Depending on who you believe, the proposed $700 Billion “bailout” currently stalled in Congress is either a reward for greedy and irresponsible Wall Street Bankers, or is a noble effort to stave off a long-lasting depression to our economy.  In reality, it’s probably a bit of both.

As I write (October 1, 2008 8:20am) it is unclear whether any such plan will pass Congress.  And, how will your home’s value be affected if the plan does pass?  If it doesn’t? And, more to the point, if you are currently selling your Howard County home – or thinking about it – how will you personally be affected?

(By the way, the single best article I’ve found to explain the “bailout”, or the Troubled Asset Relief Programme [TARP], is on The Economist website).

There Will Be Fewer Home Buyers

Whether the proposal passes Congress or not, there will be fewer home buyers than there are today. Credit markets have tightened already – but they will be even tighter in the future. If the proposal fails to pass, lenders will be even more severe in their requirements than they are today.  Expect to see 10% cash down payments required of buyers (rather than the 0% or 3% of yesterday), higher credit scores and tighter home appraisals.

Mark Twain said, “Once a cat sits on a hot stove, he’ll never sit on a hot stove again… but he won’t sit on a cold one either.”  This will describe lender behavior in the future.  Having lent too much money to poorly qualified home buyers, they will “correct” this by lender very little money, and only to extremely well qualified buyers.

But, what if the proposal passes Congress?  If that is the case, it may be better for the housing market than a failure to pass would be, but it will still mean a decrease in lending over what we have seen up until now.   With lenders relieved of much of their current bad debt, they will still be reluctant to loan money in the future – though they’d be more willing with a bailout than without one.

Prices Will Continue To Fall Or Remain Flat

I have sold real estate in Howard County for 20 years and, among my close friends and associates, no one is predicting any increase in home prices for at least five years. This is based on multiple factors, including the trend of 1990 – 1998 following the last seller’s market in our area (1985 – 1988), and based on our (still) inflated cost of purchase versus rental value ratio. (See recent Howard County home price trends here).

Simply put – prices can’t rise until both lenders standards loosen (which won’t happen anytime soon) AND wage/price inflation catches up to our high home prices (relative to the rest of the economy).

For an article on Howard County home price trends – and seller strategies for our current market – click here.

So What Should You Do?

If you don’t need to move anytime in the next 5 years or more, don’t fret.  True, your home’s value may fluctuate, but it only matters at the point you decide to sell. And, relatively speaking, Howard County home prices have traditionally been one of the more stable in the country.

However, if you plan to move or need to move in the next year or so, my advice would be that sooner is better than later.  And price your home to sell quickly – because any delay in selling will likely cost you even more, as prices decline further.    Click here for a FREE, no obligations market valuation of your home’s value.

You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.