Post about "Real Estate"

Real Estate is Not a Good Investment

With falling property values, the stock market on a roller coaster ride and the economy worsening many people will wonder if it is time to start investing in real estate again. The answer to this question is a very simple and very obvious one: not any time soon.

Pending home sales fell by nearly 30 percent in June according to the National Association of Realtors. Many people will see this as an opportunity to pick up but bargain properties as investments but it is not.

Real Estate is Overvalued
The reason why people should avoid real estate investment at this time is that real estate is still way over valued in most of the United States. In many areas homes that are worth less than $100,000 are still being sold for $200,000-$300,000 and condominiums that are worth less than $100,000 are still being sold for a half million dollars.

If you don’t believe me take a look around your area, drive or walk around and look at the houses for sale. Chances are you’ll see broken down old dumps with smashed windows and shingles falling off the roof for sale. Do a quick Google search on those properties and you’ll discover that they’re probably selling for $100,000 or more.

The market for commercial property is even worse, I know of one depressed Colorado town with high unemployment where questionable retail space is renting for $900 a square foot. This space is being leased in a building in a very cold area where natural gas the cheapest fuel for central heating in the US is not available. This means heating costs will be double or triple those in an area where natural gas was available. Not surprisingly that retail space has been sitting empty for years.

Sooner or later the market will catch up with all that over priced real estate and property values will fall to realistic levels. My guess is that real estate prices in most areas of the United States will still have to fall by 25 to 50 percent to reach a realistic level of value. This means that persons who invest in property now could loose 25 to 50 percent of their investment.

Properties are Over-Mortgaged
The main reason properties are overvalued is that many of them are over-mortgaged. Over the past few years it was so easy to get a mortgage that many people put two, three, or even mortgages on their properties.

Many pieces of property are mortgaged for more than they are worth, they are “underwater” in real estate parlance. Media reports indicate that as many as 25 percent of American homes could be “underwater.”

One terrible situation out there is that many property owners who want to sell can’t because they know they couldn’t make enough from the sale to pay off their mortgage. Naturally, nobody will want to take over the mortgages on those properties because they would loose money. This means that a lot of real estate can’t be practically or legally sold at this time.

If this wasn’t bad enough, a lot of those underwater properties are encumbered by all sorts of liens, especially tax liens. This means that anybody who takes over such properties will be faced with a big legal bill.

There Will Be a Glut of Foreclosed Properties on the Market
Anybody who has followed the news over the past couple of years knows that are hundreds of thousands of homes in foreclosure. This means that people haven’t been able to pay their mortgages and have been evicted. To this figure we can probably thousands more homes where the owner has simply walked away and the mortgage holder hasn’t bothered to take the property back yet.

Many of these foreclosed properties are sitting empty and off the market right now. Quite a few realtors won’t touch foreclosures because of all the problems with them so they’re hard to sell.

Sooner or later all of those foreclosed properties are going to come on the market and drive real estate prices down further. In cities like Detroit and Cleveland where a large percentage of the homes are in foreclosure full sized homes in some neighborhoods are selling for less than $20,000. We’re going to see similar situations across the country in the next few years. When this occurs, the value of real estate in many cities such as Denver, Las Vegas and Los Angeles will fall to levels rivaling those of Cleveland and Detroit.

Property Taxes are Too High
To make matters worse we’ll soon see a situation where property taxes will exceed the value of the property in quite a few areas.

This will occur because in many areas of the country property taxes are based on “property value.” Unfortunately this property value has little or nothing to do with market value. The values used to determine property taxes are based on a figure determined by a government official usually the County Assessor in most areas this individual is elected and needs no training or expertise. In many areas it is based on what “comparable properties” sold for in the recent past. Not surprisingly the local government sets the property values as high as possible so it can collect as many taxes as possible.

In other areas the property taxes are based on what the property last sold for. This means if you bought your house for $500,000 in 2005 but its now worth $100,000 you would still be taxed as if the property was worth $500,000.

