I am not an econemist nor do I portend to have any educational background in finance, but I can tell you what I am seeing and how I believe it will effect the market over the next couple of years. . . . For many years I have been closing on 100% financing loans in the greater Springfield, Massachusetts area consisting of 2 year Arms and Balloon notes in a common 80-20 scheme that worked well if the value of a borrower's home increased so that they could consolidate their mortgages to one 30 year fixed at a decent rate. At the same time I have watched many investers purchase multifamily homes based upon speculation of future values rather than the earnings and cash flow of the buildings, i.e. they were willing to take short term losses in rent for future gains in the resale value of the investment. Then the market changed. . . . future values do not look as good as they did as prices are falling. The last clients that I did 80-20's with may not be able to consolidate their mortgages and as the adjustable rates on the ARMs kick in, they may not be able to afford their paymenmts and thus I fea the foreclosures have only just begun. . . .
If we review these happenings in the light of a basic supply and demand analysis we see the demise of the sub-prime market has greatly reduced our demand (there are not as many Buyers who qualify to purchase a home) and the supply has increased with the number of Sellers looking to cash in on their investments, with the introduction of many foreclosures or bank owned properties to the matket and with the increase in the number of tax-title auctions that are taking place in Sprngfield and in other municipalities as they attempt to clean their books and collect back-owed taxes and ballance their budgets. Over all we have a perfect storm that will keep prices falling for at least as long as the last 80-20 sub-prime loans have before they go variable, become delinquent and are auctioned off in a foreclosure. . . .
That being said, I strongly believe that if iterest rates remain at the 6.00% rate no points 30 year fixed mortgegae rates we have seen steadily now for a year; over the next year and 1/2 and the job rate stays the same, the market should level off after this adjustment period. At that time, perhaps the most interesting property may be the smaller multifamilies. the reason being that rents do not appearr to be adjusting with this market. In the Springfield mA area, rents above $700.00 per unit are not uncommon. If prices on these multifamilies dip enough to allow investors to realize profits while they hold the property on the short term these properties will agin likely increase in value as they are purchsed. Investors may realize immediate gains through positive cash flow and gains in the future when prices for these homes begin to increase again.
Keep your eye on the multifamilies over the next year. They may become an excellen value.
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