Credit cards or your home? – which would you prefer to hold on to?
I was reading a very interesting statistic the other day about borrowers in the US that use credit cards in every day life – that’s a lot of people.
The column went on to say that in a recent survey , since 2008, Americans would rather hold on to their plastic then their home.
“Since 2008 credit card delinquencies have been lower than mortgage payment delinquencies and that this “flip” is representative of the change in the conventional wisdom around the payment heirarchy.”
Basically, since the recession took hold, average Americans are devaluaing their own home in favour of their credit cards just to stay afloat. There is definately a shift in the way people think about repossessions and the stigma surrounding that. It seems that Americans are no longer afraid of being tarnished with the foreclosure brush.
Does this give us investors any advantage?
Well, if Americans want to walk away from their homes in favour of plastic it means there are a lot more foreclosures on the bank’s books, this much we already know. And as the banks are so desperate to release cash from these empty assets, it means bargain properties are available to us investors!
So long as we can keep renting these houses back to those defaulted owners – which we can as they will be seeking housing benefits to pay their rent, then we have a very unique situation.
Bargain basement prices & a market flooded with tenants looking for quality homes under the governments’ rental assistance scheme is a perfect scenario for investors.
Will house prices rise?
Of course they will. I can’t say exactly when but the signs are there. Obama’s 8k homebuyers credit is taking affect now, and more lenders are dipping there toes back into the markets.
The situation is like this:
• Owner defaults on their mortgage in favour of credit card payments and loses home.
• Investor buys home at bargain price as the banks are desperate to release funds.
• Defaulter seeks rental assistance from government.
• Rents rise in value as demand soars.
• Investor takes on tenant from a huge pool of available tenants.
• Obama’s 8k credit assistance goes into overdrive.
• More lenders move back into the market.
• As more people start to buy property again prices start to rise and a sellers market returns!
Investor has a high yield, tenanted property, increasing in value and with a solid exit strategy should they decide to sell.
A very unique cycle. And as they say “Only in America!”