The property tax situation will make the foreclosure mess worse because many owners won’t be able to afford to pay their property taxes. Many owners will simply walk off and leave the property to be seized by the local government and sold at a tax auction for pennies on the dollar. Many of the foreclosed properties will also end up at the tax auction because nobody is paying the taxes on them which will greatly increase the real estate glut.

When to Invest in Real Estate Again
Naturally people will ask: when should I start investing in real estate again? The best answer to this question is when the real estate market hits bottom which should be in about two years.

At that time we’ll see a real estate investors’ paradise with great properties selling for $50,000-$100,000 or less. Many people will be able to pick up tremendous bargains at foreclosure and tax auctions.

Until then your best strategy is to avoid real estate investment and keep your money in money markets, stocks, foreign currencies, CDs or precious metals. If you have a lot of cash I would recommend that you put it in precious metals like gold because a collapse of the dollar could be just around the corner. If the Euro collapses because of the European debt crisis it will bring down the dollar. Some foreign currencies such as the Canadian and Australian dollars and the Swiss Franc will be good investments too.

It would also be a good idea to sell off any property other than your home that you own right now. That way you will be able to avoid taking a huge loss on it in the future. For seniors who have no mortgages on their home, I would recommend taking out a reverse mortgage and investing the cash from it in stocks or precious metals. This way they can still live in their home and cash in.

Real estate is simply not going to be a good investment in the United States for the next five to ten years. Smart people should start seeking alternatives to real estate investing now.

Real Estate Market Watch: Tell-Tale Signs of an Imminent Transition

Real estate consumers emerge as the victors in the latest array of real estate bubble headlines. The focus of the media reveals a wide set of information and opinions about real estate markets and practices to the individual property owner and investor. There are several tell-tale indications that hint at the underlying conditions of the real estate market. Real estate professionals may not make explicit mention of them, but the clues do not lie. Different forms of incentive schemes are being offered by developers on newly construction buildings or homes. The vast existence of such incentive schemes beacons a high inventory or excess supply of new units. To find out what this hint is telling about the real estate market, research the length of time that a property has been listed on the market in a particular location. If most of the properties listed for sale have been sold in at most thirty days within a ninety-day period, despite currently prevailing market times for the majority of sold properties being at least 60 days, then the real estate market is on the verge of relaxation.Also examine for multiple-offer bidding wars losing ground. Find out by inquiring several high-producing real estate agents within a locality about the percentage of properties going under contract that are receiving multiple offers. If the number of properties that receive multiple offers prior to being sold is diminishing, then the real estate market is transitioning from being a sellers market to being a buyers market.Rising absorption rates for properties that are currently listed as for-sale can also be a source of critical information about a particular real estate market. To derive a quantitative assessment, compute the absorption rate of properties of a specific type (e.g., condo, single family home, etc.) that are for sale in a specific real estate market. As a point of comparison, the current baseline for the number-of-months inventory for comparable current listings is 3.Also look out for escalating mortgage interest rates. Home prices and mortgage rates interdependently affect one other. That is, as interest rates plummet, buyers can afford to pay higher prices for housing. On the other hand, as interest rates climb up, buyers can only qualify for lower mortgages. Generally, higher interest rates reallocate consumer spending from home prices towards mortgage interest cost. Interest rates are helpful predictors of price deflation.Observe an increased in the use of interest-only, or 100% home mortgage financing. Majority of buyers typically have purchased in the last three years. The rest could very well be credit-challenged. A no-money-down or interest-only offer presents no risk exposure to buyers, thus they could easily walk away even before the purchase is closed or settled. For a seller to protect his or her interest, asking for 5 % earnest money to bind the buyer in breaching the contract is a practical suggestion.Lastly, reading and understanding market signals in general is also important.. High absorption rates and escalating mortgage interest rates hint at a market that is gradually evolving into a buyers market. A wise strategy is selling a real estate property before the price plummets. Being equipped with an understanding of these several market signals and timing can spell the difference between profit and loss in today’s waning residential real estate energy.