Housing Market Outlook

I'm still sitting on the fence, waiting for the right opportunity to buy my first home-sweet-home. With all the trouble in the housing market, I'm sure that my opportunity is not far away, but the question now becomes how low can the prices really go. As with any declining market, an investor wants the most bang for their buck and seeks to time their purchase for the absolute lowest low. With foreclosures being reported up by 65% this month compared with the same month last year, however, the supply of homes on the market is still very much on the rise. Consequently, prices are still very much on the decline.

Watching Jim Cramer's Mad Money on CNBC last night I heard the mention that the first real estate markets hit by the slow down in Florida are beginning to show signs of life. As with the recent bull runs in the stock markets, it's likely just a head-fake. The underlying problems in the economy haven't gone away. Business bankruptcies are still mounting. Unemployment is still rising. Foreclosures are, well, you get the picture. Before these underlying factors are addressed, there isn't going to be any rush to buy any homes. People certainly aren't going to be bidding against each other in this market and that's a necessary condition for prices to rise.

We will continue to hear about some homes being sold and some real estate markets around the country rebounding. I would tend to suggest that this represents localized feelings of a trough; this is unlikely to be representative of a more broad-based recovery. Too many things are just ugly right now and people are stuffing those bills into the mattresses to insure against more rainy days. I, for one, am still waiting for when I can un-tuck some of those bills.

Democratic foreclosure-prevention package - OK'd

With all the talk about the hundreds, yes hundreds, of billions of dollars made available each month by the Federal Reserve to help financial institutions survive the worst of the continuing credit crunch, it seems that the little guy may finally get something too. The U.S. House of Representatives approved a Democrat-sponsored foreclosure-prevention package that will essentially guarantee mortgages if banks cut principals so as to lower the payments on those loans. With foreclosures consider to be one of the key catalysts for the slowing economy and financial woes on Wall Street, this should certainly help everyone involved.

No one benefits in a foreclosure.

For the little guy, that's you and me, this means that banks should be just a little more willing to work with us to avoid foreclosure. The banks don't want to foreclose; besides all the transaction costs involved, it's just a hassle. They need to come-up with the paper work (both financial and legal) and ultimately boot some family out of their home. With their expectation to see only part of their loan returned to them given the current state of the real estate market, it's a lose-lose proposition for everyone involved. This new program gives them an out.

Assuming that banks are willing to do their part and cut the principal amounts on the loans, then those loans will be guaranteed - essentially eliminating their risk of holding-on to the mortgage and giving the borrowers (i.e. homeowners) a little more slack with which to retain ownership and make their monthly payments. The key here is that everyone needs to still do their part. The banks aren't getting something for nothing; they'll first need to make their own judgements as to who's mortgages should be cut and kept vs. those that they'll foreclose regardless.

Similarly, homeowners can't run away from their responsibilities. With news of people choosing to burn their homes or drive their cars into lakes and rivers so as to collect on insurance policies and avoid further payments, there doesn't seem to be a better time than the present to offer something to us little guys. The economic slowdown will continue for some time. More businesses will close and more people will lose their jobs. At least its nice to know that it's not only Wall Street that has the attention of our government.