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Stop Making Sense

Posted on Sep 10, 2008

Regardless of whether your glass tends toward half empty, or half full, the last week has provided plenty to talk about. Starting with the announcement Sunday that Treasury Secretary Hank Paulson was busy cleaning house at the 2 GSE’s, and then Monday’s market rally, along with the dramatic 1/2 point mortgage rate drop, it was one for the history books, as they say. And this all follows a bold prediction by CNBC’s Jim Cramer, of Mad Money fame, stating unequivocally that the third quarter of 2009 will see the housing bottom. Whew- Now that’s a lotta meatballs!

Whatever your perspective, there’s more than enough to chew on for a while. So, while you’re digesting, I’m going to review where we are:

Rates have dipped to the mid 5% range, as a direct result of news that Fannie and Freddie are now property of the taxpayers, stocks jumped over 300 points as Wall Street’s Monday juices got flowing, and we’ve had a prediction from one talking head that housing will reach its nadir in a year. And no, I didn’t make any of this up.

What does it mean? If I knew the answer to that….
My short answer goes like this, and it’s what I’ve been saying for, oh… forever, so you can chant along, if you’d like- or hum a few bars if you know the tune: Buying a home is an investment- a longterm investment. Which is why they invented 30 year mortgages. If you’re in it for the longterm, then today’s or tomorrow’s news shouldn’t make much difference.

If your home purchase plans of today include a reasonable forecast that this purchase will suit your needs for the next 5 years, and you have either access to a VA loan, or some Down Payment socked away, I say you’re a prime candidate to take advantage of the phenomenal rates, killer deals, and amazing opportunity available now.

My expectation is that we will continue to see a flat-ish market for the next 6 months or so as we get through the election season, with spring time (Beginning in February)  bringing a gentle upswing to the market here in the northwest. Which is why Cramer’s admonition of July 23rd, to “Buy a home in the next 6 months” fits well.

Taking it further, I believe the next year will see appreciation trending fairly flat, while we work to put this mess in the rear view mirror, and then appreciation will begin to improve, giving you another 4 years to recoup acquisition costs, cover selling costs, and earn equity. Ideally, your game plan goes beyond 5 years. However, that said, situations change, plans change, jobs change, etc. What counts is that you have a plan, work the plan, and let the plan work for you.

Which leads to the other part of a purchase: financing. It’s available. I don’t really need to say more. Yes, the game has changed. Yes, it’s back to fundamentals, and yes, lenders require documentation. That’s as it should be. Never should have been otherwise; in fact, if we had stuck with fundamentals, we never would have had a need for this major correction. Should you have a grandparent handy, ask them for a definition of ‘Fundamentals’. They’ll tell you that’s a lesson their generation learned long ago- stick to the fundamentals, and you’ll do alright.

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