News came out yesterday that Pending Home Sales are up again, rising 2% in January, 8% higher than January 2011 and now at a 21 month high, since April 2010. Does this mean the worse is behind us? Well, that is what the NAR would like you to think…
According to Lawrence Yun, NAR chief economist said “Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations.”
Sounds great, right? Well, that depends if you include the foreclosure homes that are NOT on the market (aka: shadow or phantom inventory) in your numbers.
Many are optimistic because the decline in housing inventory has fallen. But the reality is, there is a big gap between visible and total inventory.
The most recent data for existing home inventory shows it could soon fall below six months for the first time in six years. And a recent delinquency and foreclosures (shadow inventory) report from MBA shows that both new delinquencies and new foreclosure starts are headed down. That is the good news.
However, despite the recent improvement in mortgage delinquency rates, we have to keep in mind that there is a tremendous amount of shadow foreclosure inventory not yet on the market. And while the 4Q delinquency data did show a decline in this inventory glut, it remains north of 17 months’ worth of supply at current sales rates. It certainly is moving in the right direction, but “normal” is not what I would call today’s market, it’s moreso “recovering”.
A vigorous housing recovery is probably a year or two away, with home builders back in the game, and buyers confidence soaring. Then the next boom cycle begins. And once that happens, good luck trying to lock in a super wholesale deal, at super low rates, with huge positive monthly net cash flow and big appreciation gains. You will have missed the boat.
Just like I blogged about Buffet yesterday (Buffett Double Downs on Housing), housing is today’s best value play. You need to get in with the right properties, in the right neighborhoods, with the right financing in place to lock in you $500/mo or more net cash flow today… so you can bank your profits and huge equity growth paydays in just a few years.
Had a great call on February 29, 2012 on “6 Costly Rental Buying Pitfalls to Avoid,” shared some really interesting news on the housing market and why we only have 12-18 months to take advantage of the unbelievable foreclosure buys we can make right now, and hold them for huge cash flow and big profits when we sell. If you missed the webinar, watch the replay below, you won’t be disappointed.
If you have questions, comments or ideas on foreclosure rentals or other real estate investing, we encourage you to comment below. We would love to start a conversation.
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