Speaking in general terms, we may be far from a bottom in the national real estate housing market. Perhaps the government bailout plans and lower interest rates will help, but I remain skeptical that we will reach a bottom by the second quarter of 2009 – today's general consensus. Why?
The Mortgage Bankers Association reported that 10% of American homeowners are either behind on payments or in foreclosure. This data has been tracked for over 29 years, and we are at an all-time high, as you might have guessed.
These high numbers suggest that loans to sub-prime borrowers, who perhaps shouldn't have gained approval, are only part of the problem. The sub-prime market got the ball rolling, but now unemployment is making that ball accelerate at a frightening speed.
The U.S. economy lost 1.55 million jobs in the last 6 months. That's the biggest loss of jobs in 30 years. To put this in a little more perspective, 1.55 million is nearly the number of jobs that were lost in the 2001 recession including the months following September 11, 2001 terrorist attacks.
Unfortunately it gets worse.
637,000 people were not counted in the official jobless numbers because they've stopped looking for work, effectively removing themselves from the employment pool.
Another 621,000 people have apparently settled for part-time work because they can't find full-time work. These people count as employed, but it's pretty obvious they will not be contributing much to the GDP by way of spending.
Where's the bottom?
We will reach a bottom of the housing market once we have Stabilization.
Stabilization means the end is in sight. The day will come when the rate of layoffs will slow down and corporate cost-cutting has been done. However, the latest employment numbers suggest we are a long ways off.
What should you do?
As mentioned in our blog post, “Is it a Good Time to Invest in Real Estate?“, there is an abundance of good real estate deals all over the country today. With real estate values and mortgage rates at historic lows, finding property with neutral or positive cash flow is not difficult to do.
Again, be sure to do your research and buy in markets with the strongest economic fundamentals, then hold on for the long term in order to gain the highest returns.