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Low Interest Rates and Falling Home Prices: What Gives?

20 years ago, back in 1992, a 30-year mortgage here in the U.S. was running at around a 9% interest rate. 10 years ago, back in 2002, this same type of mortgage was generally around a 6.5% rate. A quick look at a mortgage calculator can tell you what kind of impact a big drop in interest rates can have on one’s mortgage payment. Keeping that in mind, it’s quite interesting how low today’s interest rates are.

A quick check I did, as of this writing, showed 30-year loans having interest rates of under 4%. Consider the comparison of approximate rates across time:

1992: 9.0%

2002: 6.5%

2012: 4.0%

Clearly, while there were some ups and downs between those years, it’s clear that 30 year mortgage rates at historical lows is basically the current situation. If you want to buy a home, and need to borrow some money in order to do so (like most people), this appears to be a time to get a loan at a very low rates compared to recent times.

This gets me thinking, though, about the direction home prices have been going: down. Of course, no two real estate markets are exactly alike, but I’ve taken a look around what’s probably a fairly typical market: my local one here in suburban Chicago. What I’ve noticed over the last few years is that prices have continued to slide on a regular basis. Now, the declines may not be as steep as what might have been seen in many other areas, such as certain parts of Florida, Nevada, Arizona, and other locales. However, I’d say that in the last 5 years, prices seem to have dropped 25%. That’s just a ballpark estimate based on my own observations, and the actual figure might be different – but you get the idea: home prices have declined.

What’s interesting is that despite interest rates trending lower, home values continue to slide in some places.

What is this telling us about the economy, and where we are today versus the past? It makes you wonder when the market will truly stabilize, and what it will take for housing prices to stop falling and perhaps go back to the old patterns of slow but very steady increases? Not gains like we saw in the housing bubble days, but at least holding value as we saw in pre-bubble days.

What’s interesting to me is that while we are getting more “mobile” in terms of technology, but less mobile in terms of being able to move as easily.

My Questions for You

How has the housing market been in your area?

Do you think it’s a bigger issue that despite interest rates being so low, many housing markets continue to show declining prices?

How long do you think it will be before the housing market here in the U.S. will straighten out?

Save Time and Money by Hiring the Right Home Improvement Contractor

By Squirrelers 15 Comments

Do have something you’d like to improve in your home? It seems like many people always have some kind of running list of things they would like to get done at home. Some of them can really make a home feel much more livable, and even improve marketability to potential buyers.

When doing renovations, one can always take the DIY route, or pay someone to get the work done for you. Personally, I lean toward hiring a professional over DIY for some things that require more specialized knowledge or time. Why spend inordinate amounts of time and money unless you can do it right?

Anyway, if you do go the professional route for major home improvement projects, it’s good to be careful. For example, I know that a close family member picked out one person for a particular project, and it turned into a disaster where the guy wouldn’t show up and left work half-finished. To avoid situations such as that, it’s a good idea to do your due diligence when hiring someone to work on home improvement projects.

Here are tips for finding the right home improvement contractor:

Have a clear vision of the project. Before talking to any potential candidates for the work, have a very good idea of exactly what you want done. This will save time and avoid any misunderstandings later. Plus, you don’t want to risk having the scope your project expanded later, and pay for things you never originally intended to get done.
Ask family and friends for referrals. Sometimes, for many of us, it’s a big unknown as to whether or not the person we’re considering for work will be good or not. One could try Angie’s List (I haven’t, but would be interested to do so sometime), but family and friends are right there to answer questions – provided they live close enough to have used someone you could potentially hire.
Get At Least Three Bids. This is important. Going with the first person you speak with might seem easy and expedient, but you often need to get different quotes. Personally, in my work experience when hiring vendors to do projects, I’ve generally sought out at least 3 vendors for bids. Granted, these were not home improvement, but marketing/finance related projects, but the concept holds. Make the project expectations clear with each, so you can compare each contractor on an apples to apples basis.
Ask for References, and Call Them. Someone may talk a good game, provide a good quote, but have limited experience. Again, call them to verify the quality of work and capabilities of the contractor you are considering hiring.
Be Careful With Payment Agreements. Make sure that you arrange for payments to be made in such a way that doesn’t give the contractor too much up front. Once money is in hand, there’s less incentive to hustle and get the job done as well. Arrange for payment to be made in installments as milestones are completed. This could have helped the family member to whom I referred earlier.

