How The Housing Market Crisis Affected US Investment Properties - Part 1
Using the US housing crisis to get the best real estate investment properties can seem a little mercenary, BUT since it is happening, our best option is to capitalize on the opportunities we see in front of us now! In Part 1 of this series, we will look at How The Housing Market Crisis Affected US Investment Properties:
Foreign real estate investors from all over the world love investing in the US real estate market. The Number 1 reason is that US real estate is deemed to be one of the safest investments in the world. As was shown at this years World Real Estate Investing Summit, US real estate continues to be one of the most highly sought after commodities around. Our population grows at a rate of 1 new (net) person every 10 seconds. Everyone who lives here wants to stay here and many people from all over the world wish they could live here.
Buying property in the US is as simple as identifying the right location and property and agreeing to the purchase contract. If indeed you have money to purchase a US real estate investment property and agree on the terms of a contract, you are good to go. Very few if any other countries have the simplicity to own real estate as the US does.
About 10 years ago the government and the finance industry wanted to make it possible for as many people as possible to own a home. This was a great concept but one that would later prove to be a disaster. In order to allow as many people as possible to get a home loan the lending standards were reduced to almost nothing. Many loans (nicknamed Liars Loans) were utilized and the process allowed most everyone who asked for a loan to get one.
What this ultimately did was created a large demand for homes. Everyone was buying homes and many were buying a second home. Investors were buying 10 to 20 homes and up. With little to no standards to qualify for a loan, the banks were lending money to people who could never sustain the payments they were committing to. Along came the A.R.M (Adjustable Rate Mortgage). These loans allowed you to get into the property very cheaply and after a year or two, the payment would rise as the interest rates went up. All these purchases obviously created a supply and demand imbalance for homes that were for sale, resulting in very rapid escalation in values.
Then the bubble burst. Home values started to decrease and now we are here, years later with a much deflated real estate market. In many parts of the country, the value actually reduced to home prices in the late 1990s to early 2000, eclipsing the increase and going even further down. In my opinion, most markets have over corrected.
Why the over correction? In its simplest form the finance industry has taken such a hit by borrowers who have defaulted on their mortgages that they are busy trying to liquidate their bad loans and are scared to finance money again. Lenders have done a complete turnaround from the height of the real estate boom days. They went from very loose lending standards to lending standards that are so tight many people who would normally qualify for a loan are not currently able to qualify to borrow money.
What this does to home prices is forces them to be reduced to the point that people can come in and pay cash for them. As fewer and fewer people have the means to purchase with cash, the supply of buyers is reduced which reduces the value of the homes. Homes are more affordable now than they have been for the past 15 years based on income to housing expense ratios.
Tune in next week for Part 2 of this series, Using the US Housing Crisis To Get the Best Investment Properties.