by Taylor Shay

Created on: August 21, 2008   Last Updated: August 25, 2008

As many real estate investors found out recently, nothing is a sure thing and timing is everything! For over a decade, big money was being made in the real estate market as property values soared upward at astronomical rates. Buyers could invest in a property, hold it for a minimum of time, then flip it for a huge profit. As the song goes, "What goes up, must come down." For those investors late to the party, there were devastating consequences. The real estate market topped and then began to fall; the result was a flood of foreclosures that made headlines all across the country.

Suddenly, in the summer of 2007, the real estate boom came to a screeching halt. Both speculators and homeowners who had bought at the peak of the market, found themselves "upside-down" in their loans; in other words, they owed more on their loan than the property was actually worth.

To make matters worse, those who had taken out risky loans with the promise that property values would continue to climb, had a rude awakening when they found that capital had dried up and refinancing was impossible. These individuals who had counted on stable economic conditions found that they were stuck in loans with interest rates that jumped tremendously high after the first few months. Real estate profits were so alluring that investors went blindly into loan packages with the idea that they would "simply refinance when the introductory rate rose."

Talk about bad timing! What happened to the old adage of buying low and selling high? What also happened to buying and investing within your means and not taking on more debt than you can reasonably afford?

As I write this, crossing the wire is a report by the Mortgage Bankers Association that mortgage applications had yet another bad week; the fourth out of five weeks in decline, and is now at its lowest pace since December of 2000. To complicate matters, although the Fed has been easing the interest rates, the actual rate a borrower would pay is three-quarters of a point higher than it was in March. What does all of this mean? Several things come immediately to mind:

1. The vicious circle continues; interest rates should be dropping but money is tight for loans, so supply and demand keeps rates artificially high.

2. As long as this continues, tight money and high rates will keep the market flooded with property for sale, so again, supply and demand will keep pushing property values lower until it all evens out.

3. The Fed now fears inflation so they may actually

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