My Questions for You:

What do you think of this list? Is there anything you’d like to add to it?

What have your home improvement or contractor experiences been like?

Refinancing a Home

By Squirrelers 15 Comments

When it comes to buying a home, there is often much excitement. A new place to call home and make new memories can be source of much joy. Of course, there can also be some nerves in the whole process as well. Most of us aren’t fortunate enough to buy with all cash, and thus end up taking out a mortgage of some kind.

I remember buying my first condo, at about the time when many others I knew were buying their first homes – either condo or single family home. Now, some of us are more interested in personal finance techniques and applications than others are. For those of us that have an interest in this area, we pay closer attention to what a mortgage means, how they work, etc. There are many others who simply buy what they’re told they can afford, stretch themselves with the biggest loan possible, and just sign on the dotted line hoping for the best. Clearly, there’s a range of experience out there!

Soon after my first condo was purchased, I recall having dinner conversation with a local couple with whom we had become friends. They had purchased their first home about a year before mine was purchased, and were carrying a 30-year mortgage. My home also had a 30-year mortgage. Sounds the same, right? Well, not really. Aside from their property being a bit more expensive to begin with, they had bought at a time of higher interest rates. Between the two time periods of their purchase and mind, rates had dropped almost a point. Or, more accurately, they paid an extra percentage point of interest. It might have been slightly more or slightly over, but it was around a point. I’m guessing they didn’t spend too much time looking for a good rate, not being too financially oriented.

Anyway, the guy in the couple directly asked me the rate I got, and when I told him he seemed a bit surprised. I mentioned the topic of refinancing, as if I had been in his place, I’d be looking to refinance my home.

Now, of course it might be uncomfortable for some of us to talk about financial issues with friends in such a comparative manner. I rarely feel good about letting anybody know that I got a better deal than they did, even if I was directly asked. There are some cases, however, where I might say something for the sole reason that I’d like to help out in some way. In this case, I tried to make the case that they could save thousands of dollars by refinancing, particularly since they were planning to stay there for a while.

Here’s what I’m talking about:

Let’s say someone has a $250,000 loan, and is paying 5% interest on it over 30 years. The monthly payment on that mortgage will be about $1,342. If you simply lower the rate by 1%, down to a 4% interest rate, the payment will be about $1,194.

That’s a $148 difference per month! Multiply that by a larger number of months, and it adds up. Of course, there are costs to refinancing. However, if one is going to be in the home for the long haul – like the couple I mentioned – it would be worth it. When interest rates drop by a significant enough margin, refinancing becomes a real option for some people – depending again on how long they are planning to stay in the same place.

Admittedly, and for full disclosure, I didn’t refinance my own home at the time. I had a good reason though: I didn’t anticipate being in my place for too long. So, I can’t speak to this with direct experience of my own. Additionally, while I knew that their home was more expensive, I didn’t know their exact loan amount. However, the ballpark math clearly points toward refinancing as a good option for that couple.

I wonder why they were so leery about refinancing? Maybe it was inertia, fear of the unknown, or competitiveness? The guy seemed to get a bit worked up (while his wife’s eyes clearly mocked him), and I could see a silly competitive side come out. I suppose sometime people are just like that by nature. Whatever. I do know that there could have been some savings for them, and I tried to help by suggesting refinancing:)

My Questions for You:

Have you ever refinanced? Or, in retrospect, wished you had?

How much do you monitor rates before you try to do so?

