Not a lot of good news in the data coming out so far this month, as far as anyone clinging to the hope that the worst is behind us in the struggling US housing market. The numbers for total pending listings in July released yesterday were pretty terrible, dropping to levels not seen since 9/11/2001, and the foreclosures numbers released today set another record high.

The only silver linings there is that July should be chalked up to a pretty large anomaly, due to the largely unsubstantiated complete freak-out that occured in the general markets at large and the lending industry in particular, and the rising foreclosures story continues to be pretty schizophrenic. Subprime borrowers continue to default like crazy, while prime borrowers continue to largely be good to go, with only a very slight rise in foreclosures by prime borrowers. Which is sort of good news, but not the best of news, as there still is likely a large overhang of dodgy subprime loans to work through, especially as ARMs reset.

As far as what that means to the real estate investor, well, who knows. Some people claim that the recent real estate bubble is the mother of all bubbles, and that we’re just at the beginning of a prolonged five to ten year slide, that will result in home values being roughly halved, across the board. Property values skyrocketed while interest rates were near historic lows, creating an unsustainable situation. To resolve it and return to equilibirium, interest rates have to climb dramatically (which the Fed seems very disinclined to do) or housing prices have to fall dramatically.

I just don’t buy that argument, though. Maybe it’s my relative inexperience and lack of having lived through such a thing firsthand, but housing seems to me to be a slightly different sort of commodity beast, much different from tulip bulbs or shares of stock in Koop.com. But, again, who knows.

As far as profiting from all this, the more I poke around, the more I’m intrigued by the idea of owner financing, after buying and rehabbing. The basic drill would be to pay cash for the property, complete your rehab, then get a loan based on the FMV of the rehabbed property (typically you can get a loan for 75-80% of the FMV in that situation).

Offer owner financing with a 5% down payment and an interest rate higher than your own (and possibly a 2-3 year balloon payment due to encourage the buyer to refinance.) Use the funds from the loan you received to purchase the next property with cash, pocket the 5% down payment, collect positive cash flow each month due to the difference in interest rates, and realize the bulk of your profits on the back end when they refinance.

In theory, you could basically rinse, lather, and repeat that same process infinitely, paying essentially no money down and 100% financing. The real upside, though, is that you’d be solving two of the major problems facing investors/rehabbers right now, not only finding a buyer to unlock your profits, but also securing financing for them.

Would that make up for the potential headaches of going the owner financed route? Quite possibly, especially if it remains difficult for some potential buyers to secure financing in coming months and/or years. That seems to be the biggest hurdle in my mind, more so than more and more inventory piling into the market as foreclosures continue to pile up.