From a small northwestern observatory…

Finance and economics generally focused on real estate

Archive for April 30th, 2020

Seven biggest real estate mistakes — part 4

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Back in the winter, I began this series, and then we all got distracted with other things.  In the interim, I’ve been deluged with e-mails about real estate investing, and particularly when would be the right time to look for opportunities.  Whoa!  Slow down, folks!  Real estate prices and values aren’t like tech stocks  Indeed, in 1991, when we were just coming out of a recession, real estate prices only moved about 1.85% all year.  Trying to time the real estate market — and developing an anxious ulcer about it — leads us to our fourth mistake:

Mistake #4 — Trying to catch a falling knife

I include in this all of those anxious decisions about buying impetuously, and not taking the time to carefully examine the market to see how things play out.

No question about it, this recession is going to be terrible, and particularly so for home owners who are over-extended on their mortgages.  The mortgage market TRIED to discipline itself after the last recession, taking care about making stupid loans (a category that included a lot of garbage back a decade or so ago).  That said, there is still a lot of stuff out there that will land on the chopping block.  I just read a piece this week about folks who bought homes specifically to rent via Air B-n-B.  The lenders counted the anticipated Air B-n-B revenues as income for purposes of making the loans.  A lot of these are going back to the bank this summer.

The 2009/10 recession was very different.  It was, in no small part, caused by bad real estate lending.  When loans began to default — as loans do from time to time — this caused a recession.  House prices continued to fall during the recession, but then there was an echo effect after the recession was over.  House prices stabilized, and then dropped even more after the recession was finished.

This recession is clearly caused by other factors, and so housing and real estate failures in general will be effects of this recession, and not causes.  Worst case scenario, people who lost their jobs in March (and a lot of folks did) didn’t make their March house payment.  It takes about three of those missed payments to get in really serious trouble, and then several months afterwards before a property gets back into the bank’s “REO” portfolio.  Banks then have statutory requirements, so the first wave of RE foreclosures won’t even get into the market for another year or so.

Now, here’s a bit of a secret.  Many if not most of those “first wave” properties will go on the market at inflated prices.  I’ve found that lots of investors rush into auctions and pick up anything laying around, having watched too many of those “flipping” TV shows.  Those properties may not go on the market, at reasonable prices, for several years.  I’m currently still looking at properties that went into initial foreclosure in 2009.  I’m not kidding.

So, don’t try to catch a falling knife, have a strategy, stick too it, and be careful in your investments.

Written by johnkilpatrick

April 30, 2020 at 1:39 pm

Posted in Uncategorized

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