Is Home “Ownership” Different From What Meets the Eye?

By Squirrelers 20 Comments

Home ownership can be a fantastic thing. However, owning a home can be more expensive than meets the eye. It’s a situation that new homeowners figure out after a few years, and prospective homeowners often don’t fully realize when planning a purchase. However, it pays to be prepared, and to think about what’s involved.

This is a topic that I first brought up in May of 2010, back when Squirrelers was in it’s first few months and just starting to pick up some readers. The post was titled The True Long-Term Costs of Home Ownership, and explored the subject in some detail. You can click the preceding link to read it in full.

Within the post, I spelled out 5 ways home ownership generates increased costs vs renting:

Taxes
Association Fees (typically with attached housing)
Maintenance
Updating
Outdoors

A year later, as we’ve seen continued softening of real estate prices in many areas, I revisited the post, and still find each area to be important to think about when making a home purchase.

That said, one area jumped out at me a little bit more: Taxes.

Why taxes?

With declining home values, people may be paying less for their homes in terms of principal and interest. Not that debt is a good thing, but for better or worse many people will borrow money to buy a home. Lower prices just might mean a lower payment, if you’re focusing on house rather than payment. Sounds great, right?

Well, maybe. Part of housing costs may be declining, but are real estate taxes going down? Probably not. So, as a percentage of home payments, real estate taxes just might be increasing.

The big takeaway with real estate taxes – and I find it to be more true than ever – is that they’re a great example of why you never really own your home free and clear.

Sure, if you have no mortgage, it might mean that you paid off a loan or perhaps paid all in cash if lucky enough. That’s all fine and great. However, what happens if you decide not to pay your real estate taxes? The concept of ‘ownership’ changes pretty quickly, and you’ll realize just how much you really ‘own’ your house when taking that course of action.

It seems like it might be a buyer’s market for the short-term, and home ownership is something that’s a great thing in many ways anyway. So, this post is not about casting doubt over owning a home.

Having said that, just keep in mind that real estate taxes are like a mortgage payment that never goes away. Rather, it tends to increase over time. So, when buying a home, consider holistically the concept of ‘ownership’ and the actual costs involved, regardless of category or classification.

Have you paid close attention to real estate taxes when home shopping? Are taxes reasonable where you live, or borderline intolerable?

DIY or Hiring a Professional: Factors to Consider

By Squirrelers 9 Comments

Just how far do you go when it comes to DIY, or “Do it Yourself” type of projects?

For me, it was never a priority to be Mr. Super Handyman and do all maintenance around the house, no matter what the challenge may be. I would pick my spots, do what I could do, and outsource the rest.

Now, it’s clearly advantageous to be handy around the home, and can be cost effective in many circumstances. There are suprising examples of people who haven’t been able to do such things. I remember some years back, speaking to a lady living in a building who said that she knew a couple that called to have issues taken care of on a regular basis – to include the most basic things. Yes, they even paid to have light bulbs changed! That’s taking it too far, and is a total waste of money. There are situations where one can save a ton of money doing it independently, and individually.

On the other hand, trying to be a super handy person can go too far as well. Sometimes, there are things that can take far too much time for a non-professional to do. This makes sense, as nobody can be an expert at everything, and there’s someone out there that can do it more efficiently since he or she specializes in that type of work. In that case, time is money, and one should consider the value of time spent trying to do it yourself. Remember, the money that you truly save has the cost of time, and if you divide the hours spent by the monetary savings, you may find that you’re effectively getting a nominal wage. Is that the best use of time?

Other times, it’s not just a matter of time, but also a matter of specific knowledge on a repair process and getting a job done right and safely. For example, if there was a need for boiler repair or other type of work that requires certain expertise, I would be much more likely to call a professional to get the job done.

