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The mortgage crisis.

The bad mortgages that got the current financial crisis started have produced a terrifying wave of home foreclosures. Unless the foreclosure surge eases, even the most extravagant federal stimulus spending won't spur an economic recovery.

The Obama Administration is expected within the next few weeks to announce an initiative of $50 billion or more to help strapped homeowners. But with 1 million residences having fallen into foreclosure since 2006, and an additional 5.9 million expected over the next four years, the Obama plan -- whatever its details -- can't possibly do the job by itself. Lenders and investors will have to acknowledge huge losses and figure out how to keep recession-wracked borrowers making at least some monthly payments.

So far the industry hasn't shown that kind of foresight. One reason foreclosures are so rampant is that banks and their advocates in Washington have delayed, diluted, and obstructed attempts to address the problem. Industry lobbyists are still at it today, working overtime to whittle down legislation backed by President Obama that would give bankruptcy courts the authority to shrink mortgage debt. Lobbyists say they will fight to restrict the types of loans the bankruptcy proposal covers and new powers granted to judges.

The industry strategy all along has been to buy time and thwart regulation, financial-services lobbyists tell Business Week . "We were like the Dutch boy with his finger in the dike," says one business advocate who, like several colleagues, insists on anonymity, fearing career damage. Some admit that, in retrospect, their clients, which include Bank of America , Citigroup , and JPMorgan Chase, would have been better off had they agreed two years ago to address foreclosures systematically rather than pin their hopes on an unlikely housing rebound.

In public, financial institutions insist they've done their best to prevent foreclosures. Most argue that giving bankruptcy courts increased clout, known as cramdown authority, would reward irresponsible borrowers and result in higher borrowing costs. "What we're trying to do now is target the bill to make it as narrow as possible," says Scott Talbott, a lobbyist for the Financial Services Roundtable. On the defensive, the industry nevertheless benefits from one strain of popular opinion that home buyers who took on risky mortgages -- even if the industry pushed those loans -- don't deserve to be rescued.

An Industry In Denial

However the skirmish ends, the industry's contention that it has done as much as possible to limit foreclosures seems hollow. Some statistics it cites appear to be exaggerated. Even pro-industry figures such as Steven C. Preston, a Republican businessman who headed the Housing & Urban Development Dept. late in the Bush Administration, concede that many lenders have dragged their heels. "The industry still has not stepped up to the volume of the problem," Preston says. One program, Hope for Homeowners -- which Bush officials and banks promised last fall would shield 400,000 families from foreclosure -- has so far produced only 25 refinanced loans.

Meanwhile, an already glutted market sinks beneath the weight of more foreclosed homes. Borrowers whose equity has evaporated have nothing to tap into if the recession costs them their jobs. Some lawmakers and regulators are calling for a foreclosure moratorium. "People are falling through the cracks," Preston says. "That's bad for communities, bad for the individuals losing their homes, and bad for investors."

Foreclosure proceedings typically cost banks about 50% of a property's value. That's assuming the home can be resold -- not a certainty when empty houses multiply in a neighborhood.

Some from the industry denied a foreclosure problem existed, including Sandor E. Samuels, at the time chief legal officer of subprime giant Countrywide Financial. They vowed to continue selling loans with enticing introductory rates as well as those requiring minimal evidence of borrowers' income. "We are going to keep making these loans until the last second they are legal," Samuels later told a fellow participant.

A major reason financial institutions and investors are so determined to avoid modifying loan terms more aggressively has to do with accounting nuances, say industry lobbyists. If, for example, a bank lowered the balance of a certain mortgage, there would be a strong argument that it would have to reduce the value on its balance sheet of all similar mortgages in the same geographic area to reflect the danger that the region had hit an economic slump. Under this stringent approach, financial industry mortgage-related losses could far surpass even the grim $1.1 trillion estimated by Goldman Sachs in January. A desire to postpone this devastating situation helps explain lenders' intransigence, says Rick Sharga, vice-president of marketing at RealtyTrac, an Irvine (Calif.) firm that analyzes foreclosure patterns.

