No matter what anyone tells you, the U.S. housing market is in a bubble and prices will go down. During the depression home values dropped by 25%. In my neighborhood, houses in like 1999 that sold for $225,000 are now selling for $525,000, a 134% increase in 7 years. This market had all the earmarks of a speculative bubble. People bidding $50 to $70k above list price, bidding on houses sight unseen. Yes, the bubble has popped, but we have only begun to see the "black death" of real estate.

If you were buying a house that you and Mrs. are planning to spend the rest of your life in, then now is just a good a time as any, but because you move every 4 years or so, that’s going to cause problems. Yes, Reaport-ed is correct in that you can build up equity in 4 years. On a $250,000 mortgage at 6%, you would have built up almost $13,500 in equity in 4 years from your mortgage payments (not including your downpayment). That’s wonderful, but that’s assuming that everything stays the same.

First of all, if you’ve been paying attention to the news, the reports coming out nationally is that the real estate market is not doing well and we have only begun to see downturn in the real estate market. What happens if interest rates go up to 8%? The higher the rates are, the less money you’ll qualify for. Let’s say you buy the house today. In 4 years, if interest rates go to 8%, a person that could qualify for your house today at 6% will may not be able to in 4 years at 8%. Add to that that nominal wages may have increased, be real wages have actually fallen over the past few years. It was just on the news that household income has increased, but no because of gains in wages, but because more family members are getting jobs to make ends meet.

Also, Reapor-ted is operating under the assuming (at least it seems to me) that prices will not drop or will actually increase. Remember what I told you about the depression, that property values dropped by 25%. In todays figures, that $250,000 house would drop in value to $187,500. Let’s say you had bought that house with a 10% down and made payments for 4 years, you have $211,500 left on that house ($250,000 minus $25,000 downpayment minus $13,500 in equity from payments). In other words, you’d owe $24,000 more than what the house is worth. If you have to sell because of your job, not only will you not be able to sell for enough to pay off the mortgage, but you’ll still owe $24k. Where are you supposed to get the funds for the downpayment on your new home?

I just recently read where a couple that listed their home fo $400,000 and wasn’t selling, dropped their price to $270,000, they dropped the priced by nearly 1/3. There was a Story out of Atlanta, where one gentleman bought a home for $108,000 on an ARM about 3 years ago. His ARM has adjusted and now he can’t afford the payments. On top of that, he can’t sell the house cause the appraisal on it now comes in at $87,000. All he can do is let it go into foreclosure.

I hear the talking heads saying it will be a soft landing. I disagree. So does the CEO of Country Wide Funding. He says that in the 53 years he’s been in the real estate business, he has NEVER seen a soft landing.

I can’t answer when is a good time to buy, I don’t know when the market will bottom out. I have a friend who’s looking at buying also, but she is young and will probably sell the house in a few years. My concern for her and for you and your Mrs. is that if you buy now, you may not be able to sell and cover the payoff when you sell in 2 – 3 years. I wish I could be more optimistic, but it’s going to get real ugly. And I’m not just going on my own opinions. I’ve talked to a real estate investor that’s been investing in property since the late 60′s/early 70′s and he’s telling me that we’ll be able to buy houses for pennies on the dollar soon.

Think about it, inventories of both new & existing homes are hitting near record highs. Home values are beginning to drop. People are throwing in incentives to entice buyers. One couple in VA is giving the new buyers of their home a 2006 Toyota Camry as an incentive. People are giving away $10,000 vacations, builders are throwing in upgrades at no costs like $30,000 swimming pools. This is all happening, and housing prices have only come down a little.

