Is there any Profit to be Made from the Recent Real Estate Slump

If real estate moguls like Donald Trump and Robert Allen are to be believed, this is an excellent time to invest in the real estate market. Both individuals have upcoming seminars on this topic and Trump has dubbed his the “Fast Track To Foreclosure Investing.”

The mounting housing foreclosure problem in the U.S. has led the House to pass a plan that would let the Federal Housing Administration undertake an additional $300 billion in new mortgages. This would allow homeowners facing foreclosure to refinance. The mortgagor would have to be willing to take a loss of approximately 36 percent which could mean that a homeowner with a $300,000 property might save as much as $1000 per month over his current payment. The banks holding these loans would be losing less money than if the properties were to go into foreclosure which can cause a loss of 50 percent plus. President Bush has threatened to veto the measure.

Foreclosure filings were up 65 percent last month as compared with April, 2007. The states that were leading this category include California, Arizona, Nevada and Florida. The urban areas in Florida and California represented 9 of the 10 highest areas that had the most outstanding percentage of foreclosures.

Many homeowners facing foreclosure owe more than the current value of the house or can’t find a buyer. Many don’t have the ability to refinance. More than 50,000 properties were repossessed by lenders in the U.S. in April. As more houses get foreclosed upon it will add to the properties that are already on the market and can further decrease home prices. California had the second highest foreclosure rate in the U.S. and Arizona followed as number three. Michigan, Colorado, Maryland, Georgia, Massachusetts, Ohio and Tennessee also had high foreclosure rates.

The Federal Housing Administration will allow a down payment of 3 percent on a mortgage as high as $700,000 until the end of 2008 which may further complicate the housing situation. In recent years, housebuilders and sellers have used another route for downpayments by transferring funds to a non-profit company that collects the funds, transfers the money as a downpayment to the prospective mortgagor and keeps a part of the funds for its involvement. These creative tactics may increase the possibility that the home buyers purchasing the properties might not be able to afford the mortgage payments. The Internal Revenue Service is investigating many of these seller-funded nonprofit companies and has revoked the non-profit status of almost 50 companies.

Fannie Mae is currently requiring minimum down payments of about 3 to 5 percent for the loans it guarantees.

The National Association of Realtors has stated that the median prices for single-family homes dropped in 100 out of 149 urban areas from January through March, 2008. The median home price was approximately $195,000 during this time period where, during the same time last year, the median price was about $210,000. Only Alaska, Illinois and New Jersey maintained sales increases.

Thirty year fixed rate mortgages with Freddie Mac averaged about 6 percent for the week ending May 15, 2008. Five year adjustable rate mortgages fell to about 5.5 percent.

Based on all of the foregoing, this writer does not think that we are out of the woods yet. The housing situation is expected to level off in 2009. Until then, investors and home buyers with the capital to purchase properties will be at a distinct advantage because it appears that, due to an extensive inventory, home prices will continue to dip. Let’s hope that mortgage rates stay low as well.