http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aome1…
Surging U.S. Savings Rate Reduces Dependence on China (Update2)

...

Government data today showed that the household savings rate rose to 6.9 percent in May, the highest since December 1993, as personal spending increased less than incomes. The rate in April 2008 was zero.
...

Most of the rise in income in May was due to one-time government stimulus payments to seniors, said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Carl in Chicago,

I'm a licensed Broker in Illinois.... I'm currently #41,000 something on the Cubs Season Ticket list.... maybe once I get those season tickets I'll move back to Chicago and handle your real estate investments.

By then... maybe global warming (LOL!!) will have made the winters more bearable.

Hello Nicholas,

I'm not missing the point at all.... In Las Vegas we've seen first hand what happens when "creative destruction" is allowed to take place and prices are not tampered with and allowed to reset. Keep in mind that much of what you bring up has already happened here.... and from some of my friends in Phoenix, Florida and some parts of California... has already happened there. All of the current programs came out long after our troubles started... People are buying here again because of the prices. Yes... we have million dollar bank owned homes. And yes... New home builders are building homes here again.

And REALTORS in these areas certainly know what a cut in income is since the vast majority of us have experienced this and we've certainly made personal spending changes. Except for a handful of RE Agents listing homes for the banks... we've all taken a major cut in our income.

I do short sales and have been for almost a year now..... we are working twice as much for half the pay. A 50% drop in home values means our 2.5 to 3% is half of what it was during the peak false economy days. So... when people talk about a cut in pay... we CERTAINLY know what a cut in pay is. Unemployment did not cover us during the year and a half where there was only 1 sale for every 5+ agents.

And I call it a false economy because that is what it was due to the inflated prices and all of the refinancing and equity withdrawals that took place during the boom...... Mortgage Equity Withdrawal chart provided previously shows that. The money taken out was spent on new cars, clothes, flat screens, IPods, Playstations, etc.. etc... That money is obviously gone and so has all of the spending in the economy.

I'm certainly not discounting what you are providing... because I certainly believe (know) that there are many areas of the United States that will eventually see what we have already seen and it won't be pretty. My Bank contact for Georgia/Florida is telling me what is currently taking shape in Georgia and it's ugly. They are in Commercial Lending and they will be the first ones to tell you that they built WAY too much and the regional bank they are with is in panic mode. As I told them well over a year ago... it was not a matter of if... it was a matter of when it will happen to them.

I am a firm believer that until everything resets back to before all of the lax lending and everybody own a home social experiment that started in 2002, it's going to be ugly. After the Tech bust and 9/11 -- prices should have dropped but due to tampering with interest rates and rubber stamping loan applications.. prices went up, up, up and now we are in a credit crisis as people got stretched out and buried in debt.

It's really not that complicated.... let the reset happen and the recovery will come much quicker. We see it here... sales are taking place left and right and properties priced right sell in a matter of days. (Obviously unless somebody has been under a rock for the past three years --- knows that prices in Las Vegas have been decimated from the highs.)

Now that prices are extremely affordable... homes in our area are selling again. This results in home inspectors, appraisers, lenders, repairmen, Real estate agents and title officers all getting paid -- making money again and spending it in our local economy. New home builders are starting to cautiously build homes again. (Like the old days when they did not build until they had a contract in hand.)

You know... doing short sales I've seen first hand what happens when somebody gets out of a huge mortgage that was sucking away all of their income and rents something comparable for far less until they get their debt paid off..... they become much happier people.

In summary... the issues you bring up are a cause of what already happened. What happens tomorrow is taking shape today.

As far as the deflation / inflation debate... of course prices for cars, homes and other items have come down in price because people can't afford them or are no longer interested in being in debt up to their ears. You have to lower the price to sell them...

The inflation will eventually come though due to the federal policies in place. You can't just print up a bunch of money / sell a bunch of debt and flood the economy with "stimulus" packages and not expect any future consequences. There are no charts to show it.... yet.... because it is happening now.

Let Americans reduce or increase their cash flow the right way and it will sort itself out. The process to get there might be temporarily ugly but the long term benefits will be priceless.

Rental rates have dropped around 5% here in the Chicagoland area as I have had to adjust my rental rates a little. I'm seeing more and more one month free when a new lease is signed.

