Where Have All The Buyers Gone?
Today’s real estate market is tough and scary. A couple of years ago, if a buyer could “fog up a mirror” they could be approved for a loan. Credit scores didn’t really matter. Someone always had a program that would put almost anybody into a home loan. If you didn’t have any verifiable income, no big deal, we’ll use a stated income product. These loans became known as “liar loans” because you could “state” that you made “X” number of dollars and no one would check to see if it was remotely true. The mortgage broker made his processing fee, you made a tidy profit on the sale of the house and everybody was fat, dumb and happy.
That was then. This is now. With all the mortgage problems going on i.e. massive foreclosures, huge bail outs of formally rock solid financial institutions, questionable loan practices being exposed, etc, things have tightened up immensely on existing homes. New home construction of spec homes has dropped 75 to 80 percent. Builders built 6, 8, 10 or more spec homes in a subdivision and bought extra lots to build on in the near future. As the lending practices tightened those spec homes just sat. Each month they sat the interest payment would become due. Multiply by 6 or 10 each month and money begins to run short. Ultimately, many builders have gone under due to over speculation and easy lending practices.
The pendulum of easy credit had swung way over on the easy side. Now as a correction, the pendulum has swung and is continuing to swing to the strict side. I have mixed emotions about this swing. From one side I prefer the easy credit, both for me getting loans to buy properties and especially for me to sell properties. The quicker and easier my buyer can get financing, the quicker and easier I get a big fat payday when they cash me out. Easy credit does put people who maybe shouldn’t qualify for a loan into a house. This ends up putting them into a foreclosure situation which just wrecks their lives. The bank takes back the property, oftentimes in bad condition, and then takes a big “hit” and sells the property at a discount to get it off their books as a non-performing asset. The “REO” (real estate owned) dept of the mortgage company has many properties on which they have foreclosed. They sell the properties off cheaply which drives the overall housing prices down. Homeowners who were financed on an adjustable rate mortgage and betting on their house appreciating in value so they would have more equity and thereby qualify for a better fixed rate mortgage have had a rude awakening. Their home has dropped in value and now they can’t refinance and the adjustable rate mortgage adjusts up and now they can’t afford the new higher payment. They fall behind and they are the second wave of foreclosure “victims”. I use the term victim loosely because they were betting on a particular scenario and it didn’t come to fruition and they lost.
Back to the original question. Where have all the buyers gone? Many are now looking for a lease to own arrangement because they either have damaged credit or they just don’t qualify under today’s stringent guidelines. If you have properties that you can offer a lease to own arrangement, you can do very well in today’s market. What do you mean, “you don’t have any money to buy houses in this tight economy”. Do you have an IRA? Did you know you can use your IRA or even a friend’s IRA or a relative’s IRA to buy investment real estate? What about the strategy of buying “subject to” as discussed in the previous posting? Did you go to www.etrrf.networthusa.com and check out the programs available to show you how to do this stuff? What are you waiting for? Take action! Use your backbone, not your wishbone!
