Everyone wants to know how far we are from the bottom. Buyers are eager to know when it will be safe to purchase a home. Sellers are eager to know how long it'll take to weather the storm. Is it safe to go back into the water?
Perhaps not... And here's why. When the market started showing signs of collapse (mid 2006), many homeowners who were already in adjustable rate mortgages (ARM) quickly refinanced their homes into new ARMs that were fixed for 3-, 5-, or 7-year periods.
Since then, mortgage interest rates are up (slightly), and home prices are falling (significantly). So, when the interest rates on mortgages that were refinanced for a 3-year fixed period adjust (mid 2009), there may be a new wave of foreclosures. Why? Because the homes will not be worth the outstanding loan balance, which means you can't (without coming up with a lot of money) refinance the home. Two years later, when the 5-year fixed period mortgages adjust (2011) you may have another wave of foreclosures. The cycle could continue, and affect the 7- and 10-year fixed period mortgages as well in 2013, and 2016 respectively.
Does this mean I'm saying don't buy until 2016? Absolutely not... There's no way to know whether the Federal Government will be able to stop this from happening, or whether the number of foreclosures will be enough to push prices down further in 2009 or beyond...
It is worth considering though...
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