Americans moved less last year, then past 6 decades.

Why?

It certainly wasn't due to a shortfall of inventory choices.

It certainly wasn't due to interest rates being too high.

I think it was a combination of:

1. Fear that prices would continue lower, and
   
2. Banks changing lending practices limiting buyers ability to borrow.
   

This kept buyers from buying, and those buyers that were buying a resale, affected those sellers from moving. As the market prices continued downward, causing sellers to lose equity, the choice became simple for many sellers. DON'T SELL. The difference between this year's percentage of Americans moving and previous decades is: Sellers that didn't have to sell, didn't sell. Whether they tried or not. Those that did have to sell, sold for discount and/or a loss.

The speculation is that many of the Baby Boomer population, that are empty nesters now, should be downsizing.  But because they are losing equtity, they are the ones that are deciding to hold tight and not move. Since this demographic makes a large piece of the population pie in America, this theory may be the right on point. But, I think it is just a small part of the puzzle. Because everyone will move or sell for the right price. Therefore, drilling down deeper, the true reason is buying power. Buyer's don't have power, because fewer banks are lending them money, and they are afraid prices will fall, so they sit on their hands until confidence comes back.

The normal level of people moving for the last decade has been around 13%. Which is still lower than previous decades. I feel that is due to the incredible low interest rates since Sept 11. People were comfortable in their loans, and less antsy in their homes.

But in 1951 and 1984 the level reached approximately 21%. Both followed stagnation and depressed eras. Could we see another shift of moving similar to the previous 30 year cycles? Especially, with pent up demand, low interest rates and prices that have rolled back by nearly half in many of the nation's most popular cities? Start reserving your UHauls, because I think the people are prepared to pack.

Link to MSNBC article 

You had me at ZERO

Recently I was talking with a very good client of mine about a purchase, and I was reminded of one cardinal rule.

Keep it simple.

I was talking to him about a property that could be bought for ZERO down, rented, had positive cash flow, and was in a nice location of a popular city in the US.

His reaction was, "This sounds too good to be true, does it work?"

I was so excited that a buyer wanted to talk to me about investing in real estate, rather than punching me in the face or throwing their soda at me, (both have never happened to me, by the way) that I simply reacted without thinking.

My response:

It does work. These are real fannie mae approved loans. They use the equity as the down payment. It only works when 1.) a seller that owns the property 100% free and clear, and is willing to sell and get paid off later. 2.) local bank willing to finance under these terms. None of the big banks will do it. They only see investing in black or white today. But a local bank knows and understands its market better and as long as they have a Fannie Mae stamp, they know it's easier to sell on Wall Street.

The buyer essentially takes the 100% price, uses 25% of the equity as his down (zero cash) and borrows 75% at 6.125% 30 year fix interest rate. Terms that cash flow all the time. The cash required is usually just closing costs. Anywhere from $2000 to $7000 depending on the property.

Everyone says its too good to be true. So, what is the catch?

The catch is… you could have paid cash for the house and got it cheaper 3 weeks earlier, if you were willing to spend ALL cash, buy it from the bank, make your own repairs, settle all outstanding liens (whatever were discovered) and then find a renter. Essentially, the catch is, yes there is a better deal if you are willing to take all of those risks.

This is a way, to still get a great deal, and hardly put any cash out of pocket, and having most of those risks being taken by the wholesaler REO company.

My company makes its money by being the lender, and a commission as the broker.

He said, "Stop, you had me at Zero"

Are you glad you escaped the housing bubble?

Kudos to you, if you missed the last housing boom, because you missed the big BUST too.

Investors and homeowners alike, that sat on the sidelines during the last real estate boom, are NOT kicking themselves today.

They may have watched home prices in many markets around the country go up 10% - 20% in one year, and thought...

"Boy, this market is really heated, I'm staying out of it" or "I wish I got in earlier, these prices today are ridiculous"

But, they did not buy earlier, and they did not buy when the market was heated, and they certainly did not buy during the free-falling bust.

What a sigh of relief. No Loss... but, No Gain.

---

Historically, real estate has gone up approximately 4% per year since 1910, almost 100 years. [reference Robert Shiller of Case Shiller from Irrational Exuberance.] Consider inflation, and that hardly seems like a good investment. Consider, leverage by financing real estate, and positive cash flow by income received, and now it looks like a phoenomenal investment.
It can look like a bad investment when you pay all cash, speculate on the appreciation, or have a large negative cash flow. Avoid those things and buy for the long term, and it is a great return.

Let's assume the most recent bust, has erased the gains of the boom. 08 erased 07. 09 erases 06. In some markets 08 may have erased 05 too. BUT, never the less, investors that bought in 2000 still have a 20%-24% gain on average. The same would also be true for some that bought in 06, may have to wait for 2016, but could receive 20%-24% gain as well.

How many times has real estate posted similar losses? The last similar drop was 2 generations ago. It is safe to say, it may not happen again in our lifetime. But if it does, it seems to wipe away recent gains, not total gains. Many buyers that are taking advantage of prices today, are saying, "We are happy to afford today's values, as we were priced out of the market a couple years ago." (not priced out a decade or more ago)

Comparatively, if you invested in the following companies for a decade, do you think you would have similar gains, let alone any of your investment back?

Motorola, Sears, Ford, Citigroup, Fannie Mae, Yahoo, Qwest, Firestone, American Motors, Texaco, Pan Am, Worldcom, Enron, Lehman Brothers, Circuit City.

Energy, Telecom, Finance and Retail Giants... no investment is 100% safe, including real estate. But many of the above companies no longer have any value left, or are facing that fate. Even, I am guilty of owning several on that list, based on raving reviews or a sparkling prospectus. No one could predict their destiny any more than the recent boom/bust mortgage crisis. Whenever something is too good, it usually isn't good forever.

This is not an argument of stock vs. real estate. Rather, I am saying, Real Estate can be viewed as a safer investment, without surrendering your entire investment to a entity that declares itself bankrupt, or corrupt CEO running the company into nothing. There is still something of value with real estate, even in the down turn. Either a roof over your head, or renting the roof over someone else's head.

If the worst is behind us, it could be another 60 years before you have to worry about losing your initial investment in Real Estate. And if you truly owned and financed said property during that period, you would own it free in clear long before that time came!

But if you want to buy or invest, you have to jump in sometime. But when?

The safest time to jump in will be after the bust. No one can predict the perfect time, but watch and see who is buying today, and don't just be the watcher.