Better yet, I've seen offers of Cubs tickets to sign a 14 month lease!

I've yet to see offers of free Bears or Hawks tickets to sign a lease....hmmmmmm

http://www.housingwire.com/2009/06/25/may-delinquency-rate-u…

From HousingWire:

May Delinquency Rate up 50% from 2008

Total mortgage delinquencies are up 50% from the year-ago level and up 5% from the previous month, reaching an 8.49% rate in May, according to a monthly report released by Lender Processing Services.

Foreclosure inventories climbed as May saw a 2.79% increase in the foreclosure rate from April. The foreclosure rate sits 88.3% above the year-ago level.

The roll rate of loans moving from current status into delinquency rose again in the month to 637,822 newly delinquent loans, the fourth highest number on record. Ninety-day delinquencies rolling into foreclosure status edged up again after falling in April on the heels of an influx in foreclosure starts that followed the expiration of the moratorium in place at the agencies.

New delinquencies increased across all product types, spiking among government-insured mortgages — including those insured by the Federal Housing Administration — which now sits at a level even with option adjustable-rate mortgages and just below Alt-A mortgages.

The percentage of mortgages becoming 30 days delinquent each month this year sat above the corresponding monthly rate in the four preceding years, indicating a greater percentage of borrowers missing payments as the current economic contraction continues to unwind and joblessness increases, slashing income and making monthly payments more challenging to keep up with.

When I was talking about middle and upper class having to make tough choices I was talking about this:

http://annapolis.craigslist.org/mcy/1238635471.html

Apparently this guy has to sell his brand new Yamaha V-Max just months after he took delivery. Several thousand miles on the bike and you have to sell it? I wonder why your selling your bike?

http://www.reuters.com/article/gc03/idUSTRE55O6XJ20090625

From Reuters:

U.S. housing misery poised to enter new phase

Signs that home prices may have bottomed have stirred hope on Wall Street that the economy is on the mend, yet tight credit and a new foreclosure wave cast doubt on any looming housing revival.

Sales of previously owned U.S. homes rose for a second straight month in May, realty data on Tuesday showed, while the U.S. government and Federal Reserve have designed a number of programs to alleviate a battered housing market.

However, the chief economist of the National Association of Realtors warned of the danger of a “delayed” recovery in housing, with prices down 32 percent nationwide from their peak three years ago.

Big risk factors that could spur more foreclosures include expectations of rising unemployment and the forecast resetting of interest rates on 2.8 million subprime and Alt-A mortgages in the next two years.

Delinquency rates on mortgage payments typically rise in tandem with unemployment, which is expected to top 10 percent after hitting a 25-year high of 9.4 percent in May. And when mortgages interest rates reset, they are typically at higher rates that can cause monthly payments to balloon.

“I’m worried that the investment community is a little too sanguine about how much of the housing pain is behind us and that we might be in the all-clear,” said Ronald Temple, co-director of research at Lazard Asset Management in New York.

Against this backdrop comes continuing tightness in housing credit. According to Amherst Securities Group LP, a severe lack of credit outside of government-sponsored mortgages has reduced loans, especially for the purchase of new homes, and is putting further downward pressure on prices.

Paul Francis,

I think your missing the real reason why I am pointing out all of these issues with the housing, lending, economy. There is a very hard and rocky road ahead of Americans right now and things are going to get worse before they get better.

Forclosures are starting to appear in more desirable neighborhoods as the middle to upper class have burned through available savings and retirement and now have to make tough choices. High paying jobs that required little to no real experience have been replaced with low paying jobs requiring little to no real experience.

Recent trend data has shown that the number of continuing claims for unemployment are down or flat. But a look behind those numbers show that the reason they are down is because the exhaustion rate for unemployment benefits is peaking. People are not getting jobs, they are just exhausting their unemployment benefits. Retail sales are up but it coincides with an expected peak of the stimulus money. That isn't true retail sales growth - that is growth fueled by debt, the debt of future Americans.

There are still years worth of Option ARM and Alt-A loans to slog through which will cause further harm to an already weak American economy.

