LIVING OFF DIVIDENDS & PASSIVE INCOME

Every few months, someone wants to know if its a good time to buy real estate. A reader asked an interesting question:

Interest rates are artificially low and we won’t see rates this low for a long, long time. What are your thoughts on buying vs renting for a first timer? In my gut I know that housing is still overvalued, but should I jump on low rates and lock in a fixed payment knowing that future inflation will make this payment even smaller?

Most people do not pay cash for their homes, they get a mortgage. And the monthly payment they can afford, along with the current interest rate determines how large a mortgage they can qualify for.

Lets do some back-of-the-envelope calculations. If you can qualify for $2,000 a month (lets  ignore principle, taxes and insurance for now) and rates are 5%, you’ll qualify for approximately $480,000 worth of mortgage. If rates rise to 6%, you only qualify for $400,000 worth of mortgage.  Read more... (604 words, 8 images, estimated 2:25 mins reading time)

Just read this news article from the Associated Press:

Tue Feb 23, 8:17 am ET

MOSCOW, Ohio – An Ohio man says he bulldozed his $350,000 home to keep a bank from foreclosing on it.

Terry Hoskins says he has struggled with the RiverHills Bank over his home in Moscow for years and had problems with the Internal Revenue Service. He says the IRS placed liens on his carpet store and commercial property and the bank claimed his house as collateral.

Hoskins says he owes $160,000 on the house. He says he spent a lot of money on attorneys and finally had enough. About two weeks ago he bulldozed the home 25 miles southeast of Cincinnati.  Read more... (229 words, 9 images, estimated 55 secs reading time)

Source: Miz Duke

As everyone knows the only thing wrong with America right now, is the lagging economy. If we could only boost our economy and increase our GDP we’d be able to unleash prosperity on everyone.  So building on the resounding success of its “cash for clunkers” program, the Obama administration just announced a cash for junkers or “we buy ugly houses” program. Since the median home price is about 10 times that of a median priced car, the government will offer 10 times the rebate for the purchase of a new home.  Other than that, the “cash for junkers” program is identical to the preceding program:  Read more... (452 words, 9 images, estimated 1:48 mins reading time)

• If you “trade-in” your old home, you’ll get $35,000 towards the purchase of a brand new one
• If you had a jumbo-mortgage or your house was over 5,000 square feet, you qualify for $45,000

As I mentioned in a previous post, the real estate market hasn’t hit bottom yet.

According to an Article in Fortune Magazine, 8 of the top 10 worst real estate markets in 2009 are in California. The range of the predicted price decline is between 20 to 25%.

1. Los Angeles

2008 median house price: $375,340

2009 projected change: -24.9%

2010 projected change: -5.1%

The median home price in the L.A.-Long Beach-Glendale metro area is projected to fall nearly 25% in 2009 – the biggest drop in the country.

Courtesy: Stockton CVE

2. Stockton, Calif.

2008 median house price: $248,050

2009 projected change: -24.7%

2010 projected change: -4.0%

3. Riverside, Calif.

2008 median house price: $256,540

2009 projected change: -23.3%

2010 projected change: -4.8%

AP Photo

4. Miami-Miami Beach

2008 median house price: $293,590  Read more... (314 words, 13 images, estimated 1:15 mins reading time)

Check out this 12 minute video from 60 Minutes. There’s another wave of mortgage defaults on the way, this time from Alt-A & Option-Arm (also called Negative-Amortization or Neg-Am) loans. As opposed to the subprime loans which were worth almost $1 Trillion, these two groups make up nearly $1.5 Trillion.  According to Amhurst Capital, they expect a 70% default rate on the Option-Arms based on the current default rate which is occurring at 3% interest rates!

Right now there’s a 3-5 year overhead supply of housing inventory on the market. Along with these coming defaults and the fact that 10% of Americans are behind on their mortgage, you should expect house prices to be depressed for a very long time. I’ll think we’ll have more clarity when home prices actually hit bottom, which might be another 12-24 months from today.

 Read more... (603 words, 8 images, estimated 2:25 mins reading time)

Check out this hilarious must-see parody on Hitler and the housing market bubble.

If you still have any appetite for real estate, check out these cheap investment homes and land.