Mortgage Markets: Silver Lining for Investors?

In 100 major housing markets around the country it’s cheaper to buy a house than rent. As rising rent prices outstrip mortgage payments, becoming a homeowner holds allure for many short and long term renters. But even with homeownership backed by the US Federal Reserve, large numbers of people continue to remain in the rental market , simply because they can’t afford the down payment and credit checks required by lenders. For investors in income property, the current fluctuations in the housing industry offer new opportunities to buy properties and keep them rented.

According to a recent report by CNBC’s real estate reporter, Diana Olick, the Federal Reserve announced in September 2012 that it is embarking on an ambitious plan to buy up to $40 billion in mortgage backed securities per month — for an indefinite period. This plan makes it clear that the Fed believes the housing recovery needs a boost.

The move to buy mortgage backed securities attempts to lower mortgage rates in an effort to stimulate mortgage purchases in a market gone relatively flat in the aftermath of the housing collapse of 2008-2011. Simply put, the Fed believes that there’s not enough demand for mortgages in the wake of the foreclosure crisis.

Current mortgage rates have fallen to near-record lows. But according to Olick, in most major markets mortgage applications have slowed considerably. Those who still own their homes have already refinanced at lower rates, and large numbers of other homeowners can’t refinance due to the high fees or a lack of equity in the home.

In addition to a limited pool of qualified applicants who already own homes, relatively few people who, in a different economic climate would be buying homes, are able to do that now. Many are unabl

e to qualify for mortgages or meet other purchasing criteria, such as making the down payment and covering closing costs. In the end, these potential homebuyers end up remaining renters for the long term. Although mortgage payments actually may be cheaper than rent, these purchasers are locked out of the process for lack of down payment money, damaged credit or chronically low wages.

That’s good news for solo investors who can qualify for a fixed

rate mortgage under these new rules. These rates make it possible to in different markets – a strategy recommended by Jason Hartman to reduce risk and maximize returns in the event of a collapse in one market.

Where does this ever-shifting mortgage landscape leave investors? Foreclosure properties continue to hit the market in waves, as pending cases are resolved in the courts, so these properties can still be purchased for relatively low prices. Plus, even with the steady rise in rents around the country, relatively tight lending standards have locked numerous would-be homeowners into virtually permanent renting – a key factor in keeping a steady cash flow from income property.

The rosy picture of a US housing recovery may not be quite what it seems, as the mortgage industry continues to fluctuate and homeownership still remains at record lows. But investors following Jason Hartman’s recommendations for maximizing returns from income property may find the current conditions open new windows of opportunity. (Top image: Flickr | Mike Licht, NotionsCapital.com)

The American Monetary Association Team


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