Is the U.S. Real Estate Market Headed for a Crash?

If you have been following the U.S. news, you have undoubtedly heard of the problems with the housing market. Less than two years ago, the real estate market was booming in the U.S., with prices in California skyrocketing to it's highest levels ever, and the rest of the country following to some degree. Many fortunes and tremendous profits were made during this time. But like all good things, it had to come to an end.

As quickly as it had begun, the housing market cooled off and came to a standstill almost overnight. Many homeowners and investors were caught off guard, and became stuck in high priced deals that they couldn't liquidate. Inventories of homes for sale reached an all-time high and continued to climb. Only recently have inventories stabilized, with sales predicted to continue to slow into 2008.

If you believe the media, they have been saying for several years that the real estate market is heading for a crash - and some still believe it is. But as yet, that has not happened. While we have experienced a tremendous slowdown, it is far from a crash at this time. All signs currently point to a stabilization in the market, and a leveling off of things, with some slight fall back, but no signs of a crash are imminent.

While some point to the tremendous increase in prices as signs that a crash is coming, the increase in prices was merely a market correction across the U.S. In areas like California and here in Arizona, prices had been low in comparison with the local economies and job markets. So the rise in values over the years was a necessary market correction. Now that the demand has been absorbed, prices will settle back to a normal level.

Like all market cycles, this current phase in real estate will stabilize with some minor reductions in values, then will continue it's normal cycle of appreciation in a few years. Meanwhile, the current state of things means there are tremendous opportunities for smart investors.

The current emergency is not in the housing market, but in the credit market. So currently, the U.S. is not suffering from a real estate crash, but rather a credit crash. This opens up opportunities for wealth that have not been seen in the U.S. in the past 16 years.

U.S. Banks are in BIG Trouble!

The real emergency in the U.S. economy, is the credit crash. During the good times several years ago in the U.S. real estate market, lenders became too greedy and in an effort to capitalize on the real estate craze, lowered the standards they went by in approving home owners for loans. This led to lenders making loans with no down payment requirements, loans that were often 100% to 110% of the properties value, and reducing the credit worthiness requirements of the borrowers.

What followed was inevitable. As the housing market slowed down, and property values began to lower, suddenly millions of home owners were faced with loan amounts that were higher than the value of their property. Also, in their greed, lenders were making loans when interest rates were at their lowest, inticing homeowners with promises of lower payments through adjustable-rate and interest-only mortgages. Over the years, as interest rates began to increase, many of these homeowners were faced with much higher payments than they could afford. Unable to make the payments, or refinance into lower rates, many of these loans are going into foreclosure. With the loan amounts being more than the properties are worth, most investors won't buy them as they don't know how to make a profit with them. Therefore, the lenders are getting the properties back, and losing money - LOTS OF MONEY!

Major lenders like CountryWide Mortgage (the U.S. largest independent mortgage lender) recently had to draw on an unsecured line of credit of US$11.5 Billion in order to stay in business and avoid bankruptcy. As other major lenders are doing the same, many smaller lenders are not so fortunate, with most of them going out of business. Shares of CountryWide have dropped over half since January of this year.

The U.S. Economy is already seeing the effects of all this, with recent drops in the Dow Jones Industrial Average, and the stock market. The Federal Government is considering a massive bailout of lenders who are in trouble, but the depth of that has yet to be determined. Analysts predict that more problems for the economy are still ahead as the effects of the subprime lending are absorbed. A major spike in the number of real estate foreclosures is expected in the coming year.

So? What does all this mean for the state of the real estate market in the U.S.?

Investors Ready to Make a Fortune!

Those who know me or listen to my podcast, know that I always say, "When they say the real estate market is "bad", that means it's bad for home owners wanting to sell their homes for top dollar. But if you are an investor, then it's the best time to buy.”
Buy low / sell high, works in real estate as well as it works in anything else. Let's look at what's going on. There is a surplus of homes on the market, which means that there are far more sellers than there are buyers. Sellers are in trouble and can't afford to pay for their homes, so they are willing to do anything to just out from under their situation. Lenders are losing money and getting far too many properties back in their inventory (which they don't like, they are in the money lending business, not the real estate holding business), so they are very motivated to recoup as much as possible on their loans.

When you add all this up, what do you get?

You get a situation that is one of the best in many years for investors to make tremendous profits. More Millionaires are made in the economic downturns, than in the good times.

Smart investors who understand these markets, can make a lot of money. With foreclosures approaching record levels, opportunities are everywhere. Sellers are willing to sell their properties for literally no more than they owe on it, and lenders are willing to do what is called a "short sale", where they will accept a discounted amount as payoff for the loan in order to avoid having the property go through foreclosure and risk getting it back.

I know that all sounds incredible, why would the homeowners just walk away from their properties, and why would the lenders accept less than they are owed?

The answer is, because they don't have a choice. The homeowner is over leveraged, they owe more than the home is worth. Same for the lender, if they take the house back, they cannot sell it for enough to recover what they are owed. This presents opportunities for us, the investors. We get the house under contract from the owner, then negotiate with the lender for a lesser payoff amount (often 30%-40% off, sometimes much more) with a cash offer.

So while everyone else is running away from real estate, smart investors who want to create tremendous profits, are running out to buy all they can get.  Even in a slower market, if as an investor, you buy the property right, you can still sell it for a profit.  A market slowdown does not mean that there are no buyers.  It means that the majority of the general buying public is not getting into home ownership at this time.  In a slow market 2 things will sell a property .... Price, or terms.

Price means that if the price is right, you will find a buyer.  Buy a property for 60% of value, you can turn around and sell it quick to an investor for 70%-80% and turn a profit.  Buy it for even lower than 60% of value, and make even more.

Terms, means selling it with good financing.  As a rent to own (also known as a lease/option), or owner financing.  With the slow down in available credit from lenders, buyers are looking for ways to still get into home ownership.  By being willing to sell on terms, you can get at or above full market value, and take a option fee or down payment up front to put cash in your pocket.

So if you want to truly make money as a real estate investor, do what the wealthy do (buy property now), and not what the average person does (wait for the market to improve, which means high prices and less profits).

NOW is the time to get into investing in real estate in the U.S.

This is a true Win/Win situation for all of us.

Happy Investing!

David Fresquez, Founder

About Renter2Buyer

Renter2Buyer.com has dedicated itself to helping buyers and sellers of condos, townhouses, and single family homes, find a real estate agent and/or a mortgage lender that will guide them through their real estate experience. Why, because real estate is our business. For this reason, we have developed this sophisticated but easy to use full service real estate website that has it all.

What does Renter2Buyer offer?

•  offers buyers and sellers the ability to search for local or national real estate agents and mortgage lenders.
•  offers buyers and sellers the ability to search for condos for sale, townhouses for sale, and single family homes for sale throughout the United States.
•  offers buyers and sellers the ability to search through current demographic information about the city they search for real estate in.
• offers buyers and sellers the ability to get local or national moving service quotes.
• offers buyers and sellers guides filled with important real estate tips.
•  offers buyers and sellers options to learn about their credit reports, to understand why credit is important, and options on how to improve their credit report.
• Renter2Buyer.com offers buyers and sellers various mortgage calculators to determine how much mortgage they can afford, how much of a down payment to put down, and other mortgage calculators for various calculations.

No matter what your real estate need is, the search for your next property starts and finishes with Renter2Buyer.net.

If you have any other questions or concerns aboutRenter2Buyer.com, please feel free to contact us at anytime. And, if you are not already a member, click here to get started today!