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.