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Part 2: Time to Invest in Foreclosed Property?

What to do? Get back in the real estate market? That’s a function of whether the market has hit bottom yet. At this point, the conventional wisdom says no. Most markets are saturated with distressed or foreclosed properties and until the surplus is sold off demand will remain underwhelming. The New York Times ran an article in mid-January pointing out that until 2000, the relationship between home prices and rents, disposable income and mortgage rates was steady. It’s analysis indicated that in California , Nevada and Florida , home prices would have to fall another 30% to return to historical norms -- 20% for other parts of the country.

In Northern Nevada , a typical home in the range of the arithmetic mean, which peaked at $395,000, has a fair market value of roughly $289,000.00 now. According to the Times at least, home prices needn’t have to decrease much more to reach normal levels. The S&P Case/Shiller index pegs the Las Vegas metro price plunge at 22.8% over the last 12 month period, alone. An S&P spokesman, however, argues that there is no sign of the bottom, yet.

Really? If you consider the bus tours of foreclosed properties organized by realtors across the country and the web sites urging buyers to get in now, along with interest rates at a comparatively cheap 6%, it may very well be a good time to cherry pick the inventory for the best possible deal you can make. Is it pennywise to hold off for the market to fall another 5 or even 10 percent, when, all things considered, now may be as propitious a time as any? Even if prices do decline a bit, when the market turns it shouldn’t take long to gain it back.

Then too, federal initiatives, while rightly not bailing out lenders and borrowers who engaged in silly, high risk transactions, should lead to the extension of more credit by government lenders, easing credit tightfistedness. And in diametric contrast to the S&P position, Moody’s chief economist notes that, even though home buyers are watching prices slump, holding off in anticipation of further declines and a better bargain, “Sales are close to bottoming.”

So go ahead; be an economic patriot; buy a distressed property now and help turn the market around -– this country’s and maybe the world’s.

Which begs the question: do you hop on the bus and compete with other bargain seekers for one of the tour homes, or can you find distressed property on your own? Definitely the latter.