How does the bailout affect the housing market?

Today the legislature is scrambling to balance a rapid response with careful consideration and analysis of the giant economic problem the country is facing.

The bailouts are an ugly, distasteful "remedy" to a problem which was absolutely avoidable. The US Congress have earned their rotten approval rating by basking in the glow of short-term easy money and prosperity while the reality train barreled toward us at breakneck speed.

Well, the train has hit. History shows that congress failed to act with regulation of the secondary mortgage markets back in 2005 when Senators Dole, Sununu and McCain submitted S.190 to do just that - only to have it killed by a party-line vote by house democrats.

Without regulation, no surge like the housing bubble could be allowed to continue without a market-driven correction.

But a market-driven correction this significant would be devastating. So congress steps in again - only this time they're too late to offer anything but a socialization of risk to offset years of unfettered private profit.

But this is a real estate blog - not an economic or political one - although the three seem braided together of late. So how is the local real estate market affected?

1. Increased confidence in the secondard market will make mortgages more available. The government takeover of Fannie May and Freddie Mac will likely have the intended effect. In the short term, this should give institutional investors the confidence to purchase mortgage backed securities. This means less supply and more demand, which should make more mortgages available to those with the ability to pay them back.

2. A weak dollar makes capital investment more attractive. To call an investment in real estate "stable" right now may seem ridiculous - but it is largely accurate. Sure, things really stink, but they've consistantly stunk. Inventory numbers in the Portland area since Februrary have been between 9.2 and 10.4 months. This is a remarkably tight range for such a long period. A capital investment in real estate is a good alternative to the volatile stock market.

3. Increased supply creates buying opportunity. The high inventory numbers have created strong price preassure, giving buyers more for their money.

4. Real estate has always been a good long-term investment.

5. The temporary spike in liquidity in the market will keep mortgage rates down - but when the correction takes hold they will have to go up to fight the inevitable inflation. Locking in at a low percentage rate on a nicer home now will result in a lower payment than if you try to do it later when the dollar strengthens.


What do we need more of?

We need a higher availability for bridge loans - or some kind of tax credit for carrying costs - to break the deadlock of needing to sell one property before purchasing another.

We need assurances that these bailouts and government takeovers transition back to private ownership with oversight vs. public ownership. We have crossed the line into socialism with these bailouts and takeovers - which is not healthy for a free market economy.

The best move to make? Rent your home and move up the hill.

Consider renting your current property and moving "up the hill" a bit. In the portland area, homes in the 400-600k range have been hit especially hard by downward price pressure and short sale competition. Upgrading now to a $500,000 home in Happy Valley will get you the same amenities as a $700,000 home bought in 2006.

The rental market is particularly robust - as families unable or unwilling to get back into the market find refuge in renting single family homes. You won't have captial gains taxes if you lived at the address for two of the five years prior to selling it. Renting your current home for a year or two to wait out the market conditions can be a smart move.

This is the same strategy I used in 2003 to combat a different problem. I had a condo in SW Portland which was undergoing exterior rennovations. I rented it out until completion of the project and purchased another home (which I still live in today). I was able to realize a much higher appreciation by waiting out the large siding and decking project - much like a homeowner can try to wait out the high inventories for an improved market condition today.

Call me to talk about it - and what I can do to help you find your next home.