There's reason for skepticism. Federal banking regulators reported in December 2008 that fully 53% of consumers receiving loan modifications were again delinquent on their mortgages after six months. Alan M. White, a law professor at Valparaiso University, says the re-default rates are high because modifications often lead to higher rather than lower payments. An analysis White did of a sample of 21,219 largely subprime mortgages modified in November 2008 found that only 35% of the cases resulted in lower payments. In 18%, payments stayed the same; in the remaining 47%, they rose. The reason for this strange result: Lenders and loan servicers are tacking on missed payments, taxes, and big fees to borrowers' monthly bills.

Consider the case of Ocbaselassie Kelete, a 41-year-old immigrant from Eritrea who called Hope Now last fall. Kelete, a naturalized U.S. citizen, bought a $540,000 townhouse in Hayward, Calif., in November 2006 with no down payment and 100% financing from First Franklin Financial, a subprime unit of Merrill Lynch. At the time, he and his wife earned $108,000 a year from his two jobs, with a pharmacy and an office-cleaning service, and hers as a janitor. Kelete says First Franklin and his realtor convinced him that he could afford a pair of mortgages, one with a 7.5% initial rate that would rise after three years, and a second with a fixed 12% rate. His monthly payment would total $3,600.

"Work With Me"

"The realtor said, 'Just make sacrifices for two years. Home prices will go up, and you can refinance at a lower rate,' " Kelete recalls. He regrets signing a mortgage he couldn't afford -- a mistake many people made during the subprime craze. Home prices didn't go up. He lost his office-cleaning job. First Franklin modified his loans, but added on property taxes it had failed to collect earlier. Kelete's monthly bill rose to $3,900. In October 2008, he called Hope Now. A counselor set up a conference call with First Franklin. The lender's representative said Kelete should get another job or give up the house, the borrower says. Kelete responded that he'd already lost his second job cleaning offices and couldn't find another in a faltering California economy. "Why don't you work with me?" he asked First Franklin. The lender declined. The Hope Now counselor said there was nothing more to do. "Foreclosure is the only future I see," Kelete says. A spokesman for BofA, which acquired Merrill in December, declined to comment, citing the borrower's privacy. After Business Week's inquiries, however, First Franklin contacted Kelete about lowering his monthly payments.

Hope Now's Schwartz acknowledges she is fighting an uphill battle. By her calculation, 45% of the borrowers her organization advises still end up in foreclosure. "If I seem frustrated," she says, "it's because we are dealing with nothing but an exploding problem." She has a fulltime staff of four in Washington; 500 counselors participate in the industry-funded hotline. "You shouldn't take it lightly, what we have achieved," Schwartz says. She bristles at suggestions that the statistics she disseminates are misleading. "I print what I know," she says, noting that some of her bank members aren't forthcoming about loan modifications. "It's like herding and juggling cats."

By early 2008 it was obvious that Hope Now wasn't halting a significant percentage of foreclosures.

In the end, the program included stiff upfront and annual fees and a requirement that homeowners pay the government 50% of any future appreciation in the property's value -- all of which made it much less attractive to borrowers. Moreover, the banks' participation was made entirely voluntary; there was no way to pressure them to cooperate.

Congress approved Hope for Homeowners on July 26, 2008, as part of a larger measure imposing restrictions on the mortgage finance firms Fannie Mae and Freddie Mac.

Those familiar with Hope for Homeowners anticipated that its fine print would discourage all but a few borrowers. "We knew it was likely to have limited appeal," says Preston, the former secretary of HUD, which oversees the FHA. George Miller, executive director of the American Securitization Forum, a Wall Street trade group, calls the program and its 25 refinanced loans "useless" because of the onerous details.

In the first days of 2009 it appeared that progress might be possible on a different front. A slumping Citigroup came back to the Treasury Dept. for a second round of bailout money. Bowing to pressure from regulators, Citi broke ranks with its rivals and dropped its opposition to bankruptcy cramdown.

In the following weeks, banking lobbyists launched a renewed attack on the cramdown legislation. Apart from Citi, "the industry remains united in that bankruptcy cramdown would destabilize the market" by creating widespread uncertainty about the value of numerous troubled mortgages, says Steve O'Connor, senior vice-president for government relations at the Mortgage Bankers Assn. His group is distributing talking points to key congressional aides laying out reasons why "Congress should defeat bankruptcy reform legislation." 

