Monday, December 10, 2007

Sobering Times For Mortgage Industry; Good Times Ahead For Investors

Inman News posted some sobering news this week. Announced job cuts at mortgage lenders and in the financial sector continued to decline in November from August peaks, but the ultimate impact of the housing slump on workforce levels may be delayed for months. That's according to Chicago-based outplacement consulting firm Challenger, Gray & Christmas, Inc., which tallied 5,528 announced layoffs at mortgage lending institutions in November. That's down from a peak of 30,892 announced layoffs in August. The total number of announced job cuts in mortgage lending for the year-to-date, 81,681, is more than six times the total for all of last year, 12,874.

The Inman story added that there have been 147,395 announced layoffs in the financial sector through November, compared to roughly 50,000 in each of the two previous years. "We probably have not seen the last of financial job cuts tied to the housing slump and subsequent collapse in the credit markets," said the firm's chief executive officer, John Challenger, in a statement. "In fact, many analysts are waiting for a major announcement from Citigroup in the coming weeks that some say could impact as many as 45,000 jobs.” Challenger Gray tracks only publicly announced layoffs, so actual job losses may be greater. But the numbers compiled by the firm provide an indication of industry trends, which may take longer to show up in government statistics.

In real estate -- where many layoffs are not publicly disclosed -- 3,275 layoffs have been announced for the year to date, Challenger reported. The firm put the number of announced layoffs in housing -- including the construction, real estate and financial sectors -- at 119,972 through November. That's a more than five-fold increase from the 22,814 tallied in 2006. Announced layoffs in the combined category totaled 10,537 in November, down from 31,746 in August, the peak for the year.

Large commercial real estate has been largely untouched by the credit or debt crisis, depending on how you want to describe it. Smaller investment properties, however -- doubles, 4-families, etc. -- are feeling some of the pain as buyers find it harder to get loans. Loans are not impossible to achieve, there are just a few more hoops and the ridiculous no-money down schemes (I never liked those) are practically a thing of the past.

With that said, the coming two years are going to be the time for investors to jump in as prices continue to dip. I know some readers will think this is piling on or negative during a rough patch, but my focus is investment real estate. The values will be there. I think I wrote this a few weeks ago, but some older agents are telling me they haven't seen investment opportunities like this for 30 years -- essentially the last time we had skyrocketing fuel prices and declining property values.

AND I DON'T MEAN FLIPPING INVESTORS! That is not investing. That's gambling! And that is part of what has created the credit/debt crisis. The reasons are complex, but we will come out of it. Nevertheless, if you are in a strong cash position, the next few months will be a good time to start picking up properties held by distressed owners. Whether you assume mortgages, or pick up your own to relieve the current owner of their burden, I believe the smaller, cash-producing properties to hold will be had at good values over the next 24 months.

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