Archives for February 2011

Mortgage Delinquencies Decline Across the U.S.

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According to a recent survey released by the Mortgage Bankers Association (MBA), the “latest delinquency numbers represent significant, across-the-board decreases in mortgage delinquency rates in the U.S.,” according to MBA’s chief economist, Jay Brinkmann[1]. In fact, total delinquencies (not including homes already in foreclosure) are at the lowest levels since the end of 2008, and mortgages with one payment past due alone are at their lowest level since 2007, which MBA marks as the “very beginning of the recession.”

Perhaps even more more promising: at the beginning of 2010 90-day-or-more delinquencies were at an all time high at the beginning of 2010 but have now fallen 28 percent, and 48 of the 50 states experienced a drop in this area.

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National Economic Outlook (February 2011)

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Although the economy has officially been out of recession for quite some time, those aspects of economic behavior most important to the real estate markets, namely, jobs and borrowing, have remained stuck in the ditch.  The latest data suggest, however, that consumers will soon be spending more.  Jobs are growing at a faster clip, and consumers have done much repair to their personal finances.

Since the end of 2008, consumers have cut 10 percent off their credit card debt, a very large amount that gets them back to where they were before the real estate boom.  With finances at pre-boom levels, consumers will be buying things again, although more cautiously this time around.

Renewed spending is showing up in the retail sector, where jobs at clothing stores were up 4 percent over last year, and jobs at restaurants were up 2 percent.

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Why Real Estate Investors Love Inflation!

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Investors love real estate because it acts as a hedge against inflation. This occurs for several reasons:

One, on an historical basis, housing prices rise just as fast or faster than the rate of inflation. Two, although investors can’t always raise rents to account for inflation (due to fixed-rent leases of one year or more), the value of the property itself will increase. Three, when real estate investors have a fixed-rate loan, expenses will stay the same, and they pay back that loan with money that’s worth less than what they borrowed! In effect, it’s a form of debt reduction. It just doesn’t get any better than that!

Inflation should be moderate in order to benefit investors. Hyperinflation or its opposite – deflation – are definitely bad news for everyone.

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