I've been in real estate for over 30 years. I've seen markets soar and sour. I've seen interest rates so high that you would think you were charging your house to a credit card. I've seen government programs come and go with varying degrees of success.
Yesterday I had to look up a monthly mortgage payment. I'm old fashioned enough that I have a book of tables that dates back to 1982. My client wanted me to check to see what a monthly payment would be for a loan at 5 1/2%. I couldn't tell him. My charts didn't go below 9% and the formulas didn't go below 6%, but they went up to 20%. It reminded me that today's mortgage rates are amazingly low...historically low...and can't possibly last.
There's a rumor floating around that the government would be endorsing or backing or causing a mortgage rate of 4% to be made available to the public. That's probably not going to happen. And it probably shouldn't. Historically, mortgage rates of 7% to 10% signal a healthy economy...anything above or below those rates mean something isn't right.
If I were to characterize my political leanings, I would say I'm a liberal leaning independent with strong faith in a free market economy. That sounds a bit contradictory, but I can live with it. I have faith that the housing market will make a recovery faster if it is left somewhat alone. The free market economy will find solutions to the problems because, as a nation, we are fairly creative.
Recently I heard of some investors who put together a "vulture fund". They bought up about 40 non-performing mortgages. They paid about fifty cents on the dollar (an amount greater than what the lenders would have gotten if they went through with the foreclosures and then sold the properties). The fund manager then went to the individual borrowers and renegotiated the loans. Here's an example: they had bought a mortgage with a face value of $400,000 and paid $200,000 for it. They went to the homeowner and asked if they would like to rewrite the loan for $300,000 at current market rates. If the borrower/homeowner was able to qualify for this new loan, they could stay in their home. If they couldn't qualify for the new loan, the fund asked if they would like to rent it back for a year. In both those scenarios, the home did not go into foreclosure nor did the homeowner have to move. Saving a home from foreclosure helps the neighborhood, the community...the housing market. And the investors are looking at a great return on their investment! If the loan was rewritten, they picked up 50% return on their asset...plus a reasonable income stream from the payments. If the loan wasn't rewritten, they got an income stream that allowed them to sit out the declining real estate market for a while before putting the house on the market.
This investment strategy was done without TARP money, without taxpayer money, without government intervention. It was done with private money and ingenuity. The original lender got rid of a non-performing asset that was written down to practically no value on their books and replaced it with cash, thus improving their balance sheet. The investment fund is providing great yields to the investors. The homeowner is still in their home. There are a few smiles out there.
So where are these ramblings taking me (and, more importantly, what do they mean to you?) In my experience, I haven't seen more bargains in real estate than I am seeing today and I haven't seen mortgage rates much better than they are today. It doesn't get much better than this for buying real estate! Credit is loosening, mortgages are available and somewhere out there is a property that will make you happy you are looking to buy! As for selling, stay strong and patient (and if you don't need to sell, don't put it on the market!) and stay realistic. It's taking longer to sell unless the property is priced to compete with the foreclosures and short sales. But there are still buyers looking at ALL listings.
To quote Warren Buffett: "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." Now is the time to buy.
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