The Fed did not raise interest rates on 8/8, but I think that’s only temporary. Why? First, the Fed is late in it’s rate hiking cycle. The other central banks are early in their cycle, and they are raising rates. That’s going to put a lot of pressure on the fed. When the stock bubble popped in 2000, the fed cut interest rates to 1% to keep the economy from contracting and hoping investors would get back into the market. They did, but not stocks. They got into real estate. That’s way prices skyrocketed in the last 5 years. But, as interest rates increase, that weakens the housing market, which is what’s been keeping the U.S. economy bouyant. Now, when the fed began it’s interest rate cuts after the stock bubble popping, the dollar went into freefall against the major world currencies. The dollar finally stabilized when the fed began raising interest rates. But, with the U.S. running such huge budget & trade deficits, the dollar started falling again. When the fed did not raise rates on 8/8/2006, the dollar started to fall again. With the other central banks raising their rates, their currencies are growing stronger, which will entice investors to move their money out of dollars and into Euro’s, Pounds, Yen, etc. If the fed doesn’t continue to raise rates, the dollar is in peril of facing a collapse. So, what is the fed to do? It’s in quite a pickle. If they raise rates to save the dollar, they’ll kill the housing market. In the last 5 years, 30% of all jobs in the U.S. have been in the real estate field. A collapse of the housing market would aversely affect 30% of our populations job security. If the fed maintain rates or lower them, they’ll kill the dollar. And since America imports the majority of it’s goods, that means things are going to get a lot more expensive if the dollar faces a major devaluation. Add to that that a major dollar sell off would prompt foreign investors to dump dollars and dollar denominated assets. Japan alone holds $750 billion in U.S. debt securities. If Japan started selling their bond holdings to cut their losses, that would collapse the bond market and the stock market. And since interest rates move inversely to bond prices, interest rates would spike.

I wish I could give you a simple answer. There isn’t one. You’re getting killed on taxes, but at the same time, if you get into a house right now, you may not be able to get out of it at the price you want in the next few years. This is not a simple question and there are no simple answers.

All I can say is do a lot of thinking and a lot of research. Pay attention to what’s happening. Don’t listen to the so called experts as the experts tend to be wrong most of the time. Don’t even listen to me. I’m going on what I’m observing, but I could be dead wrong. If you buy a house now, I would suggest you have contingency plans in place in case things get bad and you can’t sell when you need to for the price you need to pay off the existing mortgage.
References :
I trade derivatives and 4x, so I have a sense of how the various markets are responding right now.

Because you are going to live in the house, buy when you find the house you like and you can afford it.
References :

As my crystal ball isn’t due back from the shop for another few days, I can’t really tell you that much about the economy other than that it can only improve once Georgie the Younger leaves office and the bible thumpers stop controlling Congress.
References :

Getting the pre-qualified or pre-approval is your first step on buying a house. It gives you the idea on how much you can actually afford. And getting one is free.
References :

Find an agent to represent your best interest. Have them show you the house. Compare that house to other houses that are also for sale, and pick the one that is the best deal for you.

Sometimes foreclosures are a very bad deal. I have seen people pay way to much for some houses just because they thought a foreclosure was always a "good deal".

There are no real differences to you on buying a foreclosure than on any other house except the corporation or bank that owns the house requires that everything be done exactly the way they want it done- and there is no one that knows anything about the history of the house so they can’t disclose anything to you.
References :

Many people choose to buy a house to have independence to live the way they want or where they want. In this case, I would suggest go ahead and buy now. Timing the market is nearly impossible as with all markets.

If it is a financial play, then the tax break sound great, but if you compare it to all of the additional costs you will have (e.g. real estate commissions, closing costs, maintenance, property taxes, interest, furnishings, moving, etc.). It will be hard to recover this in a 2-3 year time frame.

Unless you know the market very well and can see a great deal you know you will be able to sell when you need to move, I’d strongly suggest you continue renting. Run the numbers and see what the break-even point is on a buy versus lease where in the buy your rate of appreciation is 5% and in the lease case you put the cash you are not putting into the excess ownership costs in to the stock market at 10% and I think you’ll see it take 5 to 7 years. More importantly, you know you will be moving and don’t want to get caught with a big loss if timing works against you.
References :