Friday, February 8, 2008

Home Rental Prices Are On The Rise

If people can't get loans to buy homes, they're forced into the Rental market...whether they like it or not!. Hundreds of thousands of potential home buyers have been shut out of the home buying experience as a result of the Sub-prime crisis. Foreclosures have forced banks and mortgage companies to tighten up their Underwriting guidelines and abandon the once sought after Low to No Documentation loan programs. Although this is quite unfortunate for those wanting to buy a home, it provides a JACK POT of opportunity for investors with homes to rent.

Over the last 12 months, I've noticed a 25% increase in the number of calls I get when I advertise a vacancy. I've also noticed an increase in home rental prices from my competitors as more and more people compete for the rental home inventory that remains. The volume appears to be coming not only from those unable to get a loan, but from those losing their homes to foreclosure.

Apartments are an option for renters, but homes offer many more advantages such as increased square footage, yards for kids to play in, and garages to park vehicles or provide storage. Rental Homes also offer renters the possibility of future home ownership through Option To Buy programs. These programs often give renters a credit from rents paid toward the purchase. Apartments just can't compete with that.

This a great time to buy an investment property for purposes of generating rental income. The added benefit will be the increased gain in property value as we move into the next appreciation cycle. This is a Win-Win situation for most investors.

Friday, February 1, 2008

The Bottom Of The Real Estate Cycle Has Finally Arrived.

Finally...the signs of a Real Estate cyclical bottom have arrived. In December of 2007 Home Builder stocks across the board hit 52 week lows. In January of 2008, about a dozen Home Builders saw their stock increase as much as 100% off their December lows. This is one of the first signs that the tide is turning. Stock Investors feel the worst has already been factored into Real Estate stocks. This psychology leaves investors seeking very attractive entry points in home builder stocks which in turn drives up stock prices.

The Federal Reserve Board, led by Fed. Chairman Ben Bernanke helped stimulate the economy by lowering the Federal Fund Rate and the Discount Rate by a total of 125 basis points in less than 2 weeks. This bodes extremely well for real estate recovery. Homeowners on the cusp of foreclosure may now refinance at lower rates which may reduce the number of inventory homes on the market. High home inventories put downward pressure on home values, so anything that reduces inventory is a good thing. There is also a move by congress to increase the conforming loan limit of $417,000 to $625,000. This will move home buyers out of higher interest Jumbo loan rates into lower interest conforming loan rates. Again, great for a housing recovery.

A cyclical bottom doesn't mean that home prices will not drift lower in some areas, but what it does mean is that the bias is to the plateauing of the market which will soon be followed by a trend to the upside. I believe the second quarter of 2009 will be the beginning of a 5% - 7% upward move in home prices. There is still a substantial number of inventory homes to work through and foreclosures yet to come, but the worst is behind us.

To paraphrase Warren Buffet, "Be fearful when people are greedy and be greedy when people are fearful." In other words, the best time to invest is when prices have been driven down by mass fear. When people are no longer fearful of continued price depreciation, values will begin to rebound. By investing during the lows of the market, you stand to profit greatly from the rebound. This is how REAL wealth is achieved. Wealthy individuals tend to do the opposite of whatever the masses are doing. I have personally benefited from this contrarian point of you, and I frequently tell friends and associates to adopt this way of thinking.