Stefanie and James Smith of Santa Clarita, Calif., fear they may need the help of a bankruptcy court if they are to keep the subdivision home they bought for $579,000 in November 2005. Stefanie, 37, a university human resources coordinator, and James, 40, a federal law enforcement agent, borrowed the entire amount in two subprime loans that required a total monthly payment of $3,000. A representative of their lender, Countrywide, told them not to worry, says Stefanie: They would be able to refinance in a year.

By mid-2007 they were running late on payments, and refinancing options had dried up. With their monthly bill scheduled to jump to more than $4,000 this January due to a rising mortgage rate, Stefanie contacted Countrywide last summer. She asked for a loan modification so they could avoid default. In December the lender said it would be willing to increase their payment by $600. That was better than the scheduled rise of $1,100, so the Smiths agreed.

But now they are struggling to pay the higher amount. Countrywide's parent, BofA, declined to comment, citing the Smiths' privacy. After Business Week's questions, though, Countrywide called them to discuss cutting their payments.

"We knew when we bought that the payments would be a stretch," says Stefanie. She regrets assuming they would be able to refinance at a lower rate. "We are not deadbeats," she adds. "All we want is a mortgage we can afford."

The Good, The Bad, the Ugly 

Do you know the difference between a kick in the butt and kickin' butt? It's a bit like my former brother in law Dick use to say.."sometimes you're the windshield and sometimes you're the bug." And it's now like that in California real estate. Just look at this recent announcement from the California Association of realtors.

California freefall: Home prices fell 26% in February

Update: "Declining Markers"

Lenders have now decided that certain counties are "declining market" areas, meaning the value of homes is going down. So in their eternal knowledge and kind community spirit they have decided they would cut back the L.T.V. (loan to value) percent allowable on loans in those areas. Right now the decline is 5% with more to come. What that means to borrowers is you now have to come up with more down payment if you're buying, and you will get less equity out of your home on a refinance.

An example would be if the loan matrix said they would finance your loan at 95% LTV, if you live in the wrong area they would only finance 90% on the same loan and rates. What this also means is that borrowers will look towards non declining areas for purchases, there by driving prices down even further in the declining counties, so the prophesy becomes self fulfilling. This lovely move, just makes it ever harder for clients to get a deal done. But lenders are in the "cover their butts" mode and this reflects that position.

Alert:... If you have a variable rate loan, with a negative balance, meaning you aren't  paying all your interest and none of your principle, you must convert to a fixed rate as quickly as possible.

Here is what's happening. With values declining and compressing equity, and if your balance is rising due to interest not being paid, each month you are loosing money, and it could be a lot. And while you can't due anything about the market dropping, you can do something about the financing. And if you don't move on this in time...like now... you may not be able to do anything as you will have lost too much equity to qualify for a refinance. So seriously folks, take action. This is really important. Need answers....call...today.

Purchases:

Like no time in recent memory there are more opportunities for buying a home with great rates and pricing.

You'll remember the long lines just a couple of years ago where home buyers stood out side new home developments trying to get on the precious "approved buyers list". What a hassle and frustration. Now the lists and the lines are gone, and so are the high prices. What's left are bargains and amazing concessions. Builders are offering huge incentives including down payments to get people into a home. And for many it couldn't come at a better time.

Yes, prices have dropped, along with rates, and that simply means you can buy more home today for less monthly outgo than anytime in the last several years. 

And financing is still good. Fixed rates are very popular, but the variable rate still works for those needing lower payments for a period of time. The difference can be hundreds of dollars each month.

Where are the bargains? It would seem everywhere. But is that where you should buy? A definite "no" is in order. There are some areas that have experienced a huge drop in value and the drop will last a long time. Just about any where in the California central valley is in trouble. Buying in these areas is only for those wanting to stay in the home for a long time and aren't worried about value, equity or possibly moving.