A Fitch report recently released listed an estimated 15% drop in National house prices to match the one produced by the Deutche Bank. If you read these reports they clearly DONT say "California/Nevada/Florida prices have fallen too much so they wont fall any further", they specifically call out these areas as being very weak due to the exposure of Alt A and Option ARM. Prices will continue to fall.

I am seeing rent prices falling in my area drastically. To be sure - you have be smart and notice that there are price discounts on rents. One upscale apartment building in College Park, MD who's rent for a 2 bedroom apartment is still at 1600$ per month; the same as it always has for the preceding two years. The only difference now is that they are offering 2 months free rent if you are a new tenant. Yep, sign a 14 month lease and you get two months free. Do the quick math and you find that rent prices have fallen by 14.3% for that apartment complex. That is hundreds of rental units that have dropped in price.

If you think that rent prices are not dropping then you are completely fooling yourself. Don't get blindsided, pricing power is evaporating.

Great Post Paul.

I wish you were my Realtor up here in Chicago!

I'm still trying to figure out why people don't follow the comps as a starting basis when that is really all that a Realtor has to show the client what to put the home up for sale at. The comps in a developement that I have been buying in are at around 155k ( 2 of which are the ones that I purchased as foreclosures) and I'm seeing people list the same units that I have at 192k and higher. I guess I should not complain but what gives? Do they think that the units that sold as foreclosures don't count? I admire their optimisim but I think that their Realtors are spinning their wheels.

Needless to say, their will be more foreclosures in this 500 unit association (Just a guess of course.... ;)...) and I will be buying it at hopefully 145-150k and still rent them out for $1275-1300.

Boy, I'd love to be in the same position as your client with the 70 properties but that's 10 times more than I have!

p.s I will need a great Realtor to sell all my properties in about 20 years!

All good points Nicholas,

At this point I'm not following any of that very closely anymore... all I know is that it's easy to purchase real estate with a positive cash flow that easily beats out the returns I could get in the bank, municipal bonds, T-Bills, annuities or under my mattress. On top of that... somebody else is paying off the debt.

And yes... that's even discounting the rent to get them rented fast because we obviously know that everybody is looking for a good deal to reduce their cash outlay.

Regardless.... real estate is and always has been meant as a long term investment... all of the charts tracking real estate on a month to month basis as if it's a stock is ludicrous.

It's all about cash flow....

In my last example for the $135K home that is currently getting $1,200 a month... If the positive cash flow is applied to paying down the loan... it's paid off in about 12 years.

Will the home be worth zero in 12 years? Will the monthly rent be zero in 12 years?

Will the rent drop so low that it does not cover the PITI? (When I first moved to Vegas in 1992 a one bedroom apartment near UNLV was $600 a month.)

As I think I've mentioned before.... I have a client who has over 60 homes paid off in Southern Cal that they started purchasing in the '70's. (They have a tenant who has been in one of the houses for 27 years and they've only raised the rent $50 on them when they replaced the carpet... LOL!)

They don't care what they are worth tomorrow or next month or even next year.... they just collect all of that rent each and every month and enjoy their lives without too many worries right now...

This whole crisis has been created because people think too much about what something is going to be worth tomorrow instead of being able to calculate where the best return on your actual cash is today.

Take advantage of the low rates and create the right leverage and let somebody else pay off your debt and build a future.

Or save money on rent and purchase something where the mortgage is going to be less then rent.... (Even without the tax deductions.)

And if you can't do that where you live... then move to Florida, Las Vegas or Arizona where you can... ;)

Interesting side note on the forclosure crisis highlighted here by the poster relo. High value homes comming on the forclosure market going to cause the average and median home prices to rise?

June 25, 2009 at 12:07 pm
Be prepared for upcoming green shoot fodder. Was listening to someone say that a housing price “head fake” is upcoming due to the fact that “higher” priced homes are coming into foreclosure and, in theory, will be sold for more on a relative basis. This should give MSM and realtor propagandists something to work with.

This is an amazing article about deflation and how it is affecting us and the markets. I think there were a few questions a while back that poked at inflation concerns. I pulled out a few sections that I thought were interesting and posted them on this thread but the whole article is very informative.

http://www.doctorhousingbubble.com/deflating-our-way-to-pros…

Deflating our way to Prosperity: Five Major Sectors of our Economy Pointing to Demand Destruction Price Deflation. Education, Wages, Housing, Stocks, and Automobiles.

