Over the last decade and before, it was very easy to get a home mortgage loan. Home prices soared…increasing about 85% from 1996 through 2006 in adjusted dollars. Many people bought more house than they could realistically afford…thinking with ever increasing value, they could sell it and still come out on top. Mortgage companies thought the same, loaning money under very shaky circumstances.

The reason housing is wreaking havoc even on insurers like AIG and big investment banks; trillions of dollars of mortgages were packaged together into securities. These securities promised to pay investors with the proceeds of those loan payments and promised a greater return than other types of assets during the housing boom. A home loan or mortgage converted to a security

is worth much more than the value of the actual property or a least it was until the wheels came off.

Speculators all over the globe demanded more of these securities and lenders gladly supplied. Unfortunately, the bubble burst…prices began to fall rapidly leaving holders of mortgages and securities created with paper with a swiftly declining value.

It’s hard to say when the bottom will be reached. The economy and markets will not recover until the correction is over. Home prices, while sharply off from the 2006 peaks, are still high in comparison to long-term gains in income, rents or overall prices, suggesting that they still have a way to fall.

While the results from the proposed bailout remains to be seen, people still need a place to live and there are just so many spaces under bridges and most all of those are already taken.

It is my thought that a lot of money can be made in tough times as has been proven many times in the past by people who weren’t afraid to move when others were wringing their hands.

Families who purchased nicer homes than they could afford will be looking to downsize to something not so fancy and more affordable. You need to be there with your fixer upper properties ready to do business. Also, many owners will now become renters and once again you need to be ready with something to rent or sell as a lease purchase. A $75,000 dollar investment now will be a million dollars in 15 years at 18%.