Head Slapper

I had one of those senior moments today.

Last week while running market stats for an appraisal in the Cuyahoga Falls (East) MLS market aea, I made the discovery that since the beginning of 2007 (actually, it began in the last quarter of 2006), mean sales prices in that market area have declined at the rate of about 1% per month. Because of that, I adjusted the sales prices of the comparables accordingly.

It was not until today that the impact of what I had discovered hit me. Consider this : a buyer signs a purchase ageement for a home in that market in January, using either FHA or conventional financing with 3% down. The deal closes at the end of March, and his first mortgage payment is due April 30. By the time he makes the first payment, he owes more on the home than it is worth; he has lost all his equity between the time the agreement was signed and the date of the first payment.

Worse yet, with listings running more than 3:1 over sales in the CRIS MLS area as a whole, and considering that today there is a 10 month unsold inventory in Cuyahoga Falls (East), a person buying a home in that market with a 10% downpayment risks losing all his equity before the end of a year.

If you have a secure job and are reasonably sure that you will not have to move in the next five years, buying a home now is probably -- again, run the numbers carefully -- a move at least equal to or better than renting, since the gloomiest prognosticators are anticipating the decline in sales prices to stabilize by mid-2008 (Elections ae coming! Elections are coming!). After that, the next 3-1/2 years should provide some recovery in pricing and coupled with the amount paid down on the mortgage, the buyer should be able to break even.

Otherwise, this does not appear to be a good time to go into debt, even to buy a home.