I read all your comments and am reminded of the stock market blogs…much speculation and little fundamentals. Further, I am willing to bet that most of you will continue to act giddy as the market continues down until you realize that you in fact missed the bottom. Don’t get me wrong, I enjoy the venue but wish you would expand the meat of the conversation/comments to include some DD and supporting evidence as to why you are content to remain on the bench.
For example, why did the ‘rate’ of forclosures peak in April? I suggest it is because the market peeked in terms of number of fancy loans (for new homes and refi’s) in April of 2005 (3-year arms, 2008, …). It is worth noteing that May 2005 was the second highest and the trend continues down from there.
I am not suggesting that we are at the bottom. Merely that I expect crazy “loan-induced” forclosures to decline. The variable in the future that may very well cause forclosures to decline at a slower pace than the rate at which the loans cooled off or stabilize at the current rate is the weak economy. It doesn’t matter if you were smart, put 20% down and got a traditional loan; if you lose your job and can’t make payments – you will be forclosed on.
But the economy brings up other factors I have not come across in your conversations: rising inflation and interest rates. Here is where I make the arguement that buying now is in your best interest whether it is a home or long term investment.
I am not sure how old most of you are, but it was not too long ago that double-digit home loans were a reality. Say you find a nice house in CV tomorrow and get loan for 650K @ 6.25% – your monthly payment is $4,679.25 (assuming 1.25 taxes/insurance and no PMI). If you wait until that same house drops a further 100K you may very well be looking at 8.25% which makes your monthly payment $4,704.88. Of course, this assumes you will even be able to get your loan. Check current rates, trends and history before you discount me as a nut. Prior to the late 90s, 20% down was the standard, not just a practice for the rich and BusinessWeek just ran an article today predicting another 1/4 percent rate hike in September.
Consider inflation – this is where the weak economy works in the home buyer’s favor. As oil, corn and other commodities go up, so does the cost of living (hence inflation). The thing is, inflation is another name for a weak dollar (it takes more of them to buy the same dozen eggs and a gallon of milk). That means wages usually go up as well though at a slower rate than expenses, but up none the less. This sucks unless you are paying for fixed rate debt. How many wheel barrels of worthless dollars do you think it takes to payoff a home loan?
Now, I am not a doomsday fanatic nor do I think we should forward our mail to the nearest Hooverville but I am pretty sure we are in for interest rates and inflation the likes of which we have not experienced in recent history. I do believe we are at the intersection of declining prices and increasing rates and, while not at the technical bottom of the market, this is the best time to be buying.
In the spirit of full disclosure and putting my money where my mouth is, I am currently in escrow. That means I truly believe this, am comfortable moving for with the purchase and not just trying to convince myself things will be alright with a bad decision.
