Foreclosure rates are low when housing prices rise quickly and the economy is good, so high foreclosure rates mean “stay far away”.
The last 5 years in CA, foreclosure rates have been abnormally low, because prices were rising so fast. When a homeowner ran into payment trouble, they listed their home for sale, and within days, they got their asking price. There is a normal national foreclosure rate of under .5%, due to illness, job loss, mental problems, etc.
As housing prices flatten out, or decline, it is impossible to sell the house for the mortgage amount, so the homeowner just lets the bank foreclose. What is raising the foreclosure rates in CA is the use of exotic loans. In other cities, like Denver, it’s the poor economy.
When you see foreclosures rising, you have a lagging indicator that homeowners did not have the wages or employment to make their mortgage payment PLUS the demand for homes is so poor that they could not find a buyer during the long preforeclosure period.
Foreclosures put a lot of downward pressure on prices, because the bank is a very motivated seller, and they will sell at a rock bottom price. But before you think you are getting a good deal, beware that with all the recent real estate seminars, the competition at the auctions usually leads to people paying above market prices, plus you don’t get to see the house or do an inspection first: it’s as-is, not a good way to buy a house in my opinion.
In a period of declining prices, why buy? Why catch a falling knife? How do you know that prices won’t keep falling? Today’s $350K foreclosure house could be worth $290K next year, $213K the next year, etc.
I am waiting to buy until prices come back up, as indicated by the leading indicators. NOT median price, which is a 2 year lagging indicator. Prices in SD have been falling 2 years, and our median just showed it this month.
Work with a good realtor, who can keep you tied in to the months supply, HAI, and can tell you when prices are starting to turn around.
I am sure there is money to be made in real estate somewhere, but I do not know where. Definitely, not residential. Maybe land used for oil drilling, or areas where people might buy housing if oil rigs come to town, or some other unique idea. I think commercia/retail is still spending, as they lag the slowdown by 9-12 months, and since retail is just now slowing, they have already made their building construction plans are completing them. My friend is a RE attorney in Phoenix, and just finished the legal work on a very large retail center in Phoenix; by next year, the anchor tenants will not be in the mood to rent/build these buildings, but today, maybe they are still out buying land. I have no knowledge of these things, though. Perhaps others on this forum do.
Why real estate? Why not oil stocks, Precious metals, euros, yen? I also want to diversify, but am in cash until I figure it out. Why not farmland, water? Isn’t water supposedly in short supply?