...

Yet if we look at the latest data, we start seeing that food and housing are now starting to decline. A large part of this is because of the excess housing on the market and the BLS measures owners’ equivalent of rent (OER) which has been coming down. After all, with 26 million unemployed or underemployed Americans hiking the rent may not get you new tenants in many markets

...

The problem with looking at the median price is that it is artificially high in the mania phase and low when a flood of distress homes hit the market. A perfect example is California where over 50 percent of homes sold are foreclosure resales. Ironically, now that you are seeing more price cuts in mid to higher priced areas you will see the median price go up or neutralize. Yet overall, prices are still heading lower.

...

Great, now Mozambique is invading this thread........

Voices Member,

Las Vegas real estate in 2004 was up 42%..... it certainly did not mean to buy it.

I am a fan of silver but the stockpiles are not generating any postive cash flow and it does not pay the bills unless you sell it.

The coins are pretty though.

And here I thought I was doing great with 9-13% return on my rentals here in Chicago.....

"Could you tell me where else you can get a 14% return on your cash?"

Silver is up 27% so far this year. Silver is also very liquid and near historical lows in valuation.

I will go with the low risk, high liquid asset...silver then gold.

Any other questions?

Looking back on the earliest threads of this post an incredible insight can be observed:

The non-realtors were dead on with their assessment of the housing market in terms of predicting the collapse now in progress. Furthermore, the realtors with all the data they have access to were flat wrong to the point of predicting a rebound instead of further collapse.

Adults using NAR agents is simply unmitigated self deception.

Wow.

It comes to a point where price/perceived value is a moot point... Just because everybody was buying in '05 does not mean it was a good time to buy... and just because not everybody's cat and dog is buying today does not mean it is a bad time to buy.

Case in point... deal just closed with a tenant in place paying $1,200 a month for a $135K home built in 2006 in a desirable area of Las Vegas. (Rent could actually be a 100 or two higher but we want to keep this tenant..)

$40,500 down generates a positive cash flow before taxes of $460 a month or $5,520 a year....

Could you tell me where else you can get a 14% return on your cash?

Nicholas,
I like the examples they used in Passedena. Hard to imagine why those 57 pruchased in the example, unless they were priced right or foreclosures.

I haven't read the Fitch report yet detaling the estimated 15% national house price drop over the next 5 years but it is quoted in this article on doctorhousingbubble. If someone could find the Fitch paper I would be reading it right now.

http://www.doctorhousingbubble.com/real-city-of-genius-case-…

Great read....It appears the worst is yet to come...

http://money.aol.com/article/home-prices-could-fall-for-5-ye…

Yup, a lot of listings and yet Sellers here still want the same $$ that the places sold for 12-18 months ago.

I guess all those foreclosures on their street mean nothing and have no bearing on what the new selling price should be.

Looking at a new foreclosure to add as a rental....looks like I should get it for 12k less than I paid for the same unit last December.....And I thought I got a deal back then!

Looks like the banks have hopefully woken up...

Right, you want to define a meaningful description for a market. But I see Chicago had 4200 sales YTD? 93,000 listings? How many licensed agents? Sellers want to sell. Buyers are buying. Agents are making money. Now, less money than they need, too many agents, buyers taking their time and acting cautiously, sellers wanting more than they deserve or that the buyers will pay. That is the market.

Carl,
So many but, if's, and's.

But you are right as you pointed out!

It is a great time to buy, if you have a steady job, some money to put down, a cushion to fix-up and get by if income disappears, a good credit score, need a house and want a house. And there are such people out there. When rates sneak up, prices go down further. But one buys an individual house not the whole market. It is not a great time to be a realtor, IMO. Unless you have been down sized out of a job, replaced by a younger hire, or lost your income in some other way and can apply lots of energy and time to it chasing the fewer deals available. Then it is a satisfying career choice.

Ryan,

Just in case you still read this opinion thread for some odd reason I found this gem in a Deutsche Bank report, written in February 2009 and recently released, that notes that Chicago, Il. is one of the ten weakest markets in the US. Yeah yeah yeah, why should we be taking advice from a bank that got it so wrong in the first place, blah blah blah.

