With all the talk about upticks in the pace of home sales, and clearing out the backlog of home inventory, it’s easy to assume that the worst is behind us and prices are on an upward trend. Certainly there are plenty of investors with that point of view, as I’ve seen them bid up the prices on homes to the point that a great deal is not much better than an average deal. For example, offering 290K for a home listed at 217K. That’s an extreme example of poor buying discipline. How can you get a great deal if you pay so much over the asking price? Do you think somebody will come along and offer even more?

I continue to feel that home prices will turn downward soon, and it seems I have some company in that point of view. The following article addresses this topic:

http://finance.yahoo.com/news/Homes-About-to-get-much-cnnm-699910894.html?x=0&mod=real-estate

Over the past month I’ve been searching for lower priced homes in the South Bay and Long Beach.  There’s been a strong buyer interest in these properties.  I’ve encountered many properties receiving multiple offers, and lenders are feeling more in control on short sale properties.

On one day in particular I was preparing to write up two offers but before I did I called the listing agents to see if they already had offers.  These properties had only come onto the market a couple days earlier so I was hoping they hadn’t been “discovered” by the area bargain hunters.

No such luck.  The first property had received an astounding 38 offers, including one that was more than 70K over asking price.  The other had a mere 8 offers.

Personally, I’m concerned that the buyers are over reacting to the price upturn and creating a mini-bubble.  Buyers today need to consider what the home will be worth in 2-3 years.

No doubt historically low interest rates combined with buyer incentives from the government are helping.  The problem is what happens when interest rates rise or the buyer assistance programs come to an end.

If you are shopping for an investment property these days you can make it work if you are able to flip it quickly.  Just keep in mind that there is no guarantee that the market will keep getting stronger and those perceived profits could evaporate if you don’t get the property back on the market in a timely manner.

I saw a news piece today about a lady who has lost her entire $100,000 downpayment due to the decline in home prices.  She has continuted to make her payments, and has talked to the bank about getting some help with her loan.  Her income has dropped and it has become more difficult to make payments.  Do you think the bank was willing to help?

For the good person who is paying the bills, the banks are not interested in helping.  They are in business to make money and they don’t like cutting deals unless they see an upside.  For a person who is not paying, they may be willing to cut a deal.  Something is better than nothing to the bank.

What is so frustrating about this situation, to the lady in question, to me personally, and to many others who are in the same situation, is that as long as you do the right thing and pay your bills you get no help.  If you stop paying, then maybe you get a break.

I see the mortgage bailout plans as a necessary evil right now.  Foreclosures are inevitable, but maybe the rate of foreclosure can be slowed by helping a few people.  But hopefully the help will go to good people who got in over their heads and not to investors who happended to get stuck holding a property.

Real estate investment involves risk and there should not be a bailout for taking risk.  That eliminates the consequence and encourages irresponsible behavior.