Alert: Stockton, Ca is one of the hardest hit foreclosure areas in the country. Huge amount of folks have lost their dream to the auction gavel. Be careful if considering buying in this area as more declining values are predicted. Also...caution in Solano County and East Contra Costa County. Again, way over priced and dropping with no bottom in sight. Out of Ca., be careful of Detroit and Flint, Michigan, Florida, Las Vegas, and the Inland Empire of Southern Ca. Other areas are also affected but not to the same degree.

For most folks finding the right home in the right area is critically important. And it's much more than price. Don't be fooled by a price less than the last appraisal. So what. It was probably overpriced when the appraisal was done. And even with the reduction it might still be over priced.

And don't be fooled by short sales and foreclosures. Stop thinking that must mean a good deal. Often it doesn't. People think that buying a foreclosure means they are getting a bargain. It only means the bank owns the property because the last owners couldn't make their payments. That doesn't mean it's a bargain. And buying a foreclosure or a short sale (a short sale is when you buy the property for less than is owed on it) is nothing less than a hassle. For most people it's frustrating and a dead end. There are other ways to get a good deal. In the bay area, Contra Costa County, Alameda, Solano, San Francisco County...deals are alive and available. You just need to know where to look and what to look for.  

We can help. We know the market and where you can get a deal and where you can't. We have the right people with years of experience who can make the process simple, quick, and set you on the road to building significant profits.

Here are some keys:

1, Pay no attention to what the old appraisal said or what you're told was the value. Useless today.

2, Work only with a pro who can get you the advise you need.

3, Get pre-qualified for your purchase. Most sellers wont talk to you until they know you have the ability to buy.

4, The further out you go from the central bay area hub the better deal you can get.

5, A down payment is king, but you can get 100% financing with a decent credit score.

Look at your credit...any mistakes. If you call the creditors you can often get corrections made. Take those corrections to Rate Is Low and we can get the credit bureau to change your score in 72 hours. That will defiantly make buying at a rate you will love much easier.

Here is the bottom line...rates are great...prices are down...payments are lower...opportunity abounds.

Refinancing: While the refinance market has been hard hit by a lack of programs, there are still great opportunities. If you need a conforming loan (under $417,000) there are new govt programs and the rate is low all the way to 100% loan to value for both a purchase and refinance. Many folks are leaving the variable loans for this program.

And the rate is low for variables also. Some programs starting at 2% on option loans. These low rate programs are used to consolidate bills and often get cash out when you're trying to keep your payments low. Don't be afraid of a variable rate. They can be of huge value and have helped many folks out of a serious bind.

Commercial property: Rate Is Low has have an extensive number of programs designed to increase your bottom line on investment property. We understand commercial lending and know how to maximize your profit. If you're in the market to make a purchase with designs on building wealth, we can help. Anywhere in the country...and any kind of property...we have the right program. And your rate is low on commercial lending, with the hardest hitting value and terms anywhere. 

It really Is This easy

If you're like most folks you understand the concept of supply and demand. And much of the housing crisis is based on to much supply(houses) and too little demand(buyers). So we can see that there is a potential solution in just reversing the numbers...like less supply(houses)=more demand( buyers), will cause prices to increase. That's the way it was up till the last year or so. And it's where we have to get to make the teetering go away. So what would that mean?

Well we hear of all the noble things the government is saying they are going to do to clean up the mess: punish the lenders, bail out the struggling homeowners. And most of that is pure crap. It's typical political feel good talk to make you think they know what they are doing. And in the end it's all a blame game so someone takes a fall for the mess. After all, in todays' society isn't the most important thing to have someone to blame for our problems?

Here's what is really happening. Right now is the hardest time I have ever seen to get a loan closed. Whether it's a refinance or a purchase. It is very, very difficult. And the reason is that lenders have taken huge loses and the government has stepped in with their mighty club foot and scared everyone into inerta. And the result is nothing is getting done.

Want to solve the problem?

Then make ways for people to buy homes. Of course they need to be qualified, but make it easier rather than harder. Make it easier for the loan officer, the realtor, the title company, the appraiser...easier for all. For when you do, it's then easier for the borrower, and that means more is accomplished and the cycle is turned around.

Everyone is soft peddling waiting for the other shoe to drop. Why not pick up the shoes and start a new dance. Maybe the "Homeowner Waltz",... that would be better than the "Poor Poor Pitiful Me" that's now being sung.

