Why Now is the Perfect Time to Invest in Foreclosures

As any real estate professional knows, today’s market is a buyer’s market. Low home prices, dirt-cheap interest rates, and an overflowing supply of homes give buyers the upper hand in the market. But with seemingly every incentive to purchase known to man available now, all at the same time, qualified buyers are still wary of entering into the market.

That wariness is understood – the real estate market has been less than kind to most of us over the past four years – but the facts are simple: Now is about as perfect a time to invest as you will ever see.

Consider the data that we have on the market:

-          S&P/Case-Shiller’s U.S. National Index level is down nearly 63 points from its peak of 192.50 in the first quarter of 2006. The current level – 128.29 – has fallen 32% over the past five years.

-          Household formation – the number of housing units required per 1,000 people – is well below the normal average gain of 1-1.2 million per year. Currently, only 500,000 to 600,000 homes on average have been created per year from 2007 to 2010.

-          Roughly 1.7 million homes were in the foreclosure process by June of this year, with an expected 1 million additional foreclosures to be added to the market over the next 12-18 months. Shadow inventory is at a five-month supply.

-          Existing home inventory is at 9.3 months worth of supply as of May, 2011

We can see three established trends that collectively make now the perfect time to consider investing in foreclosures.

1.  Homes are nearing the point of maximum affordability

Maximum affordability basically means you can buy a home for about as cheap as you reasonably can. In other words, prices and interest rates have either bottomed out or gotten about as low as they can foreseeably go.

We owe this to the massive number of foreclosures that have hammered home prices and contributed to interest rates being held at historic lows. Right now, it is almost cheaper to buy a home than it will ever be – and the upside potential once the market recovers is huge.

2. Demand is primed to explode

The household formation figure isn’t one that is cited a lot, but it has a lot to do with demand for existing real estate. Simply put, the nation’s desire for housing will only increase as the population grows. This demand, combined with the current numbers of people who are forced to live in rentals due to the poor economy or foreclosures (or both), will only increase in the coming years.

Getting ahead of the curve and purchasing foreclosures gives you the potential to satiate this demand and profit as properties for rent and for purchase rise in value.

3. Supply is abundant

The laws of supply and demand state that, all other things considered equal, an excess of supply that is not met by an equal excess of demand will cause prices to fall.

That is precisely what has happened here; millions of existing homes – both foreclosures and non-foreclosures – are in the market, sitting empty. Sites like Foreclosure Deals carry lists after lists of foreclosed homes waiting vacantly on the market for buyers and investors. Investors can profit off of this by working with lenders who desperately want to rid themselves of these foreclosure anchors. They can also find otherwise-valuable homes discounted steeply in virtually every market in the country.

The real estate market is far from healthy, but as the numbers show, now is as perfect a time to invest in foreclosures as we are likely to see ever in our lifetimes.