LRN Spotlight

Not too long ago, an entry level home buyer or an investor in search of potential equity, all too often found themselves settling shy of first and second choice opportunities. The sky is certainly not falling, however this is a significant cyclical market correction. CyclicalChart Albeit induced by a number of unique factors, the severity of this current event is not without precedent. Harken back to prior downturns, with factors such as the oil shortage of the 1970s (The hostage crisis), The Savings and Loans debacle of the 1980s, inflation and the struggle to balance a debt riddled federal budget in the early 1990s.

The current market correction was predicted by many seasoned investors, who saw profitable evaluations fade, gradually rendering them uncompetitive when bidding in the open market. Especially when competing against potential owner occupants for 1-4 unit residential properties. Owner occupant's demand spawned a robust "new construction" boom. Eventually creating the existing market oversupply. This "over exuberance" was further fueled by availability of mortgage instruments provided to owner occupants, which were perhaps inappropriate for many who received them.

An Adjustable Rate Mortgage (ARM) or an Interest Only loan, was primarily intended for someone who planned to pay back the loan or refinance before the loan was due to reset/adjust. Historically such loans were instruments utilized by entities like builders, who repay as projects are completed and sold, or by speculators accustomed to inherent risks. In the wake of this correction, as regulators look forward, it would be unfortunate if such instruments were curtailed too dramatically. Instead loan originators should perhaps bear some liability to loans they sell at closing or shortly thereafter, which are foreclosed on in one to three years. Particularly when the borrower's profile or condition has not changed.

Rising energy prices has severely impacted the value of multi-unit properties served by common utilities such as furnaces or air conditioning units. Across the spectrum of property types, we will continue to see a steady increase in the national foreclosure rate, throughout the summer and remainder of 2008. Many who reach out to their lenders in an attempt to seek relief, often find their loan is now held by a private investor who may not be motivated to re-negotiate their loan.

Yes. We are in a true "Buyer's Market."

As data regarding home equity credit lines issued over the past few years (Which contributed to our recent, now seemingly long removed, economic boom.) becomes available, many people are now concerned we are facing a second wave of foreclosures coming' round the corner. Source: Housing and Retail Trends Likely to Weigh on Future Employment Growth. BY CHRIS PUPLAVA

As in all previous cyclical downturns, opportunities present themselves to those who are able to purchase and are prepared to act. Interest rates are trending lower. The Federal Reserve's Overnight Funds Rate (As of May 1, 2008) is 2%. The prevailing rate for a conventional residential mortgage, for an applicant with a 750 credit FICO score is in the range of 5.75% to 6.25%.

Lower interest rates are fostering "against the grain opportunities." The time to buy is not when the market begins to rise. Attempting to time the market rebound is not necessarily the most prudent approach to benefit from the current downturn. Instead, vigilantly monitor the market for what you need, what you want. A qualified buyer has greater leverage today, because banks are more conservative (Curtailing the number of "qualified buyers.") and buyers are generally more apprehensive or less aggressive.

Competition has quailed and the water is fine. Unquestionably, the inventory of foreclosed properties is significant and adversely impacting market values. Though the rate of decline varies from market to market, "DEALS" are no longer limited to foreclosures. Should a foreclosed home come on the market, the Smiths across the street may be compelled to consider more conservative pricing strategies as they decide to market their property.

For those who have clearly defined objectives, it is during times such as this, when some of the best investment opportunities present themselves.

80 Pompton Avenue, Suite 303
Verona, NJ 07044
Phone 973-239-4700
Facsimile 973-239-5325

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