Really folks it's that easy. This isn't rocket science. Give people a chance to buy in this market and they will do it.

Think about it. This is one of the best markets ever. Prices are the lowest in several years and interest rates are just super. That's a perfect buyers combo.

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I listen to the news and they talk about home sales being down and buyers not returning to the market. That's not true. The buyers are ready, I talk to them everyday. There just isn't adequate financing available. And when a contract is started there's a good chance it will fall through because of how amazing difficulty it is securing financing. And it is the stupidity of this dilemma that is causing the mess to continue.

Sometimes the best way for the train to go forward is for everyone to get off the tracks.

Talk About a Turn Around

Detroit has lead the nation is foreclosures for some time, with an economy depressed by the   auto industry downsize. As the auto industry failed, so did peoples in their desire or ability to keep their homes. But unlike Calif, Florida and Arizona, which ran values to impossible heights then watched them drop, Detroit has seen  flight as folks left looking for new jobs.

But if you ever wondered what impact the housing market has on the local economy, look no farther. Want to see a turnaround? Sell a few homes.

Detroit has a 15% gain over sales for last year and a 45.5% gain in the last month. And realtors are saying they are having one of the best months in a very long time.

And the reason for the turnaround? Tumbling prices, low interest rates and sales of foreclosed properties.

And while Detroit is seeing recovery it wont be alone for long. Other areas will follow. All of the ingredients are there...now for the turnaround.

Congress Can Remove Legal Barriers to Fixing Distressed Home Loans
If we do nothing, the foreclosure crisis will continue with very little change, and the damage will continue to spread throughout our economy.  However, Congress is now considering legislation that would make a huge difference. 

Both the House and Senate are actively considering bills that would lift the ban that prevents homeowners from getting reasonable loan changes approved and supervised by a court of law.  (The House bill is H.R. 3609, the "Emergency Homeownership and Mortgage Equity Protection Act"; the Senate bill is S2136, "Helping Families Save Their Homes in Backruptcy Act.")  Today court-supervised loan modifications are available to family farmers and to wealthy investors with distressed loans, but not to families who are trying to save their home. 

If Congress does the right thing by passing this legislation, we would prevent about 600,000 foreclosures—that's compared to less than 120,000 loans eligible for streamlined loan modifications under the Treasury's plan.

The health of middle-class communities and our economy as a whole depends on stopping the foreclosure epidemic.  Please, if you haven't already written to your Congressional representative or Senator to ask for support for these two bills, please take a moment to do so now.

Some good news:

Well, the mortgage industry is in change to say the least. And there's a bit of the good and bad to it all. You can read the headlines to get all the bad news, no reason for me to trumpet that charge. But there is some very good things happening that most folks aren't aware of.

Here's what's happening

The feds are in the process of raising the conforming limit on loans in high priced areas. Why is this good. Well, conforming loans, currently those up to $417,000, are insured by the government' therefore they are safer for the lender and you get better rates. When you go over that conforming amount to what is called a "jumbo loan" the risk goes up  and so does the rate. And in this hyper sensitive environment lenders have just pulled away from the risk and made getting a jumbo loan very difficult and expensive.

With the new legislation currently passing congress, the upper limit will increase, probably to over $700,000, therefor making it possible for many more people to get the better rates. It should give a jump start to the purchase market which has wallowed in stagnation for months.

The chatter

As I talk to real estate agents they are getting excited about what they see as a huge market coming on line. There's lots of folks wanting to purchase, and rates along with declining values, have now put a ton of homes right in a buyers crosshair.

When to buy?

So should you buy now or wait on anticipated additional price concessions.

I think you buy now and buy under the asking price, and you will probably have the price concessions built in. And remember, the rates now available are amazing and probably wont last. It's fair to say as the market improves you will probably see the rates move upwards.

'm a look'in

Where to find the homes? Get on craigslist and look at what's available. Also check the MLS site and talk to a real estate agent with experience in short sales. The short sale present an opportunity. And talk to your friends and family for anyone who may be thinking of selling. You don't have to have a real estate agent to do a deal. If you need more info let me know.