Some other gems are that they are calling for a 40% further decline in NY metro area housing from the end of Q12009.

Resale Market Analysis
In 2009, the foreclosure
market is the housing market
http://www.filedropper.com/db1

Weakest Markets and Their Stats

Chicago, IL
Number of Sales: 4,232
Yr/Yr Change: -15.9%
Media Price: $205k
Yr/Yr Change: -17.3%
Forclosure: 63,052
MLS Listings: 92,993
Yr/Yr Change: 2.4%

Liz Ann Sonders Is Wrong: U.S. Economy Not Bottoming, TrimTabs' Biderman Says
http://finance.yahoo.com/tech-ticker/article/265999/Liz-Ann-…

In taking the opposing view, Biderman cited the following: Income tax withholdings are down 5.1% on a year-over-year basis, based on the Treasury's daily reports. "That's an amazingly large decline in income," he says, and a much worse than the 2% drop ahead of the 2001 recession.

That decline in income suggests the personal savings rate is not improving nearly as much as the Bureau of Economic Analysis says, because their analysis is based on lagging data.

More importantly, Biderman says falling incomes are going to make it very hard for Americans to make the $1 trillion in consumer debt service payments that are due annually. As a result, Biderman believes foreclosures are going to pick up again after the recent lull, with Alt-A and jumbo loans being the next problem areas. In addition, credit card default rates will rise sharply from their already elevated levels, he predicts, noting default rates at Bank of America increased to 12.5% in May vs. 10.5% in April.

"A significant portion of the $14 trillion of consumer debt is going to go bad," he says. "The negative implications on the [bank] stress test were nowhere near what's really going on."

And yet, with prices down and mortgage rates at historical lows the NAR commercials still says "It's a great time to buy". I wonder if their add runs in CA with 10% unemployment???

In California it looks like Q2 2009 is going to have the highest number of forclosure filings so far. The runner up quarter turns out to be Q1 2009. The housing market is going to continue its downward spiral. 10% unemployment is fire.

http://www.doctorhousingbubble.com/foreclosure-reality-check…

Maybe you can pick up a duplex in Bulgaria for 3 sheckles and 2 goats....no banks involved!

Egads, we have been discovered by Bulgarian and Indiana spammers, or is there another name for these leaches?
Update: I have 2 listings languishing. A condo and a 1/2 duplex. I have 2 pending sales, hanging by a thread, awaiting the whimsical banks to do their unpredictable thing. Buyers are looking and waiting. Uncertainty reigns over jobs, timing, rates, prices, appraisals. i have noticed some traffic from Trulia.com and from Zillow.com. The world is changing and some guy in Bugaria is selling lighting on this forum. I am taking myself out for a while. I want to study the commerce models for Bulgaria and will check back in.

In case it wasn't clear he serves the Northern New Jersey area but I expect this same type of action to be hitting mortgage brokers nationwide.

Last week I provided a few posts on what would happen to the refinance markets due to the spike in mortgage rates. There were a couple of articles there that discussed a collapse in the mortgage broker offices (mid-tier offices) due to milions in expected revenue that wont appear because the rates had jumped and people didn't have the proper rate locks on loans.

Here is some direct data from someone who works in a mortgage brokers office that supports those previous assumptions. Thanks to Clotpoll from njrereport.com for his observations.

...snip...
Anecdata:

1. Virtually every transaction in my office is now a short sale.

2. Several mid-tier mortgage shops in my area are declaring BK, based on the fact that last week’s bloodletting completely blew out multi-million $$$ pipelines. Today’s action is just piling on.

3. There are no new refi apps. There are very few new purchase money apps. When the borrower doesn’t hear a rate under 5%, they hang up.

4. Sales will be taking another disastrous leg down. This Summer will be the Summer of the living dead.
...endsnip...

Nicholas,

The current storm brewing up concerning interest rates has to do with the loss of interest in purchasing govt. debt due to the obvious reasons. (Too much spending... too much of a deficit.) When the Federal reserve has to print money to buy U.S. Treasury Bonds it's only a matter of time... Not only will rates go up... but the dollar loses it's value.

