Is Investing in Housing Over? (At Least for the Amateurs)

In the past few years it seemed like everyone was investing in real estate. My doctor, my plumber, my postman -- they all had some sort of "hit it big" real estate investment scheme going. Ok, it wasn't quite that bad, but it seemed like it. Stories were all over the place of people who knew nothing about real estate investing taking a weekend class and then borrowing all they could to buy homes on speculation. It worked -- and worked well -- while homes were going up 20%, 30%, or even 50% per year in some markets. But how's it going now that the market is starting to go the other way? Well, not so good.

Here's part five of my thoughts on the recent U.S. News series on the slowing real estate market. Today we'll discuss real estate investing and how the rules have changed from the go-go days a few years back. Some key comments from their piece:

"The days of flipping properties for a fast buck are over," says real-estate analyst John Tuccillo.

That, of course, doesn't mean real estate has suddenly become a bad investment. Indeed, Tuccillo and others say the downturn in once hot areas means there are already deals to be had. "Fear and greed caused people to overestimate the value of their property on the way up," he says. "But that will also make them undervalue it on the way down."

For those willing to buy and hold, he says the surest way to make money in real estate in the current market is to find a fixer-upper that needs minor improvements. "Don't just buy a house and hope it goes up in value," says Bruss. "Buy one, and force it to go up in value."

So, that's the bad news -- the days of the quick, easy profits are over. However, there is some good news for real estate investors, though it is for a different type of investor (more of a value strategy):

"The slowdown hasn't created any opportunities yet. But when it does, we'll be ready."

As I posted earlier, this is what I'm thinking of. Waiting for prices to go so low and then potentially picking up a piece of property or two at bargain-bin prices. It's one of the advantages of being debt free and having saved up some money -- lots of financial flexibility.

And for those who may still want to argue that the housing market is as strong as ever, here's a report from Jason Calacanis on foreclosure activity in LA (from an LA Daily News piece):

Foreclosure activity across California soared by its biggest margin in 14 years during the second quarter in response to diminishing price appreciation, but still remained well below average levels, an industry tracker said Wednesday. During the April-through-June period, lenders sent 20,752 default notices to homeowners in the state, up 67.2 percent from the year-ago period and up 10.5 percent from the first quarter, said DataQuick Information Systems. That's the biggest annual quarterly increase since La Jolla-based DataQuick began mining these numbers in 1992.

And in another sign that the housing market boom is over, mortgage applications last week sank to their lowest level in four years.

Yep. The pieces of the puzzle are coming together. Or falling apart, as it may be in this case.

Click here to read part 6 of this series.

Click here to read part 1 of this series.

Comments

[Dave]

I've been thinking a lot about this, also. It reminds me in a loose way of the the stock market crash, or, now that I think of it, the land boom in Florida back in the day. If you can just keep your wits, don't move *too* fast and have a plan, when the time is right there will be a lot of opportunities.

[prlinkbiz]

Yeah, the lemmings are drowning, but I run with a crew of real estate investors who are loving this market- there are opportunities in every market if you know the right strategies. The real investors are making as much money as ever (five properties to several hundred bought last month by people I know)- flipping, holding, etc. Those are the ones you want to get advise from!