Investing in real estate is still very risky : Bad Credit Advisor

Investing in real estate is still very risky

Thinking of investing in real estate now with the prices low and with everyone telling you that the worst with housing market is over? These people are either in the state of denial, or on drugs. You may want to think hard, otherwise thrill and euphoria will switch to desperation and panic rather quickly. I found this picture at Taipan Financial News, but the point I am trying to make is here.

Interest rates
With the interest rates rising by .625% since Tuesday, and huge inventory of unsold homes, housing prices will definitely drop further. The conforming 30 year fixed rate mortgage today is at 6.625 - 6.75 percent range, and that if the borrower has good to excellent credit, 20 percent to put down, verifiable income, and sets up escrow account with the lender for taxes and insurance. Everyone else is looking at the higher rates. Whoever was expecting lower mortgage rates to revitalize housing market, should forget about it, at least for the time being. Underwriting standards are getting tougher and tougher, further decreasing the number of potential buyers. The inventory will increase through summer, and by fall, prices will fall, yet lower, as people will be pressed to sell even harder. Then winter and around Christmas, the sales are very slow.

Mortgage delinquencies survey
The Mortgage Bankers Association will release its mortgage delinquencies survey on June 14. Personally, I don't expect any positive news from what is promised to be "the most comprehensive mortgage delinquency survey in the country, for over 30 years." And rising number of mortgage delinquencies will eventually force lenders tighten credit requirements even further. With that and lower home values, more and more consumers will not be able to dig into their home equity and will cut back on spending. That will affect economy and stock market.

Bad foreclosures
Foreclosure is bad as it is, but the worst foreclosure is the one which nobody wants to buy on auction, simply because there is no equity left. Eventually, banks will take those houses and put for sale at very discount prices. This in turn will depress the prices in surrounding areas. The number of such homes is very sizable and growing. And the latest forecast from the National Association of Realtors, according to SmartMoney "projected that existing home sales will fall 4.6% this year to 6.18 million, compared with its previous forecast of a 2.9% decline. New home sales are expected to plummet even further, falling 18.2% to 860,000, compared with the prior forecast of a 17.8% drop." But the worst is that the NAR sees the first annual decline in the median price of national existing homes since it began keeping records in the 1960s.

If you don't like the feeling of despondency and depression, think real carefully before investing in today's housing market.

Fri Jun 8, 2007 02:06PM by Tony | More in Personal Finance | Comments (0)

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