Believe It or Not, Now May Be The Best Time To Buy a Home

Consumer confidence may be rebounding a bit with the inauguration of Obama, and the impending conviction of governor Blagojevich. Hope on the national front that Obama's recovery plan will work, and new leadership in Illinois raises optimism. Consumer confidence is key to any rebound in the housing market, however the factors are numerous that affect the housing market.

The forecast in Springfield Illinois is for flat to negative job growth, there's massive budget shortfalls at city hall and the state capitol, there's fear of oil prices rising, the agricultural community suffers from falling commodity prices, and the non-stop drum beat by the media through the election and up to today harbors fear about the economy. This is not to mention TARP bailout plans that are costing trillions, and highly suspect as to effectiveness.

There's no wonder consumer confidence is shaken, and consumers are cautious. Obama has now proposed nearly another trillion dollars in spending that many argue won't create the impetus for economic recovery and massive job creation.

Following the questionable TARP spending of the Bush administration, now comes another proposal for an equal or greater amount to be spent? In a perfect world the outcome will be a renewed economy, job growth and prosperity.

History has shown that this approach has failed at every occasion. Could this attempt at big government intervention into the private market produce the desired outcome? We better hope so, or we have to be prepared for real economic hardship.

We will have to take a wait and see approach as to the effectiveness of this deficit spending, and government intervention into the private sector. The question is; what if it doesn't work?

FDR's New Deal is credited for pulling the nation out of the Depression. That is false. WW II pulled the country out of recession. When FDR took office unemployment was 19%, and rose to 25%. Following eight years of the New Deal's most massive government spending, to that point in our nation's history, the unemployment rate was still at 19%.

Then Secretary of Treasury Morgenthau testified in May 1939: "We are spending more money than we have ever spent before, and it does not work....I say after eight years of this administration we have just as much unemployment as when we started....and an enormous debt, to boot."

Here should be the major concern; what if Obama's plan doesn't work? Where is the money coming from to fund all this spending? Government borrowing and printing money. The result of flooding the money supply, which devalues the dollar, is rampant inflation. Don't be fooled by the current strength of the dollar. This is the result of other currencies declining in value.

Obama spokespeople have said it may take a couple years for his plan to take effect. If this is true and unemployment continues to rise, and revenues fall to the government while spending increases, the dollar will decline in value, and the Federal Reserve will have to raise interest rates to fight inflation.

Remember the 1980's when Volcker strictly controlled the money supply, and interest rates climbed to 21%? If history in fact repeats itself be prepared. We could see double digit interest rates by the end of 2010 or in 2011.

For you who were not around to remember the 1980's, no one could afford to buy a home at 21%. Adjustable rate mortgages were born during this period, and other methods of financing were employed such as wrap around mortgages, or there would not have been any home sales. The housing market was in depression, unemployment at 13%, and interest rates 21%. It was the Reagan tax cuts that reversed the economy as WWII did for FDR during the Depression.

The driving force in today's housing market are interest rates. Any homeowner that can fog a mirror with a mortgage is refinancing at 4.5% to 5%, if they can. Many are being denied because their home won't appraise due to the foreclosure phenomena dragging down prices.

What will happen if interest rates reach 10% or higher for mortgages as the Fed battles inflation? Anyone with a mortgage at these historic lows won't trade for double the interest rate. They'll stay put. This will stifle demand for housing for however long it takes the Fed to get inflation under control. If history repeats itself, it would take about five years of high interest rates to tame inflation, while the housing market suffers.

Many consumers have a difficult time putting their arms around the notion that the best time to move up is in a down market, however it is. You certainly will not sell your home at the price as during the boom, but you also won't being paying boom prices for your next home!

For the sake of example say prices have fallen 10% across the board. Your $150,000 home will now sell for $135,000. The $250,000 home you've always admired will now sell for $225,000. Do the math, you realize a $10,000 gain for moving up in this example. The icing on the cake is you will also finance this home at historically low interest rates saving tens of thousands on interest over the life of the loan. Yes Virginia, it is opportunity time!

If the Obama plan works this is all a moot point, and the economy will recover. Not to be a pessimist, but will you bet the farm that massive government programs will be effective for the first time in history? Anywhere?

If history repeats itself, and the plan fails to create the intended results; today to the point interest rates begin the rise to battle inflation, will be your window of opportunity.

That is if you want to save thousands on the purchase price of a move up home, and save even more at these unprecedented interest rates. Better hurry, these rates may not be around long. In fact it only took fifty years for the rates to fall back to 4.5% on thirty year mortgages. If you are in grade school, you have the time to wait!

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