I was out looking the past weekend and saw some REOs in good condition. I can comfortably own a home at the current price and I plan to hold onto the property until I die (if I don’t live in, I will rent it out).
But still I decide to pass. That is because many of the houses already have bids on it, so it will be hard for me to low-ball to hedge any future price drop. So I will wait. The other thing is that I am not convinced that the house is cash flow positive at the current price if one factors in vacancy, maintenance, management, property tax, insurance, and 30-year fixed mortgage. And that does not even include the potential rent drops due to unemployment.
That all said, I do see one argument supports knife-catcher: the interest is going up! The GEOs are having a hard time selling their bonds. So sooner or later the mortgage interest has to go up. People say price will drop when the mortgage rate increases, well, theoretically. In reality, the price drops always lags behind mortgage interest, so you will need to wait until at least 2010 for the price to catch up (or catch down?). For primary residence (not for investment purpose), it might not be worthwhile to waste 2 years of your life for the rock bottom price. Of course, everybody’s situation is different.
