The Housing Hangover and Hair of the Dog Cures for the Investor

Juiced, a book written by the infamous baseball player Jose Canseco in 2005 was widely dismissed in the sports community at the time of its release.  In the memoir Canseco accused many famous players, including the beloved Mark McGwire, of using performance enhancing drugs.  Players, managers, front office executives and the media cried foul, figuratively of course.  The book was a pack of lies they said.

It turns out Jose Canseco wasn’t a liar after all.  He was a whistleblower.    We would find out later that Mark McGwire, Roger Clemens, Barry Bonds, Jason Giambi and Andy Petite all used performance enhancing drugs.  Since baseball started testing for steroids in 2005 home run numbers have steadily decreased, from Barry Bonds record setting 73 home runs in 2001 to 47 last year by Albert Pujols of the St. Louis Cardinals.

We don’t need a whistleblower like Jose Canseco to let us know that the housing market has been juiced by a performance enhancing drug – the $8,000 federal tax credit.  Much like steroids in baseball, it artificially propped up and may have even inflated housing numbers over the past 12 months.

How else do you explain that with interest rates in the high four percent range and pricing nationwide at rock bottom, applications for mortgages hit a 13-year low in May?  Or that, according to the Cromford Report, last month pending listing counts for homes in Maricopa County, Arizona priced in the 125-150K range dropped by 21%?  Please don’t say it’s because of unemployment.  Are you kidding me?  We’ve been hovering at 10% for over a year and that didn’t slow the so-called housing recovery down.

The housing market is just waking up to the effects of a full blown hangover.  Too many tax credit shots were the cause.   The bad news is the party is over.  No more multiple offers.  No more highest and best responses to the buyer.  No more urgency.  Anyone that had the ability (credit and income) to buy a house did so in February, March or April to take advantage of the tax credit.

So what is the hair of the dog cure to this nasty hangover for the real estate investor?  Please don’t say bringing back the $8,000 tax credit.  I would rather us entrepreneurs create our own solutions.  Here are few flipping strategies that have been working for my investment group since the tax credit expired April 30th:

  1. Buying homes with special selling features – let’s face it, the few people out there that are buying now will have a lot to choose from so make sure that you are selling something that stands out in a crowd (highly upgraded kitchen, swimming pool, large lot.)
  2. Seller financing – Tom Ruff of the Information Market estimates that 40% of homeowners in the Phoenix housing market are underwater.  Many of them will strategically default in the next 12-24 months.  These are people with otherwise stellar payment history to their creditors and significant cash reserves.  Why not offer them terms (say 15% down at 8-9% interest) and 3-5 years to refinance?  We’re marketing two of our homes this way and have multiple offers on one of them after just one weekend on the market.

If only curing a real hangover was this simple.  Now let’s get this party started again.  This time no shots for me.

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2 Comments

Filed under Investing

2 responses to “The Housing Hangover and Hair of the Dog Cures for the Investor

  1. Darcie Elliott

    Frank and Honest, two guys we all need to get to know. Keep it up!

  2. freerealestateeducation

    Darcie,

    Honesty is always the best policy. I hear a lot of real estate professionals spinning the truth to generate business.

    Thanks for reading. Take care.

    Marty

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