When I was a kid, there was always this mystique about safe deposit boxes. My parents never had one so the only experience I had with them involved television shows or movies. The scenes were always of bank robberies, of masked men and women running into a smoke filled room filled (after they blew open the door of course!) with hundreds of these boxes all stacked up nicely and neatly in their little cubbyholes. Inside each was a little treasure chest of riches and these crooks were here to take them.

It wasn’t until I was an adult did I realize that they typically held more pedestrian items such as important paperwork (car and house titles, marriage licenses) rather than sexy uber-valuable jewelry one could fence.

Basics

When you get a safety deposit box, you’re essentially renting space inside a bank to store your valuables. The contents of the box are known to you alone, the bank has no right to see what’s inside nor do they really care. When you rent the box, you sign a rental agreement and are issued a key to access the box (the bank does not keep a copy, so don’t lose it or they’ll have to drill into your deposit box - $$$). Only those names that appear on the rental form will be able to access the box 9you won’t be able to give the key to someone and have them get something for you. You can appoint a “deputy” or “agent” who can be given access to the box; you do this by appointing them in the presence of all the names on the rental agreement and a bank employee. Power of attorney does not allow access to a safe deposit box.

Why a safe deposit box and not your closet? Banks will have more security and better protection against catastrophes like fires, floods, and theft. It’s that protection that makes it superior to hiding it in a shoebox in your closet or in a safe in your own home.

Law enforcement: Law enforcement can get access to your safe deposit box if they believe there is reasonable cause to suspect you’re hiding something illegal (they get a court order to open the box). Another way the law can get you is if the IRS freezes your assets, your safe deposit box is included. Finally, your box can be declared abandoned if you fail to pay the fee for a number of years, determined by state law, and all reasonable attempts to contact you have failed.

Bank failures: FDIC insurance does not cover the contents of your box nor should it need to. If the FDIC finds a buyer for the bank, you now can sign a rental agreement with the new bank. If the FDIC can’t, you’ll get access to your box to remove your contents.

What happens if the contents are destroyed? If the contents of the box are destroyed or stolen, you typically turn to your own homeowners insurance. The bank does not insure the contents of your box. If you do get a safety deposit box, call your homeowners insurance company to ensure the contents are covered.

What To Put Inside

If you have no idea what you’d do if you lost it, put it inside a safe deposit box. The superior fire and flood protection makes it a good place to store important documents like family records, insurance policies (a home inventory!), marriage licenses and certificates, any deeds or titles, other important agreements like leases and rental agreements. Beyond documents, you can also put things that either have a lot of monetary value (jewelry or rare collectibles) or emotional value (delicate family photos) for protection.

Here are some quick tips about putting things in a safe deposit box:

• Put the items in air-tight plastic containers or plastic bags, this will protect against water damage (though the plastic could melt in a fire). The boxes should be resistant to fire and flood but water can’t get into a sealed plastic container as easily.
• Keep an inventory of what’s in your safe deposit box, this will help keep everything in order. Keep a copy of the inventory with you and leave one in the box.
• Copy everything that goes into the safety deposit box. If something does happen to the box, you have a copy that can help you out in a pinch. Also, if you really need to get a document and the bank is closed, oftentimes a photocopy will be enough to get a process going until the bank opens.

What NOT To Put Inside

Since you’ll be subject to the hours of operation of the bank, don’t put anything inside that you think you might need in a pinch. Banks will be closed at night, on weekends, and during holidays so you have to keep that in mind when you decide what to put inside.

Some original documents shouldn’t go into a safe deposit box include a lot of legally prepared documents like wills, power of attorney documents, and medical care directives. The originals should be on file with the attorney (this is often governed by state law) that prepared them and copies can go into your safe deposit box. In the event of your death, others will need to get access to those documents which will be difficult if you’re the only person allowed to access the box.

How Much Does It Cost?

This will depend on the bank itself and the size of the box. Here are three quotes from various banks that might help give you a better idea of how much they cost:

• Bankers Trust
• Citizens Union Savings Bank
• Pacific Trust Bank

Anyone have experience with safe deposit boxes? Anything I miss or was unclear about? Please let me know in the comments, thanks!

(Photo: youngblog)

More than one reader has emailed me in the last month asking how much house I thought they could afford in our sinking housing market. One reader, Chester (not his real name), lived in California where home prices still seemed like they were in the stratosphere despite lowered prices, and the other (Wilson, also not his real name) lives in the Washington D.C. region where demand has kept home prices relatively stable. In both cases, I think the question of “how much house can you afford” is independent of the local real estate market and more a product of their spending habits and local cost of living.

25% - 33% Rule of Thumb

Conventional wisdom says that you shouldn’t spend more than a quarter to a third of your before-tax salary on housing. If your annual salary is $50,000, then you’ll want to have a monthly payment between $1,042 and $1,375. Remember to subtract real estate taxes, HOA fees, condo fees, homeowners insurance, and other recurring monthly costs from those numbers to calculate how much home you can afford. $1,042 - $1,375 is the range for your total monthly payment, based on the rule of thumb.

How do you work backwards? There may be a better way but the easiest is to play around with some numbers in DinkyTown.net’s Mortgage Loan Calculator (PITI). Playing with the numbers, I found a monthly payment of $1,286.08 given these assumptions:

• Mortgage loan amount of $150,000
• 30 year fixed mortgage at 6.250%
• $3,750 annual property taxes, $600 annual home insurance

If you assume 20% down ($37,500), that’s a $187,500 home.

Adjusting the Rule

The rule is good as a starting point but you may have circumstances that can work for or against you in terms of how much you can pay each month. Existing debt is one scenario that could reduce the amount you should spend on housing because every month a set amount is earmarked towards retiring that debt. If you live in a high cost of living area and your budget says you can’t afford to spend 25%-33% of your salary on housing, you’ll have to adjust it (the opposite may also hold true).

Chester in California has student loan payments of about $300 a month that he’ll have for the next twenty years, locked in at a favorable sub-4% rate. It’s not something he’s looking to pay off quickly so it will be with him for a while. He also has a car payment of a few hundred dollars (I’m assuming the magnitude, he just said he had a car payment) a month so he already has a percentage of his take home page ear-marked towards servicing existing debt. This could adjust his housing allocation down more towards 25%, rather than 33%.

Analyze your budget and see if you have room to adjust your ranges higher too. You might find that you’re saving 50% of your salary because you live lean or in a place with a low cost of living. You might be willing to adjust that number higher to own a little more house. By having a budget, you can make these decisions with concrete data rather than with gut feeling.

The only warning I’d offer is that it’s far easier to get into debt than it is to get out of debt (duh). A mortgage stays with you a very long time, so don’t rush into getting a larger one than you think you can afford comfortably.

Finally, remember that the recent housing rescue bill included a provision about the $7500 first time homebuyer tax credit/loan that you may be eligible for.

(Photo: orvaratli)

Update: Lending Tree has developed a tool to help determine if you are eligible for an FHA loan.

This week, the Senate passed a housing bill a little over a week ago (the House joined last Wednesday) that seeks to give the housing market a shot in the arm. With 1 in every 171 homes going into foreclosure, the cries for help are getting loud and loud and, with the next year’s deficit nearing half a trillion dollars, we might as well pile it on. What’s another few hundred billion? Personally, I don’t like the idea but economic turmoