So What Now?

Home prices rose 3.2% this past quarter from a year ago and only .1% from the previous quarter. These rates represent the slowest home price growth in nearly a decade. And the most recent published reports are that the recent months the median home price will fall for the first time in recorded history.

Many economists and analysts are predicting that the housing slow down will continue for at least the next three or four quarters, so well into 2008.

Even well heeled buyers are spooked; these cash or nearly all cash buyers are as anxious as anyone. They may not have the higher interest rates and loan underwriting issues to deal with like the rest of us, but investing a greater sum of money than most of us can even imagine in a potentially level if not slightly depreciating housing market is not how they made their millions.

But all of this doom and gloom aside, people don't just stop buying homes. Of course many now can't and those who can are very careful about what they buy and how much they buy it for, to state the obvious. Evaluate what you need and what you want and what you can do without; this advice goes for both buyers and sellers. Put yourselves in their shoes and most of the time we can find an agreeable arrangement. Be flexible in this market and don't pretend or play games like you know what's going to happen. I know I'm not sure and neither are those highly paid analysts. Know yourself, be patient, and be willing to adapt to this ever changing market.

The Recent Fallout

So a lot's been happening over the past few weeks. We've had a steep sell off and mild rebound in the global equity markets. We've had the Fed try to increase liquidity in the markets by pumping billions into the system and then ultimately decided to reduce the discount interest rate by 50 basis points. We've had Countrywide, the nation's largest mortgage lender tap into an $11 billion credit line and then report pending layoffs. And we've had a financial services company like E*Trade's stock price plummet on fear of their mortgage investment portfolios.

What does this all mean for us? It means that credit is tight as evidenced by several private equity deals turning to borrowing from banks instead of being able to take new debt offerings to market. It means that loan underwriting guidelines are tightening so that only the most secure and credit worthy mortgages are being made. It means that homes pending sale are falling out because borrowers who once were approved have had their loan applications returned. And it's having a domino effect as a seller's inability to sell their home because their buyer loses their loan now has to pull out of the purchase of their new home, thus affecting that seller and so on.

Even the areas that stayed strong following the initial sub-prime lending concerns, are not starting to show signs of concern. The entry level or first time home buyer markets tend to be hurt the most as many of those buyers had been taking advantage of low or no down payment or low introductory interest rate products. Don't get me wrong, homes are still selling. Some buyers are more prepared for the current environment and some sellers are more reasonable in their expectations.

So for buyers, take care of your credit, start saving and tighten those purse strings, you have to plan ahead for your home purchase. But that's the way things had always been before, to take a term from the internet bubble, the irrational exuberance of the past five years. And for sellers, temper those expectations, homes are taking a bit longer to sell and for slightly less then they were last year. Work closely with your Realtors and be open and honest with them about your needs. And as we've been saying all year, make all decisions deliberately, consider all things carefully, and look out at least to the medium term as any short term decisions could result in regret.