Duude

Advice for Renters: Wait Until 2010 to Buy

Nordine has been spectacular with his timing in the past, but there are other factors he surely isn't considering.
We know about the big, new inventory of unsold homes that foreclosure has brought to the market. We know about the offsetting big drop in new permits. We know we are entering a recession but haven't much clarity regarding either the length of the recession nor the depth. Some predict a reemerging economic expansion by the latter half of 2009 without any idea of peak unemployment. We're at 6.1% unemployment now which if fine, but everyone knows this number will grow. Some say 7.5%, others 8.5%. How high it gets will significantly affect the value and pricing of homes. Add to that all those that had planned to sell before the market dropped out. This is more inventory that will reenter available inventory at some point in time. Unfortunately, due to the length of this real estate bear market, many will either sell at or near the bottom or just walk away.
However, the most serious factor that will undoubtedly depress home values for some time to come is financing. Its true if you have 20% down, great credit and enough income, you can still get financing. But our securitized mortgage obligations will never get the demand they once had. The world is going to change. One quote I heard from a European analyst speaking about Norwegian bankers demand for our CMOs was that the only thing Norwegian bankers like better than French pastry was American derivatives. I think they are going to develop a financial allergy for these products in the future. It isn't just about Norwegian bankers. World demand for our securitizations has been hot and now its not. With a drop in world demand, these mortgage loans will be much more expensive to keep. We're going to be housing our own debt in the future. No more spreading of the risk. This is going to be expensive. Who pays for it? Future mortgage applicants with higher interest rates. That reduces affordability. The current crop of homes were built for a population that didn't fully qualify. The available pool of buyers is going down, the financing expense is going up, and we have a big buildup in inventory with a hard to predict with any accuracy recession that is only in the first innings.
2010??.... Forget about it.