity you can use right away. The low price also means that you can offer great deals on the property to your own buyers and renters. Plus, the low price and equity you get on a foreclosure can mean very affordable financing, so that you save money all around, which an boost your bottom line.

With these benefits, you may want to buy a foreclosure of your own. Don’t look in your local real estate section, though – most foreclosure properties are unadvertised. The best way to find a foreclosure is to subscribe to quality foreclosure listings service. Good foreclosure listings offer frequently updated lists of foreclosures that are available for you right now. Online home foreclosure listings such FreeForeclosureDatabase.com make finding a foreclosure a snap, no matter where you live. Plus, you can browse Listings for free. No registration is required, so there is no need for you to pay big bucks to make money with foreclosure properties.

Foreclosure stats underreported in 2006

Nearly Everyone is becoming more concerned about the sub-prime lending mess and the subsequent home forclosures.   Now, a recent analysis shows that Real Estate foreclosure stats were actually dramatically underreported in 2006.  

According to the ECM Post Review:

More than 60 community leaders from outstate Minnesota gathered in Saint Cloud to hear the results of a new study documenting that foreclosures in Minnesota are occurring at twice the rate previously being reported to Congress and other policymakers. The summit was convened by Greater Minnesota Housing Fund, a statewide non-profit affordable housing organization.

“This newest study reveals what was an invisible epidemic of foreclosures in Greater Minnesota,” said Warren Hanson, president of Greater Minnesota Housing Fund. “We now see that the foreclosure crisis extends to every corner of the state and hurts both families and neighboring property owners,” said Hanson.

The new study quantified for the first time the number of actual sheriffs’ sales of foreclosed properties county by county in Minnesota in 2006. It found a stunning 11,207 foreclosures statewide – nearly double the 5,995 reported in a national study conducted by RealtyTrac, a leading provider of real estate industry data, over the same period.

What if the foreclosure reports for 2006 are substantially off not just for MN but for the entire country?   What does that say about the reporting systems in place currently?   And, doesn’t this situation make the lender mess look even worse?   

Bad news all around… Unless, of course you’re a Real Estate investor in a strong buying position.   There’s lots of buying opportunities out there and it’s easier than ever to browse through home foreclosure listings to find great deals.    Appraisers, Brokers, Banks, the Fed and homeowners themselves drove the Real Estate bubble.   As it pops, there’s many great opportunities to profit from their excesses.