I have gone through a trial and error process in the past with some work at home, and learned some good lessons that way. For example, a prior home I owned was a bit older, but was purchased because of the location. After buying the home, we noticed some pests entering as the seasons changed. It was quite annoying, and I became “Mr. DIY Handyman” , as I tried to come up with different ways to deal with the problem. I went to the local store several times to buy products that I thought would work, but ultimately didn’t. It required a decent amount of time for very little in terms of impact. At that point, I called a professional, spent a some money, and the problem went away fairly quickly. There were never any issues again. Even though it seemed like an easy fix on the surface, it turned out to be a good move for me in terms of time and effectiveness to set aside my ego and hand it over to a professional.

Overall, I think it’s smart to really pay attention to what you can fix on your own and what you should pay for. Many times it really does pay big time to be handy and take care of things on your own to save money. No doubt about it. But other times, just as convincingly, it’s smart to go with a professional. It just depends on the situation.

Unforgettable, Funny Holiday Gifts that were Given as Real Presents

By Squirrelers 24 Comments

Exchanging gifts over the holidays, with family, can be a lot of fun. It can also be the source of a lot of unintended laughs.

An article I came across on Yahoo! listed 19 Unusual gifts that nobody wants, showing a list of products that were clearly not for everybody. To me, they seemed like gifts that were either ill-conceived, or so cheesy, that they would be hard to forget. The list got me thinking about gifts that I had received – or ones that I have heard of people receiving – that were so weird that they couldn’t be forgotten.

First, the list from the article. As I mentioned, 19 unusual items were listed. The 5 that jumped out at me (with my commentary below) were:

Dog Mustache Toy($10). This just seems so silly, to buy a fake mustache that can be put on a dog. Won’t the dog get irritated with it? Is it really that funny, anyway? When I look at the picture, it seems like this is such a dumb idea for a toy that it actually is funny. Kind of like a movie that has acting that so unintentionally bad and cheesy that it ends up being entertaining.
Peekaru ($80). I wouldn’t have put my kids in this thing, if for no other reason that it looks completely bizarre. The kid’s face just emerges out of the parent’s body suit/blanket. Again, though, it’s so weird that a picture of it would be one to laugh at for many years.
Bed Bug Stuffed Animal ($10). With the recent bed bug scare, I couldn’t imagine anyone wanting to snuggle up with a stuffed animal that’s supposed to be a bed bug. What gives you the warm and fuzzies, a stuffed teddy bear, stuffed puppy dog……or stuffed bed bug? If you gave this gift, at least you’d be remembered?
Puppy Love Fragrance ($44). This is interesting….buying perfume for a dog. Would Fido really appreciate this perfume, or would he like a tasty bone or delicious dog food instead? If you’re really thinking of what makes the ultimate gift-recipient happy, this probably won’t be the gift you buy. It’s also one that won’t be remembered too well either:)
Spray-on Hair ($15). This, I think, should only be given as a prank to a thick-skinned person. Who could possibly give this as a well-meaning gift? At least splurge for some generic minoxidil:)

As for my own experiences, I have seen enough funny gifts over the years. Now, let me preface this by saying that I truly appreciate all well-meaning gifts, like these, and don’t really want anybody to spend hard-earned money on me. It’s really about the peace, goodwill, and time with close family and friends for me.

That said, you just can’t help but remember some wacky gifts. Here are 3 in particular that I remember from over the years:

