Few inside or outside real estate thought much about the implication of the Subprime market in the middle of it.

The occassional warning about the outrageous lending practices was pooh-poohed and ignored.

Everyone became and expert on real estate and no one could go wrong - owning, investing, speculating.  Turns out that was wrong.

But it has all happened before - and will happen again - in real estate and elsewhere.  The keys to investing in real estate or elsewhere is well written about…

Trouble is - at any given time information is usually incomplete - even in the internet age.

That’s why I created Free From Real Estate.  Not that real estate is a poor investment - ask Donald Trump or countless people who have created serious wealth built on real estate. 

Honestly - its not even complicated.  Knowing basic principals and having information in real time is critical.

How about this…

We already know about all the mess Subprime loans helped create.  And now they are gone. 

Great.

So - a real estate recovery should be on the way - sooner rather than later - maybe even a “bounce” in real estate values. 

The skids were put on new construction quite awhile ago.  Inventory will eventually get absorbed and a recovery should get under way.

Not so fast - there’s a new Subprime and its this - neighborhoods and entire communities are sucked under.  Obscene numbers of ordinarily solid homeowners who never took a Subprime loan have mortgages larger than their property’s value. 

That’s the new Subprime.

Here’s a real example - take an impecable bank owned home - perfect condition - a couple years old in a regular American small town - not far from a large metropolitan area with amenities and attractions and above average employment. 

It sold new a couple years ago for $456,900.  OK - that’s was too much - it was in the heat of everything.  Just resold for $206,000.  I could show you pictures - trust me its impeccable.  I know I witnessed that transaction and hundreds of others all year - first hand I’ve seen them.

Good buy?  Likely.

For now - probably for awhile - there are plenty more just like it.  They keep coming. 

If you read my other blogs you might remember right now almost each month - there are successively larger numbers of NEW foreclosure actions.  The last reported month was over 247,000 new filings in the U.S. 

State laws and logistics govern and it will take months - often over a year - to bring every individual one of those properties all the way through the foreclosure process to even put it on the market.  At any given time - there is enough inventory on the market now for nearly another year of home sales.

Each one of those new 247,000 transactions that could go all the way through foreclosure could easily take one to two years to resell.

And that doesn’t count next months numbers.  There will be several hundred thousand more - maybe a new record again.

Even subprime loans were never as aggressive with loan to value ratios as the reality of what people owe against a regular mortgage.  An 80% loan on a $456,000 purchase price would have meant a $365,520 mortgage.  With values around $200,000 for now - that’s called the NEW SUBPRIME and its worse than the old in some cases.

Many homeowners a couple years ago didn’t put the conventional 20% down and have larger loan amounts - say $400,000 in this case.  How many will stay put and keep paying on that huge mortgage?  I don’t know the answer.  Some will - others won’t and there will be more statistics coming.

Eventually - nearly every homeowner (and there are hundreds) in that one single neighborhood is going to need to decide if they have to fold - too.

That’s severe - that’s violent.  And its true.

It is NOT California or Nevada or Florida.  It is all around to varying degrees.  It is what no one is talking about.  It is the NEW SUBPRIME.

If you don’t understand the principles of real estate - you can learn.  Most of it will make easy sense and the best part is - better decisions can be made going forward. 

I’d recommend you share this with a friend - neighbor - coworker - family.  You may not know their current position - but you may be helping more than you can imagine.