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“If You Don’t Buy a House Now, You’re Stupid or Broke”

February 9th, 2010 by Dawn Rickabaugh

This was the title of an article that ran in Business Week a few weeks back.  Sounds harsh, but it got your attention, didn’t it?

He said:

“What I’m trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future . . . then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.”

He has a point . . . if interest rates rise even slightly, it will greatly increase the cost of owning a home, and REO properties are being snatched up quickly with multiple offers in some areas, leading many to be sure that we are at the bottom.

But are we?

How much more inventory can the market absorb, especially if interest rates start wiggling?  Foreclosures aren’t a thing of the past, and banks have been holding back, trying not to flood and drown whole neighborhoods.

I recently read that before the end of this year, 10% of homes across the nation will be ‘underwater.’  Even jumbo housing loans are going bad . . . delinquencies are up to 9.6%.  A high end Realtor friend of mine in Palm Springs confirmed that things are REALLY bad out there.

Apparently, even the Mortgage Bankers Association is officially WAY underwater on its Washington headquarters.  Not only did the group buy at the peak of the bubble, but borrowed a lot to do it.  Of the $79 million they paid, all but $5 million was financed.

I smell a ‘strategic default’ brewing . . . oh, don’t worry, it’s not unethical for large corporations.  If you’re big business or government, walking away from obligations you can’t pay is simply a sound financial decision.  For you and I, it’s proof that we lack moral fiber.

At the end of the day, real estate has to be priced so that regular people can really afford them without extreme financial manipulations, and in general, consumers are in a funk . . . they have more debt, less income, fewer jobs, and less access to credit.

There’s no doubt that opportunities are out there.  In some areas, investment properties actually cash flow with a 10-20% down payment!  Amazing!

But I still have this uneasy feeling that there are some sideswipes coming down the pipeline that no one is really talking about.
It may be a great time to buy, but make sure you aren’t stretching to do it, and that you’ll be able to make your house payment even if your income temporarily decreases for a few months.  And for heaven’s sake, don’t get a variable interest rate!

Regardless of what happens with prices and interest rates, there will always be opportunities with seller financed properties.

Many investors I know are picking up properties by offering prices that sellers can easily swallow (even in today’s market where unrealistic sellers abound), but they’re getting killer terms . . . how does 0% interest sound?

It’s just that nifty little dance between property and paper.

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