Deer Repellent Whistle. Some years ago, I received this cheap looking contraption that was supposed be a deer repellent for your car. It had a discount label still on it, for $0.99. It was given by someone who let’s say was an extended family friend. The price sticker was faux paux #1, though I don’t really care about it much. The person was known to be cheap, and I don’t care anyway. The funny thing, however, is that I live in the Chicago area, and this person lived in a much more rural area. For him, it’s probably a realistic gift. But in a highly urban area, deer aren’t likely to be traversing busy intersections on their way to strip malls. Just a wacky gift all around.
Chuck-E-Cheese Toys. Ok, this was me. I was a little kid, and Christmas was upon us. We went to a Chuck-E-Cheese (or maybe some knock-off place) a couple of days before Christmas, and I redeemed a bunch of Skee-ball tickets for a little tiny notepad and a plastic ring. As Christmas Eve came the next day, I realized I didn’t have a gift for my parents. So…you guessed it…I tried to give them these toys! Keep in mind I was very little. They didn’t even try to fake the enthusiasm, and I got the message and learned a lesson. It’s funny to me how unbelievably lame my effort was:)
Leg Shaver. This one comes courtesy of a friend of mine from high school. He was dating this girl, who was his first girlfriend ever. They actually went steady for a few years. He wasn’t the most attuned to girls, and this showed when he got her a gift for Christmas. He told me that he really looked all over the place for a good gift, and tried to buy something he thought she would use. So, he bought her a leg shaver. Apparently, she tried to fake enthusiasm, but he realized his gift was a dud. It didn’t take him long to figure out how unromantic his idea was, and to his credit, he laughed at himself about that for a long time afterward. Of course, if he didn’t, a friend would be right there to help him with that:)

How about you? Have you received (or given) any gifts over the holidays that were well meaning but just so totally ridiculous that you just can’t forget them?

Making $400,000 yet living with Mom and Dad

By Squirrelers 17 Comments

For many young people, the life of a professional athlete seems like it would be amazing. You get money, fame, and the ability to play a game for living while also have a lot of fun away from the playing field.

Speaking for myself, the mindset I had at 24 would have steered me toward having a nice condo in a trendy area, a great car, and substantial expenditures on food, travel, and fun, had I been a professional athlete making $400,000 annually. I think I would have been fairly responsible overall – after all, at 24 one is a fully-grown adult. Additionally, I would have remained true to my values and continued to be very close to my parents, but wouldn’t have lived with them on a day-to-day basis.

That’s what makes this story I found on Fox Sports to be interesting. A 24 year old athlete who pitches for the Oakland Athletics organization, is a guy who lives at home with his parents. Now, these days that’s not so unusual; plenty of people, 24 years and older, live with their parents. Many families find this to be a way to pool resources and save money.

The difference is that this guy makes $400,000 annually! While it’s on the extreme low end of major league salaries, it’s still a substantial income by most accounts. How many 24 year olds making that kind of money, with plenty of fame, would live at home – when they clearly have many other more exciting options?

Apparently, he would. And frankly, I applaud that. Why not? While the 24-year old version of me wouldn’t have done that, the older version of me thinks that it’s not such a bad idea. At 24 years old, just getting started in life, it couldn’t hurt to live there for a short while. In his profession, there are ups and downs for young players (he was sent to the minor leagues this year), so it’s smart to be careful. He can pitch in at home and help defray some expenses for his folks, since he’s unmarried and not obligated to another person. Plus, it can help him save the rest of his money without doing anything crazy such as buying overpriced property, or having insanely expensive nights out on the town. Wouldn’t it be hard to do that with Mom and Dad right there?

Let’s assume, to make it easy, it comes out to $250,000 after taxes. If he lives at home and helps out, what could his expenses be? Let’s say $4,000 per month? Annually, that’s $48,000 – leaving him with $200,000 after taxes.

Let’s say he takes that 1 year’s worth of savings from living with Mom and Dad, and invests it in the stock market, earning 5% annually after taxes for the next 30 years. In that scenario, that one year of savings by living at home would be worth about $864,000. Granted, this must be viewed in the context of inflation and decreased purchasing power. Nevertheless, that’s quite a benefit for just living at home for one year.

Regardless of what his actual motivations are for living at home, this guy is a good role model for smart financial moves.

Whether or not he is consciously doing it, he is demonstrating two important personal finance actions:

The ability to differentiate between wants and needs.
The importance of saving early in life, to open the possibility for compounding to perform its magic

What do you think of this? Do you think it’s smart for a 24-year old making a substantial income to be living at home, or should someone in that position live it up a bit more?

