Potential home buyers: Wait!

The housing is bad and it may get even worse. A strengthening US economy and ever lower US dollar will keep inflation pressure high in the next 12 months. The Fed is very unlikely to lower interest anytime soon. So if the housing market in your area is already weak, it’s quite unlikely to see any meaningful improvement in the near term.

In additions, according to a BofA report, the amount of adjustable rate mortgages waiting to be reset in interest rate is set to rise sharply from Jan.07’s $20B to June’s $42B to next March’s peak of $115B. With housing prices dropping and lending standards tightening for new loans, a scenario of more defaults and foreclosures is a strong possibility in the next 12 to 18 months. This will help the housing market either.

Home builders may take more dramatic measures to reduce their inventories. They will bottom out first. But don’t expect a “V” shaped rebound in the general housing market. There are simply too many houses available for sale. Until the inventory of unsold homes drops in a meaningful way, home prices will remain steady or keep going down for a while. The basic economic rule of supply/demand relationship driving price directions is never wrong.

Sometimes doing nothing could be your best decision.