How to Handle the Housing Market for the Next 4 Years

Posted on October 17, 2009
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The US housing market has been in a slump since 2008. People are foreclosing left and right, and no one wants to buy a house. This is bad for home owners and property values, but great for investors.

The housing market is currently in a slump for a number of reasons, including:

the increasing number of foreclosures as sub-prime borrowers default on their loans
the related tightening of the credit market
the high level of debt many consumers now carry
and the unemployment that resulted as housing supply exceeded demand
the slumping economy, bordering on recession

Despite this economic downturn the housing market is expected to start its turnaround in the next couple of years, so buying property now could be a great idea for the investor with some cash.

In fact, as of late 2009 we are already seeing some interest in purchasing homes. This is even better news for the foreclosure investor. Let’s figure out how to handle this market in order to turn a profit.

The Real Estate Boom of 2005

During the height of the housing boom in 2005, mortgage lenders offered loans to just about anybody.

Home ownership was touted as the fulfillment of the American Dream. After all, don’t we get to deduct our mortgage interest on Schedule A? That proves Uncle Sam himself wants everybody to own a home.

In the face of all this persuasion, many people were able to convince themselves that taking out an adjustable rate mortgage to buy a home they could not afford was the patriotic thing to do.

Resale Woes

In addition, many investors bought property for resale when the market was up. Some of the property was still under construction. By the time the properties were completed, the market had begun to weaken and these owners found themselves facing foreclosure. They were “upside-down” on properties they could not resell.

Now, many of these same people are in foreclosure.

So, how did all the booming housing market suddenly fall apart?

The ARMs adjusted and they could no longer make their payments.
Investment units remained empty.
Lots of homes became available, driving the value of everything down.
New construction dried up and the workers lost their jobs.
Recoiling in horror, the lenders tightened up their loan qualifications.

How long will it take this situation to turn around?

Most analysts suggest 2-3 years. The population does continue to grow, so demand will eventually catch up with supply. Also, the number of single-person households is increasing due to divorce and longevity.

The current state of the housing market holds promise for the investor who can out wait the slump. The same rules that apply to the stock market apply to the housing market: buy low, sell high.

Buy Low

Most analysts agree we are at or near the bottom. Prices are low and they may not get much lower. There is a good selection of properties available.

A slump in the housing market creates problems for some and opportunities for others. However, the American economy has always had ups and downs. As an informed investor, you should consider buying property now.