The Flip Board

The collapse of the housing bubble will likely have drastic implications on the wealth and retirement of certain baby boomers, according to a report Tuesday by the Center for Economic and Policy Research.  For us investors, this market can truly be a blessing in disguise. Rents are up all over. New properties are cheaper now than they have been during the last 10 years. And competition is down due to more scrutiny and aversion to risk by the banks.

But FlipBoard readers will get an edge this week.  Here are 3 things to watch for in this market that will signal a bottom. Rock bottom prices lend themselves to equity where low rates and good terms lend themselves to higher cash flows.

1. Local market conditions spread and become regional market conditions - Foreclosures increased almost 45% in Milwaukee County during the first five months of the year compared with 2007, according to circuit court records. In May, Milwaukee County foreclosures were up 33% compared with May of last year. Both rates were higher than those posted for the entire seven-county Milwaukee area, which saw a nearly 40% year-to-date increase and an 18% increase in May.  This trend started in particular areas and grew throughout the entire county. Expect this trend to continue.
2. Faster Moving Foreclosure rates - There usually is a lag between when a person falls behind on mortgage payments and when a property is put into foreclosure by a lender. When people discover they owe more on a house than what it is worth, they are more likely to let a foreclosure proceed than to fight it. For this reason, foreclosures are probably a good lagging indicator of the regional housing market. So, it is reasonable to assume that when prices begin to rise, the foreclosure rate will fall more quickly because more people will decide to do more to forestall such actions rather than lose equity in their homes. Owners will fight off a foreclosure due to a pending sale so they can realize cash flow, rather than lose that money and their current credit rating.
3. Easing bank restrictions - With increasing foreclosures, it is becoming harder for RE agents to negotiate price concessions. When a buyer offers a bank less than the value of a current loan for a property in foreclosure, the bank generally wants to sell the property, but are very stiff on bending on price concessions. It was much easier to get a price concession when banks were foreclosing on houses with loans of less than their value. Watch for this easing again as values being to increase and the bank’s proposition of increasing their margins move as well.  The more money the bank stands to make, the easier they are to work with.