Dean Graziosi

Existing home sales fell 2.2 percent in May.  As many buyers doubtlessly rushed to get under the April 30^th homebuyer tax credit, many economists thought the downturn might be even sharper.  The drop in new construction was deeper than expected and much more severe than the drop in existing homes.  The seasonally adjusted drop in new construction is now 33 percent below projections.

David Crowe, the chief economist of the National Association of Home Builders, said the decline is really due to “larger factors” in the economy.  Citing high unemployment and a general lack of consumer confidence, Crowe suggested that homebuilders were not entirely caught off-guard.

The homebuyer tax credit may have taken some buyers out of the May market but it had some advantages.  May re-sales were 2 percent higher than last year. 

Real estate prices were higher in 16 of 20 of the nation’s biggest marketplaces.  In the Western region, housing prices were 7.4 percent higher than last year.  Nationwide, home values gained 2.6 percent in the latest month.

In surveys conducted by Corelogic, prices were higher in 60 of the last 100 metropolitan markets. In year-over-year comparisons, all 100 markets were lower a year ago. 

Many economists believe the real estate market may have peaked earlier this year.  By the end of 2010, short sales will dominate the marketplace.  With government programs like HAFA in full swing, the short sale opportunities will be at their highest level since the recession began.

Government guaranteed mortgage loans have flooded the country’s REO inventory.  Distressed sellers who are using the HAFA program are providing an unparalleled opportunity for investors who have been hesitant to get involved in the complications of short sales. 

HAFA sellers are pre-qualified, have agreed to price and occupancy terms and are motivated to sell.  If you are a serious investor, learn more about HAFA.  There is great potential for profit in this program.        

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There are many reasons the rental market is hot.  The instability of the labor market is just one of those reasons.  The instability of the real estate market and the fact that homeowners are walking away from their underwater homes also impact the rental market.  When a buyer walks away, his buying days are over for a minimum of three years.  This has helped to create rental demand.

Despite the increase in demand for rental housing and the absence of the 2010 tax credit, investors in residential property still have many tax advantages.  A homeowner with a $150,000 mortgage at eight percent will pay $9,969.27 dollars in interest the first year.  That amount will reduce slightly in subsequent years but only nominally.

That same homeowner may pay $4000-$5,000 or more in property taxes.  In this case, let’s use $4,000.  Those property taxes, which may pay for snow removal on your street, your school district, your trash removal, the lights on your street and many other benefits are all tax deductible. 

By purchasing this home, you have just earned $9,969.27 plus $4,000 or $13,969.27 in tax deductions.  And, your children are being educated. 

With today’s real estate, you can invest in green energy practices and improvements that will earn you even more tax deductions.  Are you kidding?  Today’s real estate market may have risk, what investment doesn’t, but today’s real estate acquisitions also have great tax advantages.

There are lessons we have learned during this recession.  We have learned that real estate does involve risk.  But, we have also learned that the tax advantages of ownership will not go away.  And, these advantages can help in difficult times.

The rental market also carries risk.  When buyers obtain a fixed rate mortgage, they know what their home will cost every month for the remainder of the life of the mortgage.  When tenants rent, they are exposed to factors beyond their control. 

Landlords can raise the rent, list the property for sale and decide not to rent any longer.  In all these situations, the cost of renting increases.  Every time a tenant has to relocate there are significant expenses and unrest.  Many times school districts must change.  The renting experience is unstable at best.

If you invest and invest wisely, you enjoy tax deductions, a feeling of ownership and stability and the creation of equity all at the same time.  There is no comparison to that formula versus the rental experience.  Real estate investing is a wise decision, even today. 

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In 2009, commercial loan defaults hit their highest level since 1993 and astonishingly doubled the number of 2008 defaults.  In the fourth quarter alone, the commercial default rate rose 3.8 percent.  In 2009, multi-family property default rates climbed from 1.8 percent to 4.4 percent.

Default rates for all combined forms of commercial real estate rose to 3.8 percent in 2009 and is projected to top 5.1 percent by the end of 2010 and 5.4 percent by the end of 2011.  Chairperson of the Senate Oversight Panel for TARP said that 50 percent of commercial mortgages would be underwater by the end of 2010.  Commercial real estate owners who leveraged their properties are in trouble as commercial real estate values decreased by as much as 29 percent in 2009.

At the end of 2009, U.S. banks held $1.1 trillion in commercial real estate paper not including $211 billion in multi-family mortgages.  The nation’s smaller banks are carrying a 33 percent higher percentage of default loans. If these smaller banks absorb these losses, they will be unable to provide much-needed regional loans to local borrowers.

Delinquency rates in multi-family properties (13.19 %) and lodging properties (16.89%) lead all forms of commercial delinquencies.  Industrial delinquencies increased 76 percent in year-over-year comparisons while lodging increased 88 percent.  Retail and office space delinquencies rose by more than 70 percent over 2008 rates.

If you believe in the buy low and sell high basic real estate investment theory, this is your time to realize big opportunities.  While there is no doubt buy low properties are out there, investors must make sure they can fill the commercial space. 

Lenders may be receptive to shirt sales and creative financing packages but these lenders want to see occupied space. Many businesses are entering the investment world.  As U.S. companies continue to shed jobs, their space requirements are changing and centralizing.  Many of these companies are now positioned to convert from tenant to owner and banks could not be happier.

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