Mr. Moderate

Back on May 6 (Don’t Get Your Bubble Burst!) and again on May 16 (Housing: Whistling Through The Graveyard) I wrote about the ongoing collapse of the housing market in the United States. On Tuesday, June 19, USA Today wrote a length piece which verified what I had said earlier: the optimistic statements were wrong and things were settling in for a long decline (Subprime storm winds will keep blowing). The scope of the problem is clear from that article:

Home foreclosures in Minneapolis doubled in 2006 and are on pace to double again this year.

…

The Mortgage Bankers Association predicts that adjustable-rate subprime foreclosures, already at a record, will rise into 2008, …

If I can give any prospective homeowner a word (or two) of advice, it is this: be conservative!

In most markets, prices will continue to decline as foreclosure rates continue to increase. There will, of course, be exceptions. In general, the lower the average income level of some particular neighborhood, the greater the prices will be injured by the collapse of the second-tier mortgage market called the “subprime market.” It is in neighborhoods such as those where people are most likely to find themselves both “upside down” (owing more than the property is worth) and unable to meet growing payment demands of adjustable rate mortgages typically sold to “subprime” borrowers.

What you should do probably depends upon your own particular situation. But if you are a borderline borrower, now is the time to concentrate on cleaning up your credit score and storing away a larger down payment, both of which will take you out of the subprime arena where the sharks make most of the money. You need to pay attention to the following:

Homeownership is “an American dream, but it’s also (become) an American right. This has led to wrong on both sides,” says Lou Tisler, executive director of the Neighborhood Housing Services of Greater Cleveland. Tisler’s group usually tells prospective buyers it takes 12 to 14 months to get into a house as they build savings and clean up credit.

“They can walk out, look at an (ad), make a call and be in a house in 30 days,” Tisler says. “We see them again in six months, when they’re in way over their heads.”

If you start today, 12 to 14 months from now should be a good bottom point to buy, at least in some markets. It will definitely be a point at which to assess what is going on and whether waiting longer makes good sense. If you do this, you may avoid the housing nightmare and be prepared to do quite well during some future upsurge in the market.

I wish you well.