A Buyer's Market…Or Not

One thing is for sure: It is a difficult time to sell a house. Shouldn’t that mean it is a good time to buy a home? It should, but it doesn’t.

One thing is for sure: It is a difficult time to sell a house. Shouldn’t that mean it is a good time to buy a home? It should, but it doesn’t.

Where I live, homes are sitting on the market for months, if not years. Sellers are not only struggling to get their asking price, but those that purchased homes recently are running the risk of losing money on the sale of their home.

Usually when the real estate market sours it creates incredible opportunities for buyers. But today that just isn’t the case, making the outlook for sellers even more gloomy.

What’s the hold up?

Buyers can’t get mortgages.

We have all heard that Wall Street blames its recent woes on the sub-prime mortgage market. What that means is over the past five years millions of people got loans they couldn’t afford and are now having trouble making payments or even foreclosing, meaning investors in their loans are loosing money. Lots of money.

Unfortunately these mortgage problems are not the result of an economic depression (by other measures we seem to be ticking along just fine). The problems are the result of years of aggressive and occasionally illegal lending practices.

That’s bad news for banks that write mortgages. Not only are they reeling from the fallout of writing too many high risk loans; they also face government scrutiny of their lending practices.

As a result, banks have all but closed its doors to new mortgage customers. That’s not to say you can’t get a loan, but you will need near spotless credit and a large income. And even if you meet those requirements, you’ll have to accept much higher interest rates. Interest rates so high that smart borrowers will say “no thanks”.

So you may be able to find a dream home at a bargain basement price tag, but you will have trouble finding a mortgage, and if you do, you will pay dearly for it.

So who wins in this mess? Anybody with cash. If you’re sitting on a few hundred thousand, it’s a beautiful time to play Monopoly.

Buy up some cheap houses, fix them up, rent them out, and watch your net worth grow.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

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