Prepare for the New Real Estate Boom

by : Paul LeJoy

Even as foreclosures have reached an all-time high, the vibe I feel is that the good days will soon be here again. Real Estate is cyclical, just as life itself. People die everyday and new babies enter the world. Some families weep, others rejoice. What goes down must goes up. This is just the fact. Here are strong reasons for my optimism.

The Stimulus Package

You may not know this but in mid February this year the President signed into law a $150 billion federal economic stimulus package. This measure allows Fannie Mae and Freddie Mae to buy conforming loans up to 125% of the area median home price, capped at $729,750.This means that lenders in high-cost areas, like the Bay Area, will be able to make a simple loan to many homes buyers who before either had to take out a non-conforming loan with a high down payment requirement and costly interest rate premium or a piggyback loan package. These are the kinds of loans lenders shied away from in 2006-2007 as the market experienced a credit crunch and caused gargantuan foreclosures rates. With the new FHA and Fannie/ Freddie Mae limits lenders will make high loans on more advantageous terms.

Secondly, the higher loan limits will open up desirable inventory for first time buyers because existing home owners will jump into the market and move up to bigger, more expensive homes. It's predicted that the new loan limit will boost home sales by as much as 36,000 transactions a month, generating billions of dollars in economic activity. Both Fannie and Freddie started buying these types of loans this spring. This means a new day is dawning because when banks find they can make these loans and have a market for them without having to worry, it will make a BIG difference in home sales.

2)???? A New Government in 2009

??????? Both Democratic contenders for Presidency have voted to tackle the housing crisis head-on, Obama most especially. We all know the election will take place this November and a new President will be sworn in in February 2009. Should Obama win the election, which I personally believe is very likely, then he is bound to make economic recovery, and most especially real estate, one of his top most priorities.

3) A Yoyo Stock Market

The stock market is sick. Though figures show that the economy is not as robust as it should be, there is every sign that incomes have not declined. If anything, incomes have risen, at least for most of the people I know. Where do all these people put their money? Interest rates have been cut drastically and the federal rate is now at 2.25%. Unlike in the last two years where banks were offering over 6% returns on your money, those returns are now less than 4% and they will only head downward. The stock market is not doing well, bank yields are measly, gold is at record high, and so is oil. So what is relatively affordable these days? Where are investors flocking to? Real Estate. They buy low, hold and keep till everyone starts to buy and if you understand the law of Economics, where demand is high prices rise. Talk about the new boom; See you in 2009/2010. But why wait? Why buy high? Buy low. Buy now. This is the way of the rich. Join the club.