The bottom line is that the market is improving. There will still be bad news and you'll hear it all. Just remember that you have choices and a positive decision will get positive results.

Web sites to look at:

www.craigslist.com

http://www.realtor.com

http://www.redfin.com/stingray/do/start

Selling the dream

Have you wondered, with all the talk of foreclosures, if there's a way you could make money in that market? I mean it does make sense doesn't it? You buy a home on the cheap, turn around and sell it for a great profit. Buy low, sell high. And it can all happen within 30 days. The way to riches. And there are so many people loosing their home this could go on for years. Well if you're thinking about how easy and profitable it would be, and maybe it's time for you to start making the big bucks, then listen up.

There is an amazing amount of people out there trying to tell you how you can make money in the foreclosure market. Big money. Beyond your wildest dreams. And you don't need good credit, or money, or experience, or luck,...all you need is this wonderful program or "boot camp" that will make it all happen. And how could you loose? After all there are the bonuses, the money back guarantee, the mentors, the support...and oh yes, the other course that will even take you to a higher level. Wow. It's very beguiling and is attracting thousands of would be millionaires... and putting millions into the pockets of the "knowledge sellers" And it seems everyone has gotten into the "buy my knowledge" game.

And all of these purveyors of knowledge have only one motive: to help you become rich and fulfill your dreams. And they, though very busy and rich, only want the best for you. And how could you not believe them. It does make sense doesn't it? Oh...there is that little caveat: for them to pass on to you the golden road to riches it will cost you from several hundreds to several thousands of dollars.

But think of the money you can make. Fill your mind with the dreams of the good life..see yourself in that new home with that carefree life style...nice...so let's get you started on the road to your financial future...send your check today and start the road to riches tomorrow.

If you've heard the message so have tens of thousands of others. What does amaze me is that if the guru is making so much money doing these deals in real estate why are they wasting time telling others who will be their competition how to do it.  

Why are they passing on this precious knowledge. They say they feel a moral obligation to let others know how they can reach their dreams. How noble. And it will only cost a few thousand dollars to satisfy that noble purpose. In truth the business of selling "hope" is very profitable. One of the guru once told me he makes several times more in selling the "hope" than he ever made in selling real estate. And I just heard yesterday of one of the big sellers making $3,000,000 in one week of selling "the dream".

I get a ton of special deals every day from every guru out there trying to help little old me make a million dollars in real estate. I'm blessed. And you've probably seen the same info commercials or been hit with the offer on the web. Have you been tempted?

Here is the truth of the matter: First there is money to be made. And some people have made it with foreclosures. But you don't need to spend thousands in a course or boot camp. You do need some knowledge and direction and probably a reality check. Look...anything of value takes effort and time. And while there are opportunities, the checks don't magically appear because you bought a course. If there are checks it's because you worked at it and applied some known skills and followed through. Take the rose colored glasses off and get down to hard work and yes, you can make some very good money in real estate.

As far as foreclosure goes...let's get real on this. There's nothing special about a foreclosure. It's just another piece of property. And whether it's a foreclosure or a short sale or just a purchase...it's all about one of two things...it's value, and it's ability to get you a cash flow or a profit from a resale. The old adage of buying right is critical. And because it's a foreclosure doesn't mean you're buying it right. Lets use an example. Say you see a property and it's worth $400,000. You can buy it for $300,000. Good deal? Well if you're in a market where values are declining how long will it stay a $400,000 property. What happens if it continues going down for the next two years and the market is tight and you can't sell it at any price. Still a good deal? And if you have to sit on it can you ride out the payments ? If you rent it will you have an alligator on your hands? A negative cash flow. Still a good deal?

So before you buy at any price you have to know exactly what you're going to do with the property. And if you want to rent it till the market improves and then sell it for a profit, you have to be sure you want to be a landlord and be responsible for any and all costs and repairs...and be able to make the monthly mortgage payments even if the renter isn't. That means cash in the bank. Fail at this and the property could become a foreclosure again...yours.

Does all this mean you cant make money. Not at all. It means you have to move forward with your eyes open and be ready to earn as you learn.

