Shelter Shakeup

Since the housing market has taken quite a hit over the past couple years, and the Fed and the government has taken drastic measures to try to revive the market, the big question is what lies ahead for buyers and sellers for the next two, three, ten years. Only time will provide an accurate story, but there is no shortage of guesses from prognosticators. While buyers are enjoying low interest rates and sellers are smiling at the first time homebuyers trying to take advantage of the $8,000 credit, buyers and sellers will be frowning at what the future may hold, perhaps within the next year.

So lets look first at the present situation. Low interest rates make refinancing more attractive for current homeowners looking to refinance. Ironically, that was one of the forces that pushed the needle into the housing bubble. First time homebuyers taking advantage of the $8,000 tax credit have until December to sign the papers saying they will take over an asset that will lose its value for a couple more years. Sounds like a great idea to me.

Sellers are not selling their houses for as much as they would like because they bought their houses 5 years ago thinking that they could double their equity three years later. These are probably the same people who invested their life’s savings into Bear Stearns stock. Sellers are happy about the attractive deals that are out there for homebuyers though because that means two more people are willing to at least drive by to see the exterior.

The future seems to look a lot more bleak for both of these groups.

With the lowest interest rates ever, and all the money that has been pumped into the system, rates will go up, a lot more than the average Joe is going to realize. Economists are thinking perhaps 7.5% to as much as 15% within the next year or two. This would be necessary in order to curb inflation. We do not want to become the next Zimbabwe. But with all the money that was pumped into the system, would 15% really be enough? But lets just say interest rates rose to 15%. Would you take out a loan to buy a house? I think I speak for most when I say I wouldn’t unless the sellers dropped their asking prices. So that is exactly what will happen.

Housing prices will drop so that buyers will drive by to see the fresh paint on the exterior. Sellers will lose a ton of money selling the house, and buyers are going to grab their ankles as they volunteer to pay high interest rates on their mortgages.

The positive side for sellers is that if they sell their houses soon, they could just invest their money in a really strong company, perhaps General Motors.

So what does this mean for homebuyers in the future? If you have the money to throw down on a house in a couple years when housing prices may hit bottom, it may not be a bad idea. If you don’t have enough money for a house, good luck. You could just invest your money in another really successful company, Ford.

If you bought a house recently because houses are cheap in order to make a quick dollar in a couple years, you may make your quick dollar, but you’ll probably lose several thousand in the process. That means you won’t have that extra money so that you could invest in the booming company CROX.

My plan is to wait a few years to buy a house. I’m sure I can get one for a low price since the mortgage rates will be high, and I’m sure by then, there will be even more tax credits, government programs to help me get into a house for dirt cheap.

Disclaimer: If you happen to get rich as a result of my brilliant stock tips, it is your responsibility to share to profits with me. My investments in Washington Mutual, Sirius Radio, and Las Vegas Sands two years ago hasn’t panned out for me. You can’t go wrong because it can’t get any lower, right?

Next weeks blog: Abrupt bankruptcy?