A reader sent in this question:

I have seen a house I am really interested in, but my husband is concerned about getting back in the market right now.  He feels prices are going to go down more and that there is going to be a big increase in REO houses coming on the market.  Do you have any advice for us?  I follow your site and you are very knowledgeable about the market, especially in the area where we are looking.  I don’t want to miss out on a great opportunity, but I definitely would not like to buy and see the market slide even more.  We can rent longer if that would be the best thing to do at this point.   Any information and advice you can share with us will be greatly appreciated. 

The decision when to buy will be different for everyone.  Do like Ben F. did, and draw a line down the middle of a sheet of paper and list all the reasons to buy on the left, and reasons not to buy on the right.  I don’t have an algorithm to use, sometimes it just helps to see all of your reasons in writing. 

Will there be more trouble ahead?  Consider what we know:

1.  There are thousands of people in San Diego County that either can’t afford, or don’t want to afford their house.  Those properties will show up the for-sale inventory in a variety of ways over the next 3-5 years.

2.  Baby-boomers will be downsizing over the next 10-20 years, keeping the supply channels full.

3.  The government has a history of throwing trillions at the housing/banking problems, and it’s doubtful that they’ll stop now.

4.  Mortgage rates are very low, around 5% today, and buyers with big money keep stepping up.

To answer your husband’s question – yes, we should see more REOs making their way to market.  But if the government provides enough cheese to stretch out the pain over several years, and there are enough buyers, we’ll have an artificially-low sales volume for years to come, and no big price dumps because of foreclosures. 

The wild cards are the baby-boomers; that’s where we could see floods of new, unbridled inventory.  The areas are predictable too, they’ll be the neighborhoods with houses more than 10 years old, and they’ll be the ones that need work.  These owners are the empty-nesters with higher equity positions and a lower desire to spend money on upgrading, so most will be considered fixers – the list prices will need to be attractive to find a buyer. 

I have more concerns about the baby-boomer inventory than REOs.  The banks/government will manipulate the timing of the REOs nicely, but the baby-boomers will sell when they feel like it, and several could hit a local market at once.  The fixers will be tough sales too, and with more equity, pricing could be volatile – some sellers will hold out, others will need to dump.

You need to assess your own willingness to risk.  If you can comfortably afford today’s prices, and can find the right house to buy at the right price, then your concern is whether you could buy a better house, later for less than you could today.

If you like 1970’s-style fixers, stay tuned – you should see plenty for sale. 

The government and lenders are conspiring to keep foreclosure activity manageable.  The REOs should trickle out, and those in newer communities will be in higher demand, which might keep prices reasonably afloat.

There are no sure bets.  For some, the thought will be either too much to consider, or the negatives keep winning, and they’ll always rent – for them it’s a good choice. 

If you’re going to buy sometime, it looks like there will always be a complex set of variables that’ll make the decision very tough – you’ll never feel totally comfortable.

Once you make the decision to forge ahead, there’s more. 

Trying to secure the right house at the right price is very elusive, and the hunt will test your resolve daily.  Try it on for size by making some offers, and see how close you come to buying a house.  You’ll be surprised by how hard it is to get what you want.  Will it get easier later?  I don’t think so – if prices keep trending downward, I think it’ll bring more buyers in, making it tougher.

If you wait, the ideal scenario for you is a flood of supply, combined with higher mortgage rates – that would cast doubt in all buyers, and bounce a few out of the game.  But don’t be surprised if sellers are slow to lower their price.  You can judge for yourself how likely that is to occur, and how it would impact your target areas.

You can also hold out for more items on our list of desired features – the more of these you have, the better chances of your house holding value:

  • One-story
  • Great school district
  • Ample privacy and sunlight
  • Good condition and floor plan
  • Low or no monthly fees
  • Manageable yard

Best of luck to all, and hopefully we’ll have a few commenters chime in with their thoughts!

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