The Zimbabwe mess you mention is actually HyperInflation due to printing too much money and essentially made their currency worthless. http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

Following some of the overseas business channels shows that Europe and Asia (specifically China) see better opportunities then U.S. Treasury debt and the dollar to put their money.... rates need to rise to attract investors to pay for all of these programs that are not going to generate any real return on the investment in my opinion. (Not anytime in this decade anyways....) .... And questions are being asked as to how it's going to be paid back when we have massive obligations such as Social Security and Medicaid right around the corner. (2009 is the first year the more is being paid out in Social Security then is coming in.)

Good luck raising taxes when people are making less money.

Keynesian economics is what the current government is attempting to get out of the mess.

http://en.wikipedia.org/wiki/Keynesian_economics

"Keynes argued that the solution to depression was to stimulate the economy ("inducement to invest") through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.[2]"

I could buy that theory if the Government was spending money on programs that would really generate some income.

Unfortunately... we (the U.S.) do not have the money to artificially get us out of the bottom of the Austrian business cycle -->

http://en.wikipedia.org/wiki/Austrian_Business_Cycle_Theory

"The theory views business cycles (which they also call credit cycles) as the inevitable consequence of inherently damaging and ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings.[2]"

Here is a nice collection of articles on chinese sentiment that have been brewing this year:

http://markschinablog.blogspot.com/2009/03/what-to-do-with-c…

Read all of those articles and form your own opinion of what is taking place. I have mine since I've been watching gold/silver and oil go up in price.

I've also been following some of the overseas business networks and there are plenty of articles out there with opinions on the path the U.S. has been going on.... which basically in the end the message has been to get out of treasuries and the dollar while you can.

Yes... some inflation is good... kind of like if it would have happened in 2004 to put a halt to the buying/credit frenzy that started up to put it in check. (Austrian Business Cycle -- Low rates for too long creates a credit bubble.... But hey... we have to keep selling all of these houses because they always go up in price!)

Unfortunately..... right now is not the best time for interest rates to go up when some parts of the U.S. are just now experiencing the correction.

For areas that have been decimated in value, buy and lock in the rates now because there is little to ZERO evidence that rates are going to get better.

For areas just now starting to experience the correction... I would be expecting some very bad things coming.

The Fed can only print money and artificially keep rates low for so long until the Zimbabwe effect takes place.... and the growing sentiment that I see is that U.S. Treasury Bonds are not the best place to be...

Think about all of the borrowed Money being spent on programs such as GM, bailing out California, Performing Arts centers, etc.... Does anybody really think that these are going to generate a return on the money? If you do... I have a bridge to sell you.

The only way Keynesian economic policies work is for projects such as building a Hoover Dam, offshore drilling, etc.... things that will actually someday have a return on the money invested.

Unfortunately... economic policy today has too much money being used on programs that benefit loyal supporters.

Zack,

I noted before that if inflation starts up again at 3-5% per year as we have seen in the last 30 years then the savings rate will go to zero again. It just doesn't make any sense to save with inflation eroding the money you have put aside. This is strictly a policy decision by the U.S. Government to help them manage future obligations and control the way money flows. Inflation causes you to "spend-now" on improvements and capital investments rather than sit on the capital and wait.

It isn't a question of stupidity that keeps people from saving for a rainy day. In fact it was the direct opposite, intelligence, that keep people from properly saving.

So, inflation in a moderate amount is good for stimulating the economy and getting money to flow to the sectors that most deserve it. For example, old people just sitting on their money waiting to die does us no good so lets let inflation slowly transfer this wealth from them to new people. Inflation in too high amounts causes severe problems as we can see from Zimbabwe because the erosion of purchasing power throws everyone into abject poverty. The question then becomes "how much inflation is too much?"

Sadly I don't think that the FED will abandon the policy of inflation and thus this return to saving is only temporary.

Hopefully the shift is permanent, not just people being scared in this economy. I'm sick of reading about the coming retirement apocolypse becuase people are too stupid to save anything.

Paul,

Kudos on finding that calculated risk article about MEW and personal savings rate. The savings rate has jumped to 5.7% recently and the MEW has drastically fallen off. This indicates a huge paradigm shift in American thinking/spending.