The True Long-Term Costs of Home Ownership

By Squirrelers 2 Comments

Home ownership has long been touted as a foundational element of building personal wealth. Rather than rent, the theory often goes, by taking on a mortgage you are avoiding “throwing away money”, as a portion of your payment goes toward principal, and you obtain tax deductions as well. Plus, it feels better for many to own than rent, as you have a sense of possession and pride with your own home. The emotional component of this is important to note. Overall, home ownership seems like a great deal, especially for those aspiring to buy their first place.

I am very positive toward home ownership, as long as the market is stable (a topic for another day). If your hope does appreciate at a modest rate – say 2% per year – you can amplify the return through leverage. This means that if you have a $300,000 home with 20% down ($60,000), your 2% increase ($6,000) can appear to be a 10% return on investment. Very good, indeed.

The only thing is – those same people looking to buy their first home tend to overlook the true costs of home ownership. I will make the following two suggestions here:

1. It is more expensive to own a home than many first-time buyers realize
2. You don’t ever truly own your home

It is more expensive to own a home than many first-time buyers realize

Taxes: When people rent, they typically pay the rent, plus renters insurance, and that’s about it. With homeownership, there is the mortgage payment, plus insurance, plus property taxes. That last component can be significant. The national average in the US has hovered around 1.0% of market value, but many counties have average rates well over 2.0% of market value. Thus – with that $300,000 home I mentioned, taxes at 2.0% would be $6,000. Sure, there is a tax break, but if you end up paying a net $4,000 of taxes after deductions, it comes out to around an extra $333 per month. That’s not small change.

Association Fees: This isn’t applicable to all homeowners, but most condominium or townhouse complexes will require association fees. The fees typically cover things such as common area costs (roofing, siding, landscaping, etc). These fees vary by complex or building, due to each one’s unique needs, but these fees can be relatively significant. For a $300,000 home, you could be looking at $100 or more per month – perhaps in the $500 or more range for a high rise building. With single family homes, this is less prevalent, but some newer ones do have neighborhood association fees.

Maintenance: When you rent, it’s a matter of calling the landlord to have him come fix the problems. When you own, you’re on your own (so to speak)! If the roof leaks, you have to fix it. It there is a plumbing problem, you have to handle it. Either you personally fix problems or you pay someone else to do it, which will be expensive. Plus, you have to account for the periodic replacement of certain things – the aforementioned roof, sump pump, appliances, etc. It is a wise idea, I believe, to budget at least 1.5% of your home value for such expenses. Thus, for the $300,000 house, you put away $4,500 annually for such expenses. It might not all be spent up each year – some years less, some more. But the money should be regularly set aside. Problems will happen, and shouldn’t be entirely unexpected.

Updating: If you buy a pre-owned home, you may be tempted to update a room in the house – perhaps the kitchen, maybe the master bathroom. You might even want to put new flooring throughout your place. Even if you like the place as is, you might want to change some things after living there for a long period time. All of this takes money, and in some cases it takes significant money. For example, a total remodel of a large kitchen can easily cost over $30,000 (U.S.).

Outdoors: If you are renting, outdoor maintenance is covered. If you own attached housing such as a condo or townhouse, this is likely included in your association dues. With a single family home, you will have to pay for things such as lawn mowing, snow shoveling, landscaping, etc. Even if you do it yourself to save money, you will be spending time on such activities.

You don’t ever truly “own” your home

Lets say you purchase a home and take out a mortgage. What a great feeling, you are a homeowner! Now, if you try to stop making those mortgage payments, you’ll see whether or not you truly own it. Remember – if you have a mortgage, you may have the title, but you’re still paying for it. It’s not yours free and clear.

