The events of the last few days have been discouraging for those hoping for free-market forces to return some sanity to the environment.
What else can we expect?
Let's review some possible future events, and likely answers from the powers that be:
1. More investment bankers fail (Lehman, etc.) - Fed opens the discount window.
2. More banks fail, and FDIC runs out of money - Fed opens the discount window.
3. More people stop paying on their mortgage - FDIC suspends foreclosures (like they've done at IndyMac)
4. Need more stock support - send in the PPT. Here's a link to EN for yesterday's example: http://exurbannation.blogspot.com/2008/07/no-ppt-nosiree.html#comments
5. Homeowners are underwater - force loan cramdowns on banks (Frank-Dud Bill).
6. Fannie/Freddie needs more bailout - "re-structure".
7. Mortgage credit tightening - push FHA/VA loans.
8. Neg-am resets - lift the reset caps to 125%, or waive them altogether.
I'd prefer to get this over with - but rather than having a swift, timely return to sanity in the real estate market, their actions are leading to a long and dreary fiasco that they hope will work itself out.
If the government is going to provide a continuous backstop for real estate, you might as well buy a house. If it doesn't work out, they'll be around to save you.
For most people it is better to wait this out until there is more certainty, and lower prices, before buying.
But for those willing to consider buying now, here are some tips to consider to help hedge your bet:
A. Buy in older areas where there should be less funny money. The more exotic mortgages in an area, the more likely to be foreclosures in the future.
B. Buy a one-story house - baby boomers are inreasing the demand.
C. Buy in neighborhoods where the inventory has been low the last couple of years. It's not a guarantee of future performance, but a decent indicator of the current homeowners' comfort level.
D. Buy newer homes with no HOA or Mello-Roos. The future suppy and demand for these will be better than either older homes, or newer homes loaded with fees.
E. Make lowball offers - if it doesn't make you cringe, it's not low enough.
F. Look off the beaten path. Dig out deals that aren't on the open market.
G. Look for superior homes with all the extras. Having the upgrades you want already saves out-of-pocket expenses, and hassle, of doing them yourself.
H. Where possible, utilize seller financing. If the home's value drops dramatically, you'll have more power re-negotiating the terms with the seller, than a bank - and your payment history won't be on your credit report. If that sounds kind of ruthless, well, I guess it is, but hey - it's the wild, wild west now.
But Jim, you're a realtor, isn't this self-serving?
It's in bold print above that most should wait it out, because the overall "market" will see more declining data for a long time to come - wait until you feel comfortable with the risk. In the meantime, there will be segments of the marketplace, and/or individual neighborhoods that survive. For those folks who can stomach the rath, get good help and take a look around. Buy only if you find a compelling, top-quality property at a very attractive price.