For us.... it's often far cheaper to buy then rent so it's kind of a no brainer --- especially with the incentives.

Higher interest rates are on the way though.... along with a flood of new foreclosures due to the foreclosure moratoriums that were put in place so it's a real possibility that prices could continue to fall.

We have people running around here acting like there will never be another home for sale and buying anything...

I just say be selective and don't get caught up in emotional bidding wars...

Anyways.... as far as the U.S. Economy... take a look at this post from Calculated Risk:

http://www.calculatedriskblog.com/2009/05/mew-consumption-an…

Take a look at the U.S. Savings Rate chart tracked from 1929 and then the Mortgage equity withdrawal chart that shows all of the equity taken out of homes during the boom. (Or... why we built a Starbucks on every corner and built more Mega Resort Casinos in Vegas during the 2002 through now period then the previous two decades combined.)

Add that data to all the BK's, (which by the way... is not a lagging indicator since all of those people will not be buying anything anytime soon), Credit card defaults taking place (highest on record) and all of the people that have been foreclosed on in the past year or two.... and all of the homeowners currently in default or in the foreclosure process (1 in 8 from the latest reports from the Mortgage Bankers Association)

http://www.reuters.com/article/bondsNews/idUSN2832609020090528

In other words.... there are a lot of people that can't buy even if they want to. (Sadly... I just came across a buyer who has no credit because they've paid everything in cash for the past 5+ years, have no debt and they have no trade lines and can't get a home loan??? What a wonderful system the banks have created.)

And now.... I'm coming across homeowners who have done a loan modification where the actual mod. is just a temporary interest rate reduction and the unpaid principal is just added on to the balance for a couple of years. (Basically.... extending/delaying the inevitable and one particular homeowner already told me how they were going to play that out which makes me wonder how many others out there are just going to do the same thing.)

And then... let's throw in the out of control spending and deficits taking place by the Govt and we have a catastrophe in the works when it comes to any future means of raising capital without printing money....

I do say buy.... but only if you will be saving or making money from the alternative choices available and not thinking that prices are going to go up anytime soon.

It's a lot more complicated though then just saying "big discounts" from the inflated prices, everybody is buying, low interest rates, etc... etc...

Which is really not too different from 2004 when "everybody was buying", interest rates are low, real estate always goes up in price and we are running out of land....

The risk of loosing your job, not the risk of everything in life happening. You are correct with the savings cushion as insurance against the worse. And the incentive to save by not taxing interest income is also good. Nice going.

There are people buying. I just came from a closing and both attorneys were talking about investment properties they'd picked up or where negotiating (for themselves). So the bottom line is, there are people who seem want to wait until sellers pay the BUYERS to take the house off their hands before they stop renting. I have no problem with that, it's a choice, but many others are making the choice to buy.

Carl,

I think you might be mistaken. I am the cheery one. Home prices are comming down to levels that people can affford again. The economy is righting iself so that we can have a stable base to begin to build profits. The savings rate of the average American has reached 5.7%.

I am positive! Home prices will continue to decline and that dream home you always wanted will finally be realistically achievable instead of a death trap for your life savings!

I'm not sure why you think insurance is the solution to this risk problem. The solution is that the average family should have 6-12 months of living expenses in savings anyway. It is just unfortunate that the FED has persued a policy of inflation at around 3-5% (official, much higher realistically) for the last 30 years penalizing savers.

How about we stop taxing interest on savings accounts up to a certain amount of your yearly income, say 50% and that way you would be incentivized to build that buffer instead of getting ripped off by a company providing insurance.

So.....Is Norman Vincent Peale a buyer in the current market?

Nick and "Chicago Carl", aren't you the cheery ones. What if we all spun the tale with positive outcomes rather than, "Yea, but what if this or that happpens?" Norman Vincent Peale said, positive thinking is powerful. In the bizarro world, the opposite would be true- negative thinking brings bad results. I think we are in a bizarro world here on Trulia.
What if a real estate broker offered a deal like the auto company that offers to take the car back if you loose your job: Loose your job and we will pay your mortgage for a year. (After you buy a house of course.) A small premium for a single event of risk, with the risk limited to 12 times the mortgage payment. I think there is a market for that. Or, what if houses were priced in tiers: A- list price with seller paid home inspection, full lender appraisal. B-LP less 5% to close in 30 days. C- LP less 10% for 20% conventional financing. D-LP.
E- Any offer that closes receives 42" HD-TV from seller plus cable for year ($3500). What else?

