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TESS VIGELAND: The chairman of the House Financial Services Committee, Barney Frank, issued a new warning to mortgage lenders today: Get busy refinancing risky mortgages, or face new and much tougher regulation. Many homeowners are frantic to refinance as their home values drop, but on the other side of the equation are buyers who refuse to jump in until the market hits bottom. How will they know when it does? Investors known as "bottom fishermen" just might have the answer.
Dave DeWitt, of North Carolina Public Radio, explains.
DAVE DEWITT: Bryan Bass stands outside a four-bedroom, two-and-a-half-bath house on a corner lot in Cary, North Carolina. He likes the big yard out back and the location, but he has one problem with the property before he ever steps inside.
BRYAN BASS: This looks pretty good, but I think it's overpriced.
Bass is what real estate professionals call a "bottom fisherman." He's a small-time investor who is looking to add to his stable of about a half-dozen houses, which he's turned into rental properties. The spike in foreclosures, while tragic for others, is a boon for him.
BASS: It's kind of like this perfect storm of low interest rates and an increase in foreclosures. I'm not really trying to take advantage of these bad conditions, but at the same time, these bad conditions just happen to coincide with my need for more rental property.
Bottom fishermen, like Bass, are more than just opportunistic investors. They're an important indicator in the real estate market, says Karl Case. He's a professor of economics at Wellesley College. He's also the co-creator of the Case-Shiller Index, a key measure of the residential housing market.
KARL CASE: When you start to see bottom fishermen, when you start to see people buying up property on spec, it's the first sign that opinion is changing. They're the first to form the view that hey, there's going to be some bargains.
Experts say the number of bottom fishermen looking for those bargains is rising. Jeremy Brandt owns a company called 1-800 Cash Offer. It connects investors with those who want to sell a house fast. Sellers who are in trouble have been calling in record numbers, and in the coming months, Brandt expects the number of potential buyers to grow.
JEREMY BRANDT: There are definitely are a lot of people that are saying, I've heard all this bad news about real estate, so it must be a great time to buy.
Brandt says one of the real dangers is buying a property without knowing the local market.
BRANDT: We've had thousands, if not tens of thousands, of novice investors buying on speculation without any real understanding of the fundamentals and the market they were buying into. We've seen a lot of investors who were buying property sight unseen, or in an area that was outside of their city.
That kind of speculation, combined with the mortgage mess, is what got us into the housing slump in the first place, which brings us back to that question. Are we at the bottom? Karl Case says probably, but he's quick to point out that this decline is unlike any other. The national scope of the slump hasn't been seen since the Great Depression, and the credit crunch means even willing buyers with good credit are finding it hard to get mortgages. Bryan Bass has re-financed his own home twice to pay for the rental properties he's buying, but he says he's being careful not to get overextended.
BASS: I know how much I'm making and I'm realistic about that, and so I just try not to spend more than I make.
The future of the housing market may depend on how many other bottom fishermen follow his advice.
In Cary, North Carolina, I'm Dave Dewitt for Marketplace.