If you are buying low and hoping to sell high, you need to remember that homes priced at the low end of the spectrum are more susceptible to more distress than higher-priced homes, according to data released by Capital Economics. The firm released numbers indicating that while all properties are still at risk for further devaluation, those at the low end are more likely to fall – and fall harder and faster – than those at the middle and high end. This may be, in part, because during the real estate boom these properties’ values rose faster than in other value ranges, meaning that they may have been more attractive to buyers who wanted to use subprime loans and other “teaser mortgages” to finance. Now, as a result, they are more likely to go into delinquency and to stay there longer. The report from Capital Economics notes that “since their 2007 peak, prices in the low tier have so far fallen by 45 percent compared with declines of 35 percent and 25 percent in the middle and high tiers, respectively”. Furthermore, should proposed risk retention rules go into effect requiring a 20 percent down payment, low-end buyers may be priced right out of the market.
So should real estate investors still be investing in the low end? Should their focus be elsewhere? Is “buy low and sell high” a thing of the past?
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