Part I - Selling Your Home During Today's Housing Recession  

As the federal government contemplates the largest financial bailout in world history to the possible tune of $700 billion, many anxious would-be home sellers asking themselves “how long do I have to wait to sell my home.”  The anxiety in the air is palpable.  So how should you think about this situation if you are indeed wanting to sell?  

How Long Do You Have to Wait to Sell Your Home?  

The short answer, of course, is that no one knows when housing prices will return to their formerly inflated state, and as of this writing in September 2008, they are still on their downward trajectory.  Despite what the National Association of Realtors claims about the US never having experienced year of year declines in house prices before, there have been many regional and statewide housing recessions which can guide us… as we ask ourselves how long do I have to wait to sell my home.

In the early nineties, California experienced a housing recession.  Brought on by a host of factors, not the least of which was a slashing of the national defense budget which forced closures of military bases around the state, it hit all parts of the state and put transactions at a virtual standstill.  Unlike the current crisis, prices slowly slipped down 1 to 2% a year from 1990 to 1996.  Like death by a thousand paper cuts, homeowners patiently waited for an upturn which did not begin in earnest until the explosion of the Internet in the late 90’s.  Meanwhile, they waited every year hoping their homes would increase in value for a change instead of slipping further. In the eighties, parts of Texas experienced a serious housing recession as the “oil patch” dried up and people moved away from areas like Houston.  Prices in those regions did not fully recover until…gulp…pretty recently.

Is this Housing Recession Different?

So how is this housing recession different?  For one, this housing recession is more or less across the board.  This one was brought on by fault lending standards.  Remember your friend?  You know, the one who got laid off as a software engineer in 2000 and then became a mortgage broker?  Remember how he showed your other friend, the part time waitress, how she could afford a $250,000 home by paying less than even the interest due every month with one of his new fangled “negative amortization loans,” and that she should not worry because the price of the house would go up so much that she could always sell it in a week if necessary for way more than she originally paid? 

Well this was the cause of the problem. The fact that she could even get such a loan in the first place, and believe the hype about homes always appreciating, led to a massive bubble in housing prices.  Because by believing homes always went up in value, it made it a no brainer to pay whatever was necessary to get a home now before the price was out of reach.  Meanwhile, the mortgage broker made a commission on the loan by selling it to the quasi-governmental agencies we have heard so much about lately:  Fannie Mae and Freddie Mac.  Fannie and Freddie repackaged all these loans from people who really couldn’t afford them, called them “mortgage-backed securities” and sold them to investors all over the world. 

Why?  So that their executives could earn nice bonuses.  Then, a few years later when waitress’s teaser rate on her loan expired and her payment doubled and she defaulted on her mortgage payments, the investors who thought these mortgage-backed securities were safe realized they weren’t and that the interest they expected to earn was not reliable.  All of a sudden, they stopped buying the securities, and without them, Fannie and Freddie couldn’t buy loans from the mortgage broker.  Without being able to sell his loans, the mortgage broker stopped lending and the waitresses could no longer buy houses.  Without buyers, prices go down.  Ouch!

How To Sell A Home in Today’s Market

So where are we now?  Home prices peaked in mid 2006 and have been declining ever since.  They have fallen 20-30% from their peak prices in many markets and “For Sale” signs litter the landscape as sellers vastly outnumber buyers.  Even for those who price their homes reasonably, the wait can seem arduous and long.  So what should you do if you want to sell your home?  Tune in to Part II of this housing recession article and find out.