Taking the current market temperature
The latest news from the Federal Reserve in recent days points to a lengthy period of “we’re going to sit back and let it ride” thinking. Feeling that they’ve done more than enough tinkering with monetary policy over the past several years, the Fed is prepared to keep interest rates at current levels for not just the near term, but for possibly several more years. Of course, this assumes that the economy doesn’t suddenly heat up like gangbusters, and spur rapid inflation. Then the Fed will do some quick patching work by tweaking interest rates up to cool the economy off. But that is a scenario that few in the Fed are predicting will occur.
The water’s rising…
Rather, indicators from most recent economic data point to slow, steady, inch-along growth over the next several years. That’s at best. In addition, the latest figures from Washington show a rather hefty increase in the number of homeowners who owe more on their mortgages than their house is currently worth: also known as being “under water.” The most recent data now shows 29% of the nation’s homeowners to be under water, up over 2% in the past year alone.
Adding in the foreclosure mess…
Of course foreclosures, which had slowed due to the robo-signing lawsuits brought by state attorneys-general late last year, are now poised to start up again in earnest. And as banks place more homes in their portfolios on the market as part of the foreclosure process, you can expect the oversupply of homes to worsen, and the net result will be to put further downward pressure on real estate prices. In addition, you can expect that some percentage of all those homes that are currently under water will become actual foreclosures in the coming year or two as well.
Investment property opportunities
So small property investors should have no need to act quickly. There’s no rush to buy up every property on the block that looks like a great deal in order to get the lowest price possible, as well as to “lock up” low interest rates on their investment mortgages. Rather, consider this a time for creating a solid, thoughtful mid-range buying plan. Locate your best deals, then act with confidence that the recovery will be a slow, but deliberate one. Take your time and make the best deal possible. Deals should only get better in the next six to twelve months, as the increased downward pressure on prices hits the market due to the increased volume of foreclosures.
The next step is to lock in the best rate for now, and then plan on doing so at regular interval periods over the next several years. In this way you’ll be setting yourself up nicely before the overall real estate market begins to rebound solidly within the next three or four years. You’ll take advantage of small cash flow returns now, but will take nice advantage of much greater house appreciation in later years as the market rebounds.
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