This current talk of financial bailout suggests that as a result mortgage rates will fall allowing a surge in home buying especially for first time buyers.  Still one must wonder how long this will last but also what are the long-term impacts for the housing market?  Right now it feels like the lending industry is distressed but this may not be true for very long.  The banks at risk of failing just need to time to recover and it will actually be consumer confidence that drive the economy back to being fruitful again.

There just seems to be a lot flux in the market, organizations don't know if they are coming or going.  This is a period of acquisition and consolidation.  Lehman Brother's is on the auction block, AIG's failure has brought the issue of bailout into the limelight and Bank of America, of course, will remain standing, buying up new pieces for their vast umbrella like Merrill Lynch.  This week has been historic and shocking for the experts even to say, they don't know what should happen.  That's tough.  While so many people grasp this concept, many are putting their ducks in row and wonder if this is a right time to even think about buying a home or new car.  I believe people are hesitant this week but this will change once there is direction and leadership toward resolution.  This is what some experts have to say about the future of home buying:

How does the latest fallout from Wall Street influence mortgage lending rates?  Well, let's take a look.  We can only hope.  In the interim rates will more than likely go down because there is a lot shuffling going as the dust settles and investors look for safety nets in this uncertain market.  Upon many experts advise, this is a time to put our money in real estate investment or income property.  As of last week the 10-year notes went down which means that the yield also decrease but this makes for new opportunities.  Experts expect mortgage rates to follow this trend because historically they usually follow suit.  Expect rates to drop further as more news brakes.  Just within the last week Bankrate.com commented that the 30-year fixed rate was 5.78% down from 6.08% of the previous week.  Just to compare, this rate was 6.5% in August.

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The so-called days of the mortgage boom are over causing a certain amount if disbelief among industry professionals.  Like a bad hangover from Saturday night wild party, those who gained from historic low interest rates and flexible lending products that spawned the real estate boom at the turn of the millennium, are now slowly waking to reality.  The once profitable sub-prime market is now close to extinction as many institutions known as great powerhouses are no longer in the business to originate loans.  While Wall Street may have had a say in rating these companies poorly, the ones who catered to a specific clientele should have seen a shift coming especially when the funding is no longer available.

So what is the big deal anyway?  All this hoopla has many asking, what is a subprime loan anyway?  How does this influence the mortgage industry? So okay, a subprime mortgage is a real estate loan given to a consumer with less than perfect credit and little or no down payment available.  One must keep in mind the majority of loans in a financial institution's portfolio does not consist of these types of loans but during the mortgage boom, many consumers took out these types of loans as a means of affording the American Dream of homeownership.  These loans broke down the barriers to home ownership because of their flexible lending parameters.  What this has now lead to be a marketplace upside down in loans not considered "A" paper but B, C, D and F translating into a high-risk venture?  As home values have risen so has the risky nature of these loans still being unpaid or falling behind.

So how did the bubble burst so badly, one is also wondering?  As subprime became a more popular loan product, so did the practice of selling it to the consumer become more flexible.  More and more lenders approved borrowers with not only less than perfect credit (small blemishes) but also those with poor track records including larger debit issues like previous foreclosure and automobile repossessions.  What further compounded the issue is the lenders sales device of enticing the poor credit customer by offering homeownership programs with minimum documentation needed known as "stated-income" or "no doc" loans.

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Understanding the fundamentals of finance known as the time value of money is key in real estate investment. Such causes as inflation make the real value of a dollar less in the future than it is worth now. Because of this principle, buying property outright in cash does have its drawbacks, financially speaking, because another use of that cash may actually benefit the investor in the future more than it would if it was expended in an immediate purchase.

 When an investment is made using funds that have been borrowed, we call this activity leveraging. It is the expressed intent of the investor to make a return on the investment. If a $100,000 property were to appreciate 10% over a 12-month period, its value would be $110,000. The return on investment (ROI) would correspond to its appreciation of 10%, not including the costs of selling the property.

For those investments made with borrowed money, the resulting ROI is actually a much higher percentage of the out-of-pocket investment. Should the investor contribute $10,000 in the purchase of a $100,000 property, and capitalize the remaining $90,000 in financed funds, a 10% increase in the value would still yield an increased equity of $10,000. However, the ROI is 100%, because of its basis on the actual out-of-pocket investment of $10,000 made by the investor. Essentially, the investor doubled his investment! Of course, in financing the remaining $90,000, costs associated with financing interest would diminish the actual yield. As a way of allaying these financing costs, a good strategy would be to rent the property to generate revenue.

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It seems like yesterday that Britney Spears was the hottest thing to hit the music scene & no one could have imagined that her stock a.k.a. her career could have dropped so quickly after riding so high and her oops so far has not been done again. The same falls true for property and the location you purchase it in as well as the potential of what you can do with it. An area can be highly desirable for five years running and just as you decide to zero in on it you notice it is like that slow leak in your tire that took a couple of weeks before it had you parked on the side of the road. It must be determined if the tire is just flat or totally shot as in what is the potential for a property in a location to rebound or will it remain in a lull for a long time to come.

It is very important to understand how critical location is in terms of how it can increase your ability to sell during what seems like an elevator that has a broken "up" button and keeps heading down floor after floor but you know eventually it is going to stop. The great news is that just like that battery that you assumed was dead but starts working like a charm after charging, the value of majority of locations will go up in time.

You don't want to end up like Evander Holyfield with the threat of losing his 54,000 square foot home expressing "I have money but I am not liquid" Whew, that is quite a statement because we know one of the bottom lines is liquidity so when you purchase that property please consider how soon you might see a return on investment, and what you can pull as profit if any when you decide to sell seeing as that your profits for a time will be held in equity. When your profits are tied up in equity, do your best to select property that can meet its forecast, produce ample returns, and provide easy liquidation, regardless of the market condition

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