Are Fannie, Freddie, and the Banks Scaring People Away From Home Buying?

Despite the fact that it is now cheaper to buy than to rent in many communities, home sales are still not up to normal levels.

Why? Because too many would-be buyers are afraid to become caught in another price crash. After home prices plummeted – sometimes as much as 66% – those buyers are afraid of being stuck with a home that is worth far less than they paid.

The threat is real.

While no one can cite a specific number of homes in shadow inventory, everyone knows they’re out there, and if the banks suddenly release large numbers of them into any given market, they’ll drive prices downward.

Right now, S&P estimates between 4 and 5 million homes are sitting in “shadow inventory” status. This includes homes which have already been repossessed, and homes that will in all probability be repossessed.

Fannie Mae, Freddie Mac, and the Federal Housing Administration own approximately 92,000 homes right now, and they want to get them out of inventory quickly, so they could be hitting the market before long.

However, those who want to own homes should ignore the threat posed by shadow inventory.

During the “boom” years home ownership came to be regarded as an investment – one that should grow each year. But for individuals and families who need a home, this is an attitude that can keep them throwing away money on rent for decades.

A home is a safe haven – a place that is your “castle,” your private retreat where you can do and say whatever you please. It’s the place where you gather your favorite things and enjoy your favorite people. It’s a place to put down roots and stay.

Unless you plan to relocate within the next few years, buying a home today is a smart move. Even if prices take another dip, rents will not. In fact, as more homeowners go into foreclosure, rents have been rising. It’s the law of supply and demand at work.

And right now, with prices down and interest rates hovering around 4%, it is time to get moving. An interest rate increase of just 1% will wipe out any savings you might see even if home prices fall another 11%. So buy what you can comfortably afford, put down roots, and quit worrying that your new home might be worth less next year.

Just like a family heirloom – if you don’t intend to sell it, it doesn’t really matter what your home is “worth” on a given day.

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