A recent report issued by RealtyTrac® indicates foreclosure activity in the month of April was at its lowest point since December 2007. That might sound like good news, until you dig a little deeper.
The reduction in the number of foreclosures processed is largely due to the increase in the amount of time it takes to foreclose. The same report indicated it took an average of 400 days to foreclose in the first quarter of 2011. That’s up from an average of 340 days during the same period last year.
For some perspective, in 2007, foreclosures took about 151 days.
What does this mean for the housing market and those interested in buying a home? Well, as I’ve said before, I don’t have a crystal ball. However, if I were in the market and could afford to wait a few months to buy, I might consider holding out, unless you think the opportunity is just too good to pass up.
I think we’re going to see a wave of foreclosures hit the market between now and the end of the year. This could be especially true in states such as Massachusetts, New Jersey and Nevada.
Unfortunately for sellers, this probably means home valuations are headed lower again. Simple economics tells us that as supply increases, the price decreases (all other factors being equal, of course). Again, bad news if you are planning to sell, but potentially good news if you are in the market to buy.
The “X” factor in this discussion is interest rates, which are hovering at around 4.5% for a 30-year mortgage. I believe the Fed has kept rates too low too long in an effort to help a sputtering housing recovery. They know if they raise rates while potential home-buyers are already on the fence, the housing recovery could completely stall.
I recognize it is a delicate balancing act, but I think the pendulum has swung too far for too long.
The benefit of low rates is that borrowing money to buy a home may not be cheaper for a generation. The downside is inflation; as we’ve all experienced at the grocery stores, gas stations and elsewhere over the last several months.
If interest rates begin to move up, as I suspect they will soon, a shaky housing market could cool even further. In a matter of months we could be looking at higher costs to borrow and a wave of new foreclosures hitting the market. Not a good combination for homeowners.
Real Estate Investors
This could make for a good time to buy an investment property, if you are so inclined, and your finances allow it.
In a recent post I discussed the dilemma of being out of debt and wondering how to allocate money to savings, investing, etc.
I’m not much of a market timer, however, I’m also convinced the market is just about maxed out in the near term and may backslide a bit in the coming months (particularly if this housing market gets any uglier).
Instead of piling cash into investments that may soon get the rug pulled out from under them, it might make since to invest in more tangible assets, such as real estate. Now, I have no illusions of fixing and flipping, rather I’d love to find a small property that I could rent out, using the cash flow to pay off the mortgage quickly and enjoy years of rental income.
Even if the house itself appreciates very little over the years, the earnings from renting could make real estate investing a profitable idea. Until the real estate market shakes out, I bet the number of renters increases significantly, increasing the demand for rental properties.
Of course, if you have enough cash, and enough patience (and savvy) you could even look at buying a foreclosure.
If you aren’t up for land-lording, it may also be a good time to look at land – timberland, farmland, etc. Like my grandfather used to say, “They ain’t making any more of it.” I suspect land itself (improved or otherwise) will continue to appreciate more than home values in the near term. And of course with the news of food shortages, farmland has been a very hot commodity in recent months.
In addition to traditional investments such as stocks and bonds, I believe real estate, in some form, should be part of your overall investment mix, along with more conservative investments such as CDs, cash, and gold and silver. You can adjust the mix according to various factors such as your age, risk tolerance, etc.