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November 26, 2010

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The really bad news is that the housing market has not hit bottom and will probably not come back in our lifetime.

See Chris Martenson's Crash Course and the Damon Vrabel lectures on You Tube.

The only decent strategy for many upside down homeowners will be to walk away and go rent that larger home.

Randy, my daughter said the same thing, but I forgot to mention it. She told me that she knows quite a few people who are walking away from their southern California mortgages. I asked about what this does to your credit score. Apparently after seven years, or whatever, the walk-away is expunged.

Regardless, these walkers can't think of anything else to do. Otherwise they're stuck in a crappy situation, seemingly forever (or at least a very long time). Like you said, renting is the new buying. Meaning, the advice used to be, "Buy a home, you can't go wrong." Now it is "Rent a home..."

Surprisingly, people are making money in this market according to my accountant who has clients who do this. Guess how? Flipping! Yes, it is still possible if you buy right. Some forclosure deals are below market value, even depressed market value. Add a little paint, mow the lawn, patch the holes in the drywall put there by the previous vindictive, frustrated owner and, viola', you have a house that will sell for market value which could mean a profit 4U. But you better know what you're doing.

Another thing that is happening is that the banks are letting upside down owners stay in the house even though they can't pay the mortgage. This is happening to a friend in Ashland, OR. The bank can't sell the house even for the outstanding mortgage amount, so rather than take a loss they are letting him stay in the house figuring he might get back on his feet and start paying again. Also, since he is the owner, the logic is he will take care of the house if he has a chance of staying there. But this won't last forever. He's prepared to get the boot.

Finally, you can buy rental property at foreclosure prices. An attorney friend bought a triplex this way. He has full occupancy and a positive cash flow.

Unfortunately, I agree with Randy. Prices probably have not hit rock bottom and won't appreciate for a long time, except in certain areas. There's always money to be made somewhere, somehow.

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