A Cooling Real Estate Market and Investing in Pre-foreclosures

With the housing market cooling and the demand for mortgage loans shrinking, banks and other lenders are turning to nontraditional and sometimes riskier mortgages to bring in additional business to make up for their drop-offs.

Many lenders have turned to mortgage products that are designed to lower monthly loan payments to help borrowers qualify for larger loan amounts. While others require little in the way of documentation during the approval process. 

Although these loans do make it easier for some people to get mortgages, they also can raise the possibility that some borrowers may end up in foreclosure. For the real estate investor or home buyer, these market conditions represent a window of opportunity

A Real Estate Market Cooling 

As housing monetary value appreciation rates slow, more mortgages are going into default. Foreclosure notices have edged up in recent months, providing yet another sign of a cool down in the real estate market across the U.S. For example in San Diego County, CA. Banks and other lenders sent 1,266 letters of default to borrowers in the third quarter. A notice that gives homeowners 90 days to become current on payments before moving towards a foreclosure auction.

At the height of the real estate boom, the double-digit rise in home equity meant customers could pull out money from the increased home equity to bask a lifestyle that, in reality, they couldn’t afford. Flushed with the ability to tap into home equity loans, homeowners have pulled out cash to purchase new cars, furniture, vacations, and other luxuries. Another boost to their lifestyles was rendered when homeowners refinanced using adjustable-rate mortgage loans that cut their monthly payments.

But now the conditions are changing, in many areas of the country real estate price levels are flattening out and not rising in some real estate markets. With little or no increase in home equity, or even vanishing equity, homeowners could find themselves in a tight spot.

Additional forces are also having an impact on the housing market: New federal laws regarding credit card payments have passed to increase the minimum payment mandatory on credit card debt. For many people, that payment will now be twice what it has been in the past. Energy prices and health care costs continue to march upwards to new all-time highs as well. This means that a growing number of people are in financial situations where the money that is spent is exceeding the money earned.

Windows of Opportunity

For a first-time real estate investor or seasoned veteran, the current market conditions are a window of opportunity for those shopping to buy real estate property just before foreclosure. A growing number of homeowners have withdrawn all their equity (sometimes as much as 110% of their home’s value) and now they are upside down on their mortgage — where they owe more than what they can sell the house for. Trapped in a situation where they can’t pay their debts and can’t find a buyer for their home, real estate investors can offer a solution that offers the homeowner a default way to escape from their mortgage payments. In turn, the investor can secure a property in the process.

When looking to invest in a new property, make sure that research the area and seek out opportunities such as this. With the real estate marketing cooling, it’s obvious that this gives a prime moment for investors to rise and seize the day.

Leave a Reply