Is the Bailout a Knockout For Real Estate? By Mark Walters At Isnare.com Ezine Articles

In most areas of the U.S. real estate is on the ropes and now congress has delivered a hurtful body blow.

Yes, housing prices have crashed and foreclosures have hit record heights. Who is to blame? Everyone in government is busy pointing fingers at the other guy. That's the way politicians have constructed our government, so that when there is industrial strength bungling everyone can blame everyone else… and everyone can get re-elected.

There are no term limits for congress, so the same gang can keep making the same mistakes.

Have you heard of the Hope Act that went into effect at the end of September, 2008? It allocates up to $300 billion for homeowners in default on their mortgages or who are about to miss mortgage payments. This cash is to allow those borrowers to refinance their adjustable rate loans to fixed rate, FHA insured mortgages. The refinance is not to exceed 90% of current market value, as if anyone can really determine today's market value.

Please notice "FHA insured". That keeps us taxpayers on the hook for any defaults. That is the exact same situation that brought the country to the edge of financial ruin.

The saving grace is that banks are not obligated to participate in the program and right now darn few want into the game.

Real estate finance standards are getting tighter by the minutes. Today down payments for conventional loans have to be at least 10% of the purchase price. Compare that to a few months ago when you could buy for zero down.

To make selling a home even tougher the seller assisted down payment programs were outlawed recently. Down payments for FHA insured loans will increase from 2.85% to 3.5%. Every tenth of one percent increase in the required down payment blocks tens of thousands from buying a home.

But wait; watch your government in action. At the same time that politicians are trying to put some financial responsibility back into the system they create a vote getting loophole. It's a pilot program to produce alternative credit-rating information for those borrowers with insufficient credit history. Doesn't that sound like a breeding ground for financial handy panky?

On top of all this jobless claims remain at seven year highs, the number of bankruptcies is increasing, many thousands of jobs are being lost in the Wall Street workout and every day brings announcement of more layoffs from major companies.

So what about real estate investing? There are perhaps a million unsold homes on the market today. Because the rate of unemployment is climbing fewer people are in a position to even think of buying a home. And finally, banks have not only tightened lending requirements, they really don't want to make loans in this financially shaky environment.

Housing supply far exceeds demand and there is no end in sight.

It's easy for a knowledgeable investor to buy homes. The challenge is to determine the real value of these homes. We are in a market of falling real estate values. They could continue to fall for another 2 to 5 years. What seems like a bargain today could end up being tomorrow's alligator.

Proceed with caution. These are hard times and it will be a few years before things get much better.

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