My Father-in-law also agrees with you but pointed out one other factor, that as inflation heads north interest rates will go up, possibly significantly. I know there are several other factors pushing up rates as well.

He advised that it may be wise to test the waters with lower offers to see if we get any bites, a sort of hedge against further price drops. Something which he and everybody seem to think is likely.

He thinks if we plan on staying in the home for 5 or six years we may come out ahead even if the first couple are upside down.

Any thoughts on his advice?

Dave’s response:

Keep us posted, & feel free to contact us if you want a referral to a good I.E. agent.

Dave’s response: If I were you, I wouldn’t be in any hurry to buy, especially in the I.E. right now. With the continued onslaught of foreclosures and buyers making their normal summer - winter slow-down, I expect prices to take another step down over the next five months. The rising cost of gas plus the abundance of REOs makes the Inland Empire especially vulnerable.

Save up a down, get pre-approved (not just pre-qualified), buy your Christmas gifts & address the cards now, & start looking 11/1 and writing low-ball offers 11/15. Unless it looks like we’ve got another year to go at that time.

The term for what you are talking about is “price fixing”
The problem with locking any prices (which
is what an interest rate is) is that you can’t
control every level of service involved in bringing
a product to market.
This is what people should have learned from the rolling
black-outs. With the rolling BO’s they regulated the price
allowed to be charged to the end user, but as the supply
became more expensive due to, wage increases, insurance
fees & hundreds of other direct & overhead expenses the
power companies were no longer able to supply energy
at a profit to the consumer.
Every example that I know of where government
tried some form of price fixing resulted in the same thing,
catastrophic failure.

“I’ve wondered about an FDIC-like government insurance to back the PMI companies and/or mortgage backed securities that comply with certain requirements. That would add a layer of regulation and hopefully restore liquidity as investors became more comfortable with mortgages again.”

People blame the problems that caused this mess yet aren’t ready to see the market fix itself. You cannot remove the fundamentals (historic low interest plus creative financing terms plus absent lending standards) that caused this housing bubble and expect that prices don’t correct. Liquidity will come as the market dictates.

Would you give somebody $800,000 of your savings for a 80% LTV purchase? I sure would chose the people I finance very carefully. Given my outlook for the OC Real Estate market I’d rather go with a 55% LTV term for qualified borrowers. Wouldn’t you?

We need a healthy correction. After the recent run-up in home prices we should see home prices correct to 2001 levels and still consider that part of the healthy correction process. Many don’t agree with that but many didn’t agree with me either when I encouraged people to sell in the 3rd Q of 2005.

You’re suggesting an insurance to back PMI companies and mortgage securities but wouldn’t that just “subsidize” that we continue on the wrong foot? And who pays in case things go south? Are you ready to pay $8 per gallon due to inflation which is caused by the Fed through the creation of more money out of nothing? What will a continues 12+% annual inflation rate due to the affordability for the housing market?

And as far as the FDIC insurance goes…that program is full of flaws and someday soon people might find out again what it means to lose money due to bank failure. Netbank has given us a sneak preview of what is to come.

As for # 4 on your list, checking income with the IRS has been in place for self-employed borrowers for years–that’s one of the things that led to the “no doc” loans from World Savings I mentioned in the article. Action-Reaction.

I’ve wondered about an FDIC-like government insurance to back the PMI companies and/or mortgage backed securities that comply with certain requirements. That would add a layer of regulation and hopefully restore liquidity as investors became more comfortable with mortgages again.

The programs you mentioned above all came about because Congress dictated it. You can Google ACORN, AMERIQUEST and you will find a short clip about what a great company Ameriquest is and how in conjuction withACORN they offer a no down 100% financed loan. And the ARM’s with 1 year teasers were just what the doctor ordered for flippers building property ladders.

And then MECHA got into the act and suggested that Banks offer 100% financed loans with no docs or even a social security number! But what the heck, they were going to package the stuff and sell it to Wall Street who would then sell it to the Hedge Funds etc. Everything was fine because at the time the Case/Shiller index showed housing continuing to rise, until May of 2006 when they noticed that the index was getting wobbly at the top and decided to tweak the algorythm.

Well guess what, the index began to plummet and with Greenspan jacking the FED Rates up it was the perfect storm. Was this caused on purpose? I don’t know but when you consider that Citigroup now owns the remnants of both New Century and Ameriquest, you got to wonder.

Dave’s response:

Right on the money–thanks! Important details–I’m adding a reference to your comment in the body of this post. This is a perfect example of how we want this blog to benefit from the insights of our visitors.

BTW, Case-Shiller is an ultra-lagging index because appraisers are using closing data that can go back up to six months, which means it could have opened escrow up to 8 months ago. Not the best index for anyone to use to predict future performance.