Want more info? Go to http://www.rateislow.com/ for the special report "Foreclosure Buying Mistakes" It's free and just might be the next best step.

Another fun day in Loanland.

There's some very good things starting to happen in the market. More programs are coming back into use and that's a grand sign for lots of folks looking to consolidate debt or reduce interest rates. And while rates are low, some people seem to not know it. A standard 30 year fixed rate is about 6% today. For a shorter term, like 3 or 5 year fixed, the rate is even less. No matter how you cut it those are very good rates.

Another place for good rates is in the commercial market. Apartments are fairing very well as new programs free up more equity and give lower payments. Remember commercial programs and qualifications are based on cash flow...and the relationship between income and out go actually determine the property value. And it's the property that qualifies for the loan not the borrower. So someone with shaky credit can buy a commercial property if the property has a good cash flow. And the appraisal is a reflection of condition, unlike residential appraisals which reflect other sold properties. In residential property you always hear the maxim location, location, location. In commercial it's cash flow. Location isn't a real issue if the cash is coming in.

A couple tips on buying property:

One, always check your credit so you know where you stand on being able to purchase, how much home can you afford. And two, always get pre-qualified. Your mortgage broker can handle this for you. And as we've said in a previous blog, check out the location you're buy in to be sure it's in a growth area. This one step, or misstep can cost you a ton of money and grief if not done properly.

By the way. There has been some lender auctions on foreclosed property. I didn't go but Renee and Virgil both went and were impressed. Lots of people and activity. And it seems that with an auction people just get into the buying frenzy ( I wonder if that's what they know will happen) and end up paying more than the property is listed for on MLS. That was happening. Still, you might want to check it out at the next offering, at the first of the year. If you think this would be your cup of tea you need to have cash in hand or be pre-qualified. As we get closer to the date I'll get you more info.  

What's next:

Well, there are some definite things happening and going to happen and you don't need a crystal ball to figure it out. But there are a couple over looked bits of info that might help you put the pieces together.

The first question I hear is "do you think home values will go up in the future?'. Often followed right on the heels by "how low will values go?" To get to an answer you have to know what factors impact prices and their direction.

To understand what will happen to your home we need to know the ingredient that go into making home values change. In the case of homes value going up, there are two prime factors...demand and income. Throughout much of the country the idea of demand has been the big pusher on increasing home values. Nothing wrong with that. But the other necessary ingredient is income. If your home price continues going up quickly, getting beyond the ability of income to manage, price at some point will stop going up (no income to support the increased outgo from mortgage payments) and start to drop off. That critical point was delayed under our recent run up because of the creative financing tools put into place to help folks get in to more expensive homes. Things like teaser rates and interest only payments and 40 year terms all benefited the consumer and delayed the reckoning that was on the horizon. We now see the horizon and it's as cold as an artic hug. You must have an increasing income base if you want an increasing home value.

The other question, how long will value  continue the downward spiral? It's then that another factor comes into play and that's rental income. Most people will pay more for a home over what they will pay to rent...particularly if they see the potential for an increase in value. But when the potential is limited or unsure most folks will not pay much more for a home than for a rental. There must be a balance between the two. So mortgage payments must come back inline with rental payments. Meaning values must come down on homes.

So what we're seeing now is values..and therefore mortgage payments, coming back in line with rents. Once that happens values will stabilize and have the potential to increase as incomes also go up. Our current problem is that the market factors got out of line and are now needing to adjust. That adjustment will be very hard on many people. And people will be affected differently depending on where they live. If you're in a strong growth area with a good income base you're going to be fine. If your in an out lying suburb or city, very distant from the main financial hub, you're probably in some trouble.

According to national estimates some areas will need to adjust as much as 30% to be in line with the rental market. One such area is the San Francisco Bay. Other areas include Sacramento, the central valley, and several inland areas in S. California.

With that said, is it a good time to be thinking of buying? Yes, if you're smart. One of the great sadness of this whole run up in values is the folks who bought at the top of the market just before the air was let out of the balloon. With real estate as with stocks you buy at the bottom of the market...that's where the values are. And that is now. And even with a potential for some drop off in the future, if you buy right and in the right area you can make a ton. A good agent and lender can make that happen.