No More B.S.
Are you truly prepared for this market?
Lets find out….
First of all know this…I don’t like telling you bad news anymore than you like hearing it.
Someone has to. Before its too late.
Now as always, its up to you to listen.
In the summer of 2005, we warned our coaching clients that if they were speculating in real estate, the time had come to cash in their chips and get out of the game. We listed a number of reasons, but the biggest one was that ordinarily sensible people were talking and acting as if highly-leveraged home purchases were risk-free transactions. After all, “real estate always goes up.”
It doesn’t, of course. And now everybody knows it.
According to the S&P/Case-Shiller Home Price Index, which measures home values in 20 major U.S. cities, home prices have fallen an average of 7% since peaking in June 2006.
I would love to tell you that the worst is over. (After all, Julie and I own many long term rentals.) But the reality is we’re only in the second inning. Real estate has much further to fall and you should govern yourself accordingly. Here’s why…
A Decade of Declining Prices Ahead?
Last year was the most painful year in decades for residential real estate. Home prices fell, home ownership dropped, foreclosures soared, and housing emerged as perhaps the weakest part of the entire U.S. economy.
2008 will be much worse.
This year housing prices are set to slide considerably further, as anyone with two eyes and a modicum of objectivity should see. Banks and mortgage lenders are raising their lending standards. That means credit will remain tight, boxing out many potential buyers. Interest rates on many mortgages are about to reset, ratcheting up the pain on many borrowers and triggering more defaults. Home inventory is still growing and must be worked off before the market gains some kind of equilibrium.
And now a new study by one former and two current Federal Reserve economists gives us another major reason to be pessimistic about home prices: the price-to-rent ratio.
Most human beings are rational animals. If home prices get too high, many will choose to rent. If rents get too high, many will choose to buy. Economists feel the price-to-rent ratio is perhaps the most accurate gauge of fair home value.
Unfortunately, the new study by Federal Reserve economists concludes that U.S. home prices “likely would have to fall considerably” to return to a normal relationship with rents.
Here is a real life example. Julie and I own a rental property in Columbus, Ohio which has a tax value of roughly $600,000. Guess what we have it rented for….all we could get in this market for rent….$2500 per month. Another example: We have many coaching clients in Southern California. We own a vacation property in Laguna Beach. Like properties are worth over $1,000,000. The rental value…$3,000 per month. You see, we too are in this market just like you.
The study tracks rents and home prices back to 1960 and found annual rents fluctuated at around 5% to 5.25% of home prices until 1995.
But starting in 1996 – the birth of the housing bubble – home prices soared much more rapidly than rents. In fact, by the end of 2006 they had more than doubled to an average of $282,000, while the average rent had risen 48% to $818. That drove the annual rent/price ratio down to 3.48%, a third below its long-term average.
The study concludes that to reach equilibrium, house prices need to fall 3% a year for a decade, even if rents grow in line with their average 4% annual increase. (Of course, if home prices fall faster – and harder – equilibrium could be reached sooner.)
In other words, we’re still a long way from the bottom. And here is some further anecdotal evidence to prove it.
I will use another personal example. Julie and I live in Las Vegas. We have a condo on the strip that we are considering turning into a rental. We have been looking at other condos most of which are being offered for sale by the builders. Its easy to find a condo with a killer strip view for $200,000-$300,000 less than what the builder was selling the same unit for only 24 months ago. AND its only going to get worse. We have many new home reps as coaching clients and are hearing that even with prices BELOW cost there are still no buyers.
We coach many non-agent property investors as coaching clients. A newer student (before he became a HREU student) bought four homes in foreclosure recently. He did all the right things to the properties..put plenty of sweat equity into them, getting them into great shape and pricing them well below the market. “No one ever even calls about the homes…,” he told me recently.
Most homebuilders know the score, of course. But, many sellers remain deluded. “They just can’t get out of their heads what they could have gotten for their home two years ago,” a coaching client told me. “Only the desperate are willing to come down significantly. But most of them can’t anyway because they have no equity in the home.”
Hello, are you listening? A seller who owes too much and has to sell… HUGE opportunity for you.
Understand this…and be super clear with what I am about to tell you..
If you don’t know how to do short sales…you wont make it in this market.
You simply CANT make a decent living in this market without knowing how to do short sales. HREU is the nations leader in short sale coaching for agents. We have many students who had their best years ever in 2007 because they knew how to do short sales.
You are starting to see the opportunity aren’t you?
Know how to do things that others don’t…like short sales…and you will be able to be of service to more sellers and make more money than you ever could of in the past market. Agent Shortsale Secrets is one of the many classes we offer that are designed specifically for this market.
Write this down and take action on this immediately…enroll in the HREU Agent Shortsale Secrets course today. Its only $97 to get started.
So, there it is. You now know the truth. Again, sorry if its shocking to you.
But, maybe you need a little ‘shocking’ so that you will get into action and make the changes that you know you have to.
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