Last week the headlines screamed that the number of homes foreclosures had passed the million mark [See, for instance, Homes in Foreclosure Top One Million at CNN/Money]
Some see a train wreck the size of the global economy. Smarter people see one million opportunities.
We all know the story of how the opportunities were created. Housing prices started going up after the Internet Stock crash of 2001 because the Federal Reserve set interest rates too low and left them their too long. Stupid people were egged on my news media, real-estate agents (my friend John calls them land pimps), banks and mortgage companies, friends and relatives to believe that housing prices would always go up at 10 to 20% per year. A house was no longer just a place to live in, it was a money machine. Why, it was such a sure thing you could buy a house without a down and be rich in almost no time.
I've seen smarter people who believe a carpenter can raise the dead.
Some people worked and saved and did not fall for the flim-flam. Now they have downs and if they can buy a house at the right price they can eliminate their rental expense. They can build equity the old fashioned, reliable way: by spending less than they make and paying down the mortgage.
It is a good thing. The profligate are punished and the thrifty rewarded.
Not every house in foreclosure is a good buy. You have to ask yourself, what is the real value of this house, and how does that compare to the asking price? Just like stocks. I always ask myself, before buying or selling a stock, what is the market capitalization of the company, and if I were going to buy the whole company, would that be a price I like?
Not everyone should buy a house just because the price is right. It takes energy or money, and sometimes both, to keep up a house. Things go wrong, things wear out. Taxes have to be paid, and they will eat up the original purchase price of the house in the long run. Don't kid yourself, all land in the U.S. is just rented from the government, and taxes are the rental payments.
And people are out there hunting and buying. April used home figures were released today [See April Pending Home Sales Rise As Prices Tumble] and they reflect what I've been hearing anecdotally in California. If a home is for sale and it is priced right, it can sell quickly. People who are trying to sell for imaginary prices, their properties will just sit.
There are scenarios that could make buying homes now look stupid, but they are becoming increasingly unlikely. Buy a home at the right price and ugly scenarios are balanced by some pretty bright ones. Some distressed sellers may sell so cheap that a non-distressed seller to have some equity, aside from a down, pretty quickly.
Most in demand: homes near workplaces or on public transportation routes.