Mortgage Improvement Means Real Estate Opportunity
Investors and Colleagues,
This week we received an encouraging piece of economic information. According to the US Mortgage Bankers Association, the delinquency rate for US mortgages overdue fell sharply in the first quarter.
Essentially, the report stated that the number of mortgages seriously overdue has dropped to a rate of 8.1%. This is the fifth straight month the delinquency rate has dropped.
Two Ways to Interpret the Data
Mark Twain often claimed that there are three kinds of lies: “lies, damned lies, and statistics.”
He was basically pointing out that statistics can be presented in a multitude of different ways, and it is important to understand the context before jumping to any conclusions.
When looking at the mortgage delinquency data, I have one primary question: Did the delinquency rate drop because consumers are better able to pay their mortgages? Or did it drop because banks are moving mortgage contracts off the “delinquent” list and into the “foreclosure” category.
If the delinquency rate is higher because homeowners are catching up on payments, then this is a great sign for our overall economy. A stronger job market, fewer distressed mortgages, and more discretionary spending will lead to higher real estate prices. It would also translate into gains for our investors as we sell properties to developers and book profits along the way.
On the other hand, if the delinquency rate is higher because banks are writing off the loans, then it means the real estate market is not quite ready to recover. First the banks will need to unload the foreclosed properties and only then can they begin making new loans to consumers – feeding a new economic recovery.
If the second scenario is playing out, Ashford Capital will have plenty of opportunities to buy distressed developments, giving our investors attractive opportunities to put their capital to work.
So which is it?? Are consumers catching up on their mortgages, or are banks booking delinquencies into the foreclosure category? The answer might surprise you…
It’s All About Location
Once again, when it comes to real estate investing, location is the most important variable. In the case of mortgage delinquencies and foreclosures, the rates are different depending on what part of the country is measured.
Looking at the Atlanta market, even the metro area is fragmented. You have pockets where jobs are plentiful and the real estate market is vibrant, and there are pockets where builders were too aggressive and the supply of vacant homes is excessive.
On a national level, foreclosure starts have hit the lowest level since 2008. This suggests that the overall environment is improving, and banks are becoming healthier businesses.
For us at Ashford Capital, the improvement comes along with a sense of urgency. Of course we’re happy to experience improvement on the attractive properties we have already purchased. Our investors are pleased with the performance and we’re finding more opportunities to discuss exit strategies (aka realized gains) with home builders.
But since our best purchase opportunities come by negotiating with distressed banks and the FDIC, an improvement in the broad environment means that these exceptional opportunities may not be around much longer.
Of course we will continue to negotiate with sellers and there are plenty of attractive properties in the Atlanta area. But the current period of fire-sale prices and tremendous opportunity may be drawing to an end.
Please don’t miss out on this incredible investment period. You owe it to yourself, your family, or possibly your clients to make sure your capital is working hard for you.
Will you please call my office and set up an appointment to meet with me? As you can tell, I’m excited about the opportunities in Atlanta’s real estate market and I want to make sure you are able to participate before the opportunities pass. I look forward to our conversation.
Wishing you every success,
Matt