Moody’s Economy.com has answered the question of weather we will see a decline in foreclosures. Their comprehensive analysis, while including many aspects of the market was partially focused on the foreclosure outlook. Moody’s Economy.com expects a slow increase in jobs beginning in the spring of this year, but real job growth, that which affects unemployment is not expected until next year. Layoffs are halted, but hiring is also dormant. There is also an expectation that people under employed or temporarily employed will slow down unemployment’s retreat. Also on a positive note is the fact that foreclosures share of housing sales is declining from its 2009 peak.
In spite of these otherwise positive factors, foreclosures are expected to continue climbing. This is due to several factors. Strategic defaults are still increasing. Moody’s Economy.com’s definition of a strategic default is when a homeowner can pay his mortgage, but defaults anyway because the mortgage is more than the value of the house. This is also known as being upside down or under water. Strategic defaults continue to increase due to the large number of people who are upside down in their mortgage. There were more than 15,000 homeowners upside down in their mortgage in the last 2 quarters of 2009. Many homeowners become frustrated and tired of struggling to pay high mortgage payments that will never return anything. Another factor is the large number of homeowners that are currently delinquent 90 days or more on their mortgages. In addition to the previous factors loan modifications are expected to decrease, eliminating the only opportunity homeowners have to bring some balance to their payments.
The question of weather the housing market has hit bottom is now being answered by Moody’s Economy.com and the answer is yes and no. In classical economist form, Moody’s gives us a run down on the ups and downs of the national housing market, which is summarized below.
Home sales have hit bottom and are increasing.
Single family and Multi-family housing construction is at the bottom and expected to begin increasing slowly in 2010.
Housing prices are expected to continue to decline from their 2006 peak an average of about 8% though 2010.
Foreclosures are expected in continue to increase due to slow job growth, decreasing loan modifications and the large number of homeowners behind 90 days or more on their mortgages. (More than 15000 in the last 2 quarters of 2009)
Available mortgage credit is not expected to change in 2010, although the FHA will remain aggressive in credit extension, neither the FHA nor the private market is expected to increase mortgage credit.
The Federal Funds rate is expected to remain low, while mortgage rates are expected to increase slightly from 5% to 5.5% by the end of this year.
Stay tuned for Moody’s analysis of foreclosures.
It’s a great time to invest in the Fort Worth/Arlington area. As housing prices are currently undervalued, but are expected to climb soon. According to a report by Moody’s Economy.com Housing prices in the Fort Worth/Arlington area are undervalued. Moddy’s evaluation is based on price-to-income ratio, which fell from 3.95 in the forth quarter of 2005 to 1.89 in the third quarter of 2009. This is compared to an average price-to-income ratio of 2.02 for the 15 year period beginning in 1988 and ending in 2003. Moddy’s expects home prices in the area to continue to decline for a short time and then begin climbing higher. The price increase will be aided by the local labor market, which is expected to perform better than the national average. More on Moddy’s report coming later this week.
It comes as no surprise that foreclosures are at an all time high. There were almost 6,000 properties scheduled for foreclosure in October in the DFW area. That means almost 6,000 potential deals. Short selling maybe necessary to get a deal, but banks are more willing to short sell than ever before. It’s a good time to invest. These days many investors are gun shy about real estate. This means opportunity for investors who want to buy properties cheap.
How do you cash in on these deals? There are several ways to do this. The easiest way is to send a letter to all the owners. A post card has a couple of advantages over a letter. 1st it cost about 1/3 the price of a letter. 2nd you don’t have to worry that your letter will not be opened. Everyone can immediately see what is on the post card. All you have to do is make sure you get their attention. Colored post cards with graphics are a good way to attract attention. You can create an attractive design and ask Office Depot to copy it for you on a colored post card stock. They will even cut it for you for a small charge. The result is a nice looking, but inexpensive post card. Then just print address labels and attach them and send them. Make sure your address labels contain owner addresses rather than property addresses. Many owners may have moved.
This is the 3rd part of a 3 part article on the stages of buying foreclosures. There are 3 stages to buying pre-foreclosures. These three stages, analyzing, hunting and convincing, are accomplished for the purpose of achieving one goal. That goal is to find an owner with sufficient equity, who is willing to sell his property before the auction and convince him to sell. Even those most dedicated to their task will may not be able to purchase every property analyzed for the auction. As disappointing as this is to one who has arduously toiled to come home victorious, it must be remembered that success is not achieved by processes of certainty. To be successful calculated risks have to be tolerated. The objective is not to buy every property analyzed but to buy enough properties to make the venture profitable. If enough time is spent you will be successful in the purchase of not one but several properties by this method. It is important to note that the 3 stages we are talking about today are for investors who wish to purchase a property for the long term or resale it for a profit. These stages could be used for short sales or loan modification programs with a few adjustments, but we will not specifically address those in this article.
The next essential ingredient to profitability is the current owner’s willingness to cooperate. It may seem unlikely that an owner would not cooperate given the owner’s situation, but it is actually far from it. Distressed people have a tendency to behave irrationally. Many have an undying optimism that their problem will be solved in a last minute miracle, which will render them financially sound. Sometimes the miracle happens. Sometimes it does not. Your next challenge then is to convince the owner of the gravity of his situation. This you do for his own benefit as well as yours. The biggest obstacle you will need to overcome is denial. Many homeowners believe that someone will help them solve the problem. One way to overcome this obstacle is to convince the homeowner that it is a good idea to have a backup plan. You will be the essential ingredient in this back up plan. If his 1st option goes though that is good, but if it doesn’t you will be prepared to purchase the property. Tell the homeowner that time is needed for you to purchase the property. Try to get him to sign a contingency contract. This is an earnest money contract that allows him an out, if his first option comes though. After this is signed you can start your due diligence and be prepared to purchase the property if the owner fails to resolve the problem.
