I am sure you recall the movie some time back entitled The Perfect Storm? It was a great movie, about the interaction of several storms meeting up to create one giant storm. For an old Navy guy and licensed Coast Guard captain… it scared the hell out of me!
Throughout the past several years we have been experiencing this same situation – first with the housing market, and then starting at this time last year, with our financial markets: The perfect storm of over priced homes, rampant speculation, poor lending practices, and I am sure more then a little fraud. Every one of the previously mentioned occurrences contributed to a complete crash and the current recession we are still in.
In a previous article written for BiggerPockets, I shared a graph that showed how Option ARMs are the next part of the storm to materialize. You can revisit that chart by heading over to this link…
In spite of the recent good news regarding sales (increasing in most areas) and prices (declining at a slower rate, again in most areas) we are about to experience the second wave… kind of like we are in the eye of the storm… and the backside is barreling down on us.
And what does the backside of this storm hold for us?
Continued high unemployment: With unemployment now at 9.7% and almost everyone indicating that the this will most likely be a “jobless” recession, don’t look for unemployment to drop significantly anytime soon. And, more then likely, it will continue to climb for the next several months.
In addition to the ugly unemployment picture, the foreclosure picture is not getting any better.
And now for the rest of this “perfect” storm…
There are at least One Million Option ARMS about to reset. The above chart provides an illustration. But to get a feel for the significance of what is coming, this article provides some great insight…”Option ARM Disaster Arrival: Mortgages More Problematic than Originally Thought. $134 Billion Recasting in Next Two Years. 94 Percent Made only Minimum Payment. Only 35,000 of the 1 million Option ARM loans Modified” Not a pretty picture.
OK… so what does this mean to each of us as real estate investors?
In many regards it means that for those of us who have figured out how to navigate in this ever shifting market, it is “business as usual.” We will continue to take down great deals at low prices because we have adapted to this market and have discovered how to profit.
For those real estate investors who are just getting started you will be challenged to ensure that you are locking in your “profits when you buy.” Don’t allow what looks like a low price drive you decisions. Make sure it meets your purchase criteria and that there is enough room in the deal for you to execute not only plan A, but plans B, and C as well.
Article Author:
Peter GiardiniPeter has written 11 articles for us.
Visit Peter's Website: http://www.theclubmastermind.com
Peter is an active and successful real estate investor in the Baltimore Maryland region for the past 8 years and is one of the founders of The Club Mastermind a real estate investing coaching program focused on local coaches helping investors to perfect their game.
Joshua Dorkin
Charles Feldman
Ted Karsch.
{ 5 comments… read them below or add one }
I really wish I had the means to take advantage of the market right now. You can get a good house for cheap if you can get any financing at all. Unfortunately the loan environment has gone from too easy to get a loan, all the way to where it is now and nearly nobody can get a loan.
-Tyler
Portland Real Estate´s last blog ..Portland Suburbs Full of Distressed Properties
The longer the government/banks hold inventory and keep prices for appreciating again, the better it is for us guys who can buy some properties but have limited capital.
Steve´s last blog ..Sticking with a Deal Pays
I’d love to be buying in about 12 to 18 months. The near-term is going to be really murky though.
Tyler,
I accept that you are being challenged regarding lenders… however, I think you may be throwing in the towel too soon.
If not banks, what about those who have 401Ks? Trillions of dollars left the equities market, some lost forever, but most put to the sidelines… where is that money sitting today?
Don’t lament the sitution… go figure out how to tap into the money that is just waiting for a place to go to work.
Steve,
You are absolutely correct. But at some time the banks are going to have to let go of the bow-wave of inventory… just to make room for the stuff they are about to take possession of.