Time to Buy ~ Why 2012 is the bottom
Yes, prices could erode further in the hardest hit markets – At least statistically – but remember, the lower they go, the more likely they are to rebound with gusto and why you need to include Distressed Home Shopping. Market fundamentals usually develop so that the market with the lowest prices now will tend to rebound with more “bounce” over time. This means that the hardest hit markets, Georgia and Florida, will yield much better equity over time, however within these predictions you might want to keep your eye on median priced homes to see the most appreciations for a host of reasons, ranging from a changing demographics, aging population and stronger areas which have sustained higher prices per square foot, will not be as volatile to the “up-side”, as many of these homes were over-built and over-invested.
One reason we’re confident in declaring an official market bottom is because in many areas where the foreclosure crisis has been intense, it’s now cheaper to buy a foreclosure than it was to build the same home and with the FHA 203K Renovation Loan it seldom makes sense to do otherwise. Fundamentally, a residential property “hits bottom” when the selling price is lower than the cost to build originally. Generally speaking, that’s about as good of a deal as you can get.
Shelter is an essential part of human existence. This fundamental fact helps to insure that there will always be a demand for shelter. As long as there is enough demand, the value of homes will not go below the affordable level for that particular area. Atlanta is has had one of the hardest hit housing market in the U.S. Neighborhoods there that are selling at 30% of their original value, even in move-in condition! When you start buying homes with 1596 square feet of living space, plus a 1596 square foot basement, 3 quarter acre lot with fenced-in backyard, for $40,000 you are talking about buying the home for $25.06 per square foot – less than it cost to build it originally. It sold new in 2001, for $115,500, or about $72 per square foot. Once you reach these levels, demand will naturally rise. Fundamentally the property begins to become viable again, as either a rental property, or an owner-occupied home.
Turning to investment property purchasing, prices are finally so low that cash flowing for rental is viable again as a real estate investment and retirement strategy; however we strongly recommend anyone without a history of real estate investment do their research, before making this plunge. Conventional wisdom prior to the housing boom was to purchase and rent to Section 8 tenants, by 2006 there were so many investors with section 8 rental properties, the supply actually exceeded the demand in many markets like Atlanta, Las Vegas, Miami, and Phoenix and demand began to stall out. That said, today, the low selling prices for foreclosures have gotten rid of the worries over cash flow. Using Atlanta as an example again, most houses that can be bought for $40,000 or less and rented for $850 to $900 on the open market and Section 8 pays even more.
Home buyers have the ability to pre-determine equity appreciation even before the closing and renovation process by using our network of REO Real Estate Professionals. When buy prices are low, there are a variety of benefits for home buyers. Working with our network of real estate agents, home inspectors, consultants and approved FHA or selected appraisal management companies we’ll share the knowledge with you. Equity is the difference between what you owe on your mortgage, and the total market value of the property. Just taking a foreclosure and putting it back into service will add instant equity. Buying foreclosures for $50,000, that cost $140,000 to build, generally will guarantee you some instant equity, simply by putting the property back into service and renovating the home with low 30 year fixed rate term with FHA 203K or Fannie Mae HomePath and HomeStyle programs that include the cost to repair gives you one heck of a deal that virtually didn’t exist prior to the 2007 market collapse.
Here’s the bottom line: If you are a smart home buyer or real estate investor, this market is what you’ve been waiting for.
Investor activity ~ Wall Street included is already reaching a fever pitch, it’s just a matter of time before the fundamentals swing back to favor rising prices. Once the initial market glut has been bought up, prices will begin to rise slowly. When interest rates go up, you’ll look like a genius if you purchased the home of your dreams or a portfolio of houses bought for 30 to 60 cents on the dollar, financed at these historical low rates. Most people don’t realize it, but today’s housing market is a beautiful oasis of opportunity that will dry up and disappear in years to come.
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