Flipping” properties can become so popular that you hear about it everywhere and people start dreaming of the millions they can make. But when encounter the real estate market decline, the flippers will suffer a great shock. Here’s how to forecast the decline and avoid the failure.

Step1
Look people’s ability to afford the houses. Typical middle class salaries can’t cover mortgages except by using adjustable interest-only loans. If buyers don’t make a down payment on their home purchase they have no equity in their homes. If interest rates go up then there are sure to be problems with people defaulting on their loans and flooding the market with properties.

Step2
Learn from the interest. When buyers borrow more than they can ever repay, and overpay on expensive houses, using interest-only loans and other “come-on” borrowing packages, the number of foreclosures will rise. This will add to the glut of real estate on the market looking for buyers. If interest rates rise, so will mortgage repayments, and the problem is likely to get worse.

Step3
Learn from the speculators. When too many people are speculating in property, prices are driven up to unrealistic levels. Speculators have also used “no money down” and interest-only loans to buy property and are having problems generating cash flow from rents to meet mortgage payments. This will force them to sell at a loss and add to the glut of unsold houses on the market.

Step4
Observe the real estate companies. If talk of a real estate bust spooks speculators, they may try to dump their property investments. If they all try to get out at the same time it would contribute to the glut in the housing market, further depressing prices.

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