What Does the rest of 2004 Hold for the Housing Market?
In January, I decided that 2004 is my year for getting into creative REI. As to my investing history, I currently have 3 properties, but all were acquired through "traditional" methods - i.e. using cash down payment, getting traditional mortgage loans, refinancing and using HELOC's to leverage the purchase of other properties, renting them out, building more equity... etc. With the housing boom the way it is, I have given barely a thought to how leveraged I am - but given my fairly limited out-of-pocket costs when compared to the money I've made on paper I shouldn't be too concerned... right?
Well, a couple of things that I've been reading have given me pause, not just for myself but for the country as a whole and the future of RE for this year and beyond. We (well, most people) are a nation of consumers. Americans want "stuff," dammit! Not just houses, but plasma TVs, TiVo's, new cars, new clothes, and vacations. With a nationwide unemployment rate currently hovering around 5.7% and salaries stagnating while jobs are offshored, where are we getting the money to buy all this "stuff?" Our houses, of course! We are treating our homes like piggy banks. The refi boom has allowed us to get money out of our homes' equity to pay down all that consumer debt incurred by our acquisition of "stuff". And I have read that about 37% of these refinanced loans are adjustable-rate. Sure, everyone is beyond excited, now that they are paying http://www.washingtonmonthly.com/features/2004/0404.wallace-wells.html
What do the points in the article mean for us investors? Well, if the interest rates on peoples' ARMs rise, theoretically that means that these people may not be able to make their monthly payments - hence, potentially more foreclosures? Will housing values drop and this seller's market cool off if rates rise? Does that mean will there be less competition among investors and more willingness for sellers to make concessions? Will deals be "easier" to find??????
I know that nobody can predict the future and only time will tell. But, I thought that this was interesting info to digest and may potentially serve as a warning to those of us who may be in denial about the risks in this market, and who think the rising RE market prices may continue indefinitely.
As for me, I'm hanging tight to my props, hoping that they do not deflate but being prepared with savings for covering payments if they do. I'm holding off on buying anything else conventionally for the time being. Instead, now is my time to learn about CREI, per my 2004 goals, and get practice doing a few deals/referrals in this tough market. IF things take a turn south, I'll be ready to pounce, having done my learning and getting practice now, when deals seem to be harder to come by.
Good investing to all!
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