THERE'S A SAYING whispered among grizzled real estate vets: Don't try to catch a falling knife. It's a tricky move, and if it's not timed perfectly, the results can be bloody. The housing market's current woes are tied, in part, to potential buyers' fears of getting nicked. The national median home price is widely expected to decline this year, for the first time since 1950, but many forecasters believe that prices have further to fall — and nobody wants to buy a "bargain" house only to see its price keep sinking. Anyone who's recently tried to sell a home, of course, has already felt the pain. The pace of sales slowed to an eight-year low in September, and rate cutting by the Fed isn't expected to turn things around very quickly. For starters, there's too much supply in the housing market. Homebuilders are sitting on 10 months of inventory, and the deluge of foreclosures, up 115% this year over 2006, only aggravates matters by flooding the market with cheap housing stock.
It all may sound like a real estate shopper's paradise, but it still has buyers wary. Wall Street's aversion to mortgage risk is shrinking the pool of potential buyers even among the affluent, by making it more costly to obtain jumbo mortgages, loans of more than $417,000 that Freddie Mac and Fannie Mae won't guarantee. Jumbo rates typically run a quarter of a point higher than smaller loans, but the spread has exploded to close to a full point on average. On a $500,000 30-year mortgage, that point can cost an extra $125,000 or more over the life of the loan — erasing some of the savings a buyer might see from falling prices.
All real estate is local, of course, and not all the news is grim.
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