After five of the most prosperous years in recent memory, 2006 saw the real estate market go bust. Low interest rates combined with a strong economy fueled the market for the first half decade of the new millennium. Last year, however, saw sales of single family homes fall nearly nine percent across the nation. That was the biggest drop in nearly 20 years. When the numbers come in for 2007, they are going to look even worse. In fact, the downward trend is likely to continue for the next several years. You even hear the experts commenting on it in the news. Jim Crammer, CNBC, is encouraging viewers to just ‘walk away’ from upside down mortgages. This is an example of how dismal the outlook has become.

What factors are conspiring against the current housing market? Prices are completely disproportionate to salaries. People have been biting off far more house than their paychecks can chew. Buyers have borrowed too much money and are unable to pay their interest. As a result, the market is witnessing a huge surge in home foreclosures.

The third-quarter of 2007 saw foreclosure rates double in the United States. Mortgages with introductory teaser rates are now adjusting to regular rates and causing many families to lose their homes. Nearly two million homeowners hold $600 billion of subprime adjustable-rate mortgage loans – ARMs. These loans are due to reset at higher rates during the next eight months. MSNBC estimates that the recent amount of mass foreclosures is going to result in a $223 billion drop in property values across the country. It is predicted that the most severe downward shifts will be felt in minority communities.

Many believe that lower interest rates will somehow save the housing market. It won’t, because that is not the problem. Most homeowners don’t qualify for a refinanced mortgage much less one for a new purchase. The problem is that homeowners are upside down in their mortgages and owe more than the value of the house. Lenders will not approve a mortgage when the seller does not have at least 10% in the property. When looked at that way, lower interest matter little one way or the other. Since the recent hot markets of California, Florida, Nevada and Arizona has cooled down, homes there are depreciating as much as 40%. There simply is no equity.

The Center for Responsible Lending estimates that roughly one in three homes will drop in value by an average of $5,000. This is largely due to the fact that lenders were indiscriminately granting loans that were far too large for people to realistically handle. As long as a bank could sell a loan, they granted it. This passed the economic risk of loans granted to people with questionable credit onto Fannie Mae; as well as the buyers of mortgage-backed securities. Now that the country is facing nearly one trillion dollars in mortgages that will not be repaid, risky loans are not being granted. Investors are steering clear of mortgage-backed securities. When this happens, less money is available for mortgages and housing prices fall. Prices are likely to fall for the next few years while traditional lending standards are re-established.

Other factors contributing to the downfall of the housing market involve economic and age demographics. There has been a notable lack of middle class first-time home buyers in recent years. Young families have simply been priced out of today’s housing market. Home prices have become completely disproportionate to incomes. And as 77 million baby boomers are approaching retirement, nearly one third of them have absolutely nothing saved up for it. So, they are turning to their home equity and putting their houses up for sale.

What does all this mean for the future of the housing market and the economy in general? It’s anybody’s guess, but experts are not optimistic. “We haven’t faced a downturn like this since the Depression,” said Bill Gross, chief investment officer of the world’s largest bond fund, PIMCO. “Its effect on consumption, its effect on future lending attitudes, could bring us close to the zero line in terms of economic growth,” he said. “It does keep me up at night.”

Tim Harris is a co-founder and head coach of Harris Real Estate University. After a long and successful career of selling thousands of homes, he sold his real estate business and started HREU. Since 1997, Harris Real Estate University has thousands of Realtor-Students participating in education courses on a daily basis.
Read more in Tim’s blog.

Many investors are not interested in becoming a landlord; unfortunately, unless they have another stream of income, investing in real estate requires financial support from somewhere. Investors that are not open to becoming a landlord may be losing money.

There are some basic guidelines to be an effective and profitable landlord. You have to have the right tenant, collect and maintain deposits, inspect the property, collect rents, and possibly evict tenants. We will cover some of the basics you need in order to be an effective landlord.

Choosing tenants is probably the single most important thing that you can do to save yourself both time and money. Your single most responsibility is your property use and the maintenance. While it is illegal to discriminate against any applicant, this is still your property and you have the right to pick who you want to live there. Renting to the first applicant through the door may not be the best idea; prospective tenants look will hunt for the right property and you should for the right tenant.

You need to have a completely filled out “Applications for Rental”, you can get these at your local office supply store or you can have your attorney draft one for you. At a minimum, make sure that an attorney reviews the paperwork to be sure your property and you personally are protected.

Perform a background check on all potential applicants. Call their employer, contact previous landlord; this may be the most important step. Verify credit references, if necessary, you can even do a full background check on someone using a number of different websites available today. Remember, do not cut corners here, this could cost you a great deal of money and time.

Posting a “For Rent” sign and running ads in the newspaper are not a very good way to attract trustworthy tenants. If this is what you use to find tenants then make sure that, you properly screen them. Finding a family friend or acquaintance is usually the best avenue to finding the “perfect tenant”; offer them an incentive to find you a good, solid tenant.

To avoid a lot of “tire kickers” when posting ads in the newspaper, be sure to include accurate descriptions, rent amount, any deposit requirements, and restrictions you maintain, such as kids, pets, total occupants allowed. Without this information, you are opening your phone to a long list of people that are “just looking”.

Assure all applicants that full consideration will be given to them, however do not be too eager to get a tenant in the property. Finding the tenant, one that meets your requirements is the best approach to being an effective landlord.
Start with the right tenants to effectively mange your properties. You need to make sure that the tenant that you have chosen is a good fit; you can save yourself from a great deal of expense and ultimately have the perfect situation if you are a real estate investor.

Thomas Bladecki is the author and can provide additional information about foreclosures and the current real estate markets visit Home Foreclosure Help.