Is this the time to buy? What if prices drop more?

Buyers are panicking at the moment. They are running out of homes to buy!

In Sacramento there is only 2.3 months of inventory under $300K (if buyers maintain their present rate of snapping up homes, we'll run out in 2.3 months).

In Fair Oaks it's not much better... 2.4 months to sell 'em all out.

That means if no new homes come on the market, we'll be out of homes by summer. Basically economics says when supply goes down prices go up.... like skyrocket up, in this case. EEKKKK!

HOWEVER... don't look now, but there is a wall of new inventory charging from behind. Maybe an avalanche of homes. You see, California has had a moratorium on foreclosures since December of '08, which means very few new bank foreclosures (REOs) have come for sale. And the moratorium keeps being extended.

In the mean time, many owners are getting further behind on their payments. What seemed like a good idea to give the poor homeowners a break, allow banks time to adjust to the new regulations, and to encourage loan modifications, has also let the steam build up. Foreclosures are backing up, and when they blow, it could be big.

There are currently 7,648 homes scheduled for foreclosure in Sacramento County, according to Foreclosureradar.com. There are another 3877 in default. Currently only 1139 REO's are listed for sale. You do the math!

What effect will this rush of REO inventory have on our market? Well, professor.... I think when supply goes up, prices go down, right? Very good... You get an A.

So where does that leave a buyer today? Do you buy, or wait?

The answer revolves around interest rates. Right now, they are UNBELIEVABLE. Like 5% and below. A 1% increase (to 6%) would result in the same payment as a 10% drop in home prices. Shocking isn't it? So you get a loan today for $200K, you'll pay $1074 per month principle and interest (approx). Prices drop 10% and interest goes to 6%, you'll pay $1079 per month for your $180K loan! The same, only different.... no, the same. (OK, I'll throw in the extra 5 bucks).

So my answer is Yes... go ahead and buy now. IF you can get one! Interest rates are a huge component of the mix and can't be ignored. Throw in the effect of the up-to-$8,000 Federal Tax Credit, and you can't loose (only 7 more months on that one). And even if the onslaught of REOs bring prices down more, you will most likely be ahead in the payment game, since you got such a good loan.

Flickr photos by Krassy Can do It. (Can do what? Buy a house?... Call me, Krassy!)