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There is no doubt that the housing bubble has burst. What happens next is everyone's guess, but as many contributors of this blog have pointed out, the bubble burst effects will not be pretty to home sellers. While legitimate homeowners, i.e. those who can actually afford paying their mortgages without exotic, creative loans, can hold on through the rough ride, homebuilders and the so-called "real estate" investors (or flippers) will see the ugliest of the post-bubble era. In desperate attempts to beat out the dear neighbors to free off their "inventories", homesellers will resort to an assortment of gimmicks in hope of salvaging as much of the money they have invested. Let's name a few:

1. The Used-Car Dealer's Approach: Instead of marking the asking price down, the seller bumps up the price to about 5 to 8%, which is, conveniently, the expected "normal increase" for 2006. The goal here to let the buyer negotiate down to just about 10%, thus falling into the price range the seller wants to sell. While this approach may work (as it's worked so often in the used car biz), the seller may not be able to attract many bids because after seeing the price tag, many will just balk and will not bother biding even for a toilet cover in the house. However, the seller need not to worry, for all he or she needs is just one sucker.

2. Furniture Stores' Out-of-Business Approach: Some home builders, worried about the seemingly inevitable massive price reductions in the spring, could declare their communities having a "desperate" sale, with up to $100,000 deduction, and putting out ads that are the same as some furniture stores have done. The keyword here is "up to", and the problem here is that you can rarely have a $100,000 deduction out of the current homebuilders' prices. Having a $40,000 reduction on a $600,000 reduction is not much of a deal, as after six more months, your discount will be at least $72,000. The savings they promise are just as real has furniture stores threatening to "close forever" this weekend, just to let the owner going on vacation and re-open the next week. However, while this trick has gotten too old for furniture stores, homebuilders have started to give it a second thought.

In general, I believe house prices will continue declining over this year and next. In my opinion, buying in the middle of January 2006 is still too soon, as sellers, knowing that you are now well-aware of the bubble burst, will try to put on desperate measures to make a sell or two out of you. Good things come to those who wait.

#housing