Tuesday, October 04, 2005

Slowing Is Seen in Housing Prices in Hot Markets

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Last Thursday the Wall Street Journal came out with a piece on how mortgage lenders are tightening their standards on who they will issue loans too, this is an indication that the banks were making too risky of loans, but also it is an indicator for the housing markets as tighter credit standards lead to less people able to buy a home. Translated this means there may be less demand, combine this with rising interest rates and already high home prices (not to mention regulatory problems with Fannie Mae) and you have set the premise for the above linked article by the New York Times.

I am not saying a crash is imminent or that their will even be a crash, but if it hasn't already happened you will see some cooling in the hot markets. You will see more houses on the market, for longer time periods, and prices going lower - not higher (usually because they set their price to high to begin with).

Another problem is high gas prices, people are much less willing to live further away from their work if the extra savings they get is eaten up by transportation costs.

All I am saying is be careful, if you're buying a home to live in, make sure you have a long time horizon and that you can truly afford the place. If you are a renter, make sure you can cash flow the property - and make sure you have enough in reserves.

Scott Dauenhauer, CFP, MSFP