"homes that are selling are going for big discounts" Big discounts compared to what? I don't give a toot that homes are selling for 50% off 2007 prices. IF 2007 PRICES WERE UP 300% SINCE 2002 THEN THE "BIG DISCOUNT" DOES"T LOOK SO BIG DOES IT? Your not selling me on the discount idea."

Nicholas,
I believe that your statement, is the understatement yet on this 3117 answer thread.... Everyone forgets about that 100-300% run up.

A lagging indicator but interesting anyway,

U.S. business bankruptcies rise 40 percent in May
http://www.reuters.com/article/GCA-Economy/idUSTRE5516FX20090602

“There were 7,514 commercial bankruptcy filings for the month, compared with just 5,354 during the same month a year ago, according to Automated Access to Court Electronic Records (AACER), a database of U.S. bankruptcy statistics used by attorneys and lenders.

I love it, I love it, I love it.

Buy now because homes are so affordable with the 8,000$ credit and low financing rates!!!

"if you are financially stable -- the current market creates one of the best homebuying markets in history" The current market doesn't make the best homebuying market in history. None of that statement is true. There is a huge certainty that 2011 and 2012 will be better then 2009 and 2010 to buy a house. There is also a very large probability that 2016-2018 will be one of the best homebuying markets. Am I advocating that you sit on the sidelines for three years? Yes, good things come to those who wait.

"Interest rates are at an all time low -- so your money goes farther" Yes, this is true but the sad reality is that EVERYONES money goes farther so all that ends up happening is you pay more for the house. If you paid less for the house but at a higher interest rate then you could refinance when interest rates come back down. Although it seems counter-intuitive the best time to buy a house is when interest rates are high.

"Even if you are selling and have to sell for a price lower than anticipated, you will make it up on the buying end by being able to purchase a home at a lower price than maybe anticipated. " Ahhh, the move-up buyer strikes again. The problem is that move-up buyers have to be supported by new homeowners. The new homeowner has been excluded from the market for years and now you want that support back. News Flash, prices are going to have to decline for that to happen, the American Consumer is tapped out.

"I think the best time to buy is when the future looks darkest and uncertainty is all around" The best time to buy is after full-capitulation in the housing market. Don't try and catch a falling knife you are just going to get cut. Since housing is an illiquid asset, not a stock, the rebound in housing prices will take a long time. That means that once housing prices stop falling and inflation stops chewing up equity then it is time to move into the housing market.

"homes that are selling are going for big discounts" Big discounts compared to what? I don't give a toot that homes are selling for 50% off 2007 prices. If 2007 prices were up 300% since 2002 then the "big discount" doesn't look so big does it? Your not selling me on the discount idea.

With unemployment still growing and foreclosures increasing, it is going to take some time to get through this mess. That said, I think the best time to buy is when the future looks darkest and uncertainty is all around. The homes that are selling are going for big discounts - especially the foreclosures and short sales. Rates are still low and the first time home buyer tax credit gives an extra incentive to moving in now. New homes aren't being built now, and when the market turns, and it will, I think we will see sharp increases in prices. I think it's a guarrantee that rates will be higher, too, so the affordability now will be hard to match. We probably aren't at the bottom for the entire market, but buyers aren't buying the entire market, they are buying individual homes. And I am seeing prices I never expected to see again.

a Chinese machine shop that hopes to be a car company, I believe.
Carl from NJ

Paul,
I lost my bet with my friends....I figured Tata motors from India to scoop up Hummer for pennies on the dollar......Who would have thought the Chinese would buy Hummer!.....

;-)

Newbie Marge,
To the end of the line, we have already been there, two years ago I think. You will realize that we agents are shills for the NAR and their mantra of "now is a great time buy", when our opposites warn of foolishness to buy a house until the market bottoms, and renting is the only alternative for smart people. There, I have pre-empted you from being lambasted.
Now, what else can you contribute?