Speaking of free and clear, what exactly does that mean with respect to home ownership? In most circles, this has come to mean the mortgage is paid off in full. Some people hold little parties for this accomplishment, when their loan is finished and they feel that they own their home outright. And make no mistake, it is a great accomplishment as you no longer owe money to the party that is servicing your mortgage.

Realistically though, your payments are not done. Furthermore, they probably won’t ever be done. In effect, you have rent payments to make on your home, and they go on in perpetuity. These payments are called property taxes. Back to that example above with the $300,000 home – those taxes of $6,000 annually will most likely move higher over time. If you try to stop making those payments, once again you’ll see if you truly “own” the home.

All of this said, should a first time homebuyer be leery of buying a home? After all, its easier to just write the rent check and forget about it. As I said, I’m pro-home ownership. Long-term, it’s a good move financially, and there’s something about having your own home that’s point of deep personal pride for many of us. But the timing has to be right, and it’s a step that can be taken with complete knowledge of the true long-term costs of home ownership – which continue even beyond when the mortgage is paid off.

This article was included in Carnival of Personal Finance #257 at Canadian Finance Blog

A House for the Price of a Cup of Coffee?

By Squirrelers 2 Comments

Can you imagine buying a single family house in a major metropolitan area – one with 4 major professional sports teams, major international corporations, and plenty of entertainment – for under $10,000? Perhaps even well under that figure? No problem. There is one city that has well over 1,000 listings within that price range. Even more interesting, recently a few have sold for less than a premium cup of coffee – one dollar!

The city where you can charge your house on a credit card (remember to pay it off right away!), is Detroit, Michigan. The good old Motor City now presents some absolutely shocking prices for single family homes. Yes, we’re talking about $1 homes in Detroit.

This is something that has captured my attention. Personally, I am not a native of Detroit or of the state of Michigan; in fact, my direct experience with Motown is centered around the 3 months that I was there on a professional assignment in the 1990s. During that time, I discovered an intriguing story: a once great, formerly prosperous city that was synonymous with American manufacturing might, had declined to the point of being downtrodden, crime ridden, and – surprisingly – neighborhoods full of interesting homes with nice architectural details.

The city has clearly had its struggles. The decline of Detroit has been well documented, and the city has seen better days. The population has dropped from over 1.8 million in 1950, to under 1.0 million in the 2000 census. Some people believe this figure will be determined to be around 850,000 in the 2010 census count. City neighborhoods have been abandoned, and home values have plummeted. This problem is not completely unique to Detroit; while it might be the most publicized example, this general situation can be applied to other markets. Further

Here’s the question: While a tragic disappointment for many, does this real estate market offer opportunity for others?

Investors have been purchasing homes for a fraction of what they were worth at one time. There are plenty of articles and stories that you can find through a Google search that document this phenomenon. While plenty of people are moving out, there are people that are buying for investment purposes, and some that are buying simply to live at a very low cost of living. Some are urban “pioneers”, like artists, who see this as a unique opportunity.

It is an interesting proposition. I have the following questions, after researching this situation:

1. What are the chances of any kind of stability coming to that metropolitan area, in light of its dependence on one industry, whose companies are struggling?
2. What will transpire with the city’s possible agenda of “shrinking”, to reduce the populated footprint in an effort to cut public service costs?
3. What are the possibilities of the area seeing an influx of new residents from elsewhere – say, immigrants – who could take advantage of the existing housing stock in the city?
4. What are the costs and risks associated with renting a home in such an area?
5. How can an out of town investor safely and profitably purchase and subsequently rent homes there?
6. Ultimately, is the real estate market there headed down even further? In other words, is the situation there so bad that these potential investments are fool’s gold?

While Detroit’s situation has some unique elements to it, there are other markets in the US that have seen precipitous drops in recent years – Phoenix, Las Vegas, Miami to name a few. These markets present opportunities with their own set of questions.

What do you think about the viability and potential of investing in a city like Detroit, which has been devastated by economic trends? What about the potential of the warm-weather markets that were hit very hard by the real estate downturn?