Perhaps you've heard of the term "bottom feeders". Those are the people always looking for the best possible low-priced deal available. You hear the term in the stock market and you most certainly hear it in the real estate market when things start to go bad. Well, they're going bad if you haven't seen a newspaper since yesterday. Prices are going down, foreclosures are going up and various types of mortgage and real estate fraud are still occurring daily. that's the bad news.
Another way to look at it is that real estate in "on sale" in many areas. Think about it. Would you rather buy an article of clothing you like at full retail or would you be happier finding it at a discount? Your next question about the clothing would be "Should I buy it now, or wait to see if it goes lower?" I grant you that it's tougher to buy real estate on sale for $250,000, than it is to buy a shirt for $25. However, the concept is very similar. It's a little easier for a person making a decision who is going to use the house as a primary residence than as an investment. Picking the bottom of the market for anyone is tough.
Most everyone is staying on the sidelines right now. Prices are down and sale volume is down, but it is also a good time to buy if you believe, as I do, that real estate prices will come back over time. Interest rates are still quite good. If you bought now and interest rates took a huge drop, you could always re-finance at a lower interest rate. This phenomenon happened all thought out the first half-decade of the new millennium. To do the math, all you have to do is determine the cost of re-financing, figure out how much money you will save each month and divide that into the cost of re-financing. That will tell you roughly how many months you need to keep the home to offset the costs of the re-finance.
Lenders are starting to discount their property assets anticipating certain loss ratios. Here's how it works: A lender owns a house it got back through the foreclosure process valued at the $300,000 loan it granted on the property at the point of foreclosure. The lender has to make an educated assessment of how much they will lose on that property. Having done that, they must then "take the paper loss" and let's say that figure is $75,000. They will use this paper loss against other gains they have to minimize corporate taxes in the current quarter. So the asset is now valued at $225,000. Fast forward to next quarter.
Let's say an offer comes in at $240,000, $60,000 below the original loan granted. If the lender takes that offer, they just realized a $15,000 profit in the new quarter! Why? Because they de-valued the asset last quarter. So, in this case, you're doing the lender a service and probably getting a pretty decent deal on the home in the process. Still, you have to do your research and satisfy yourself that market isn't going to totally tank on you and try doing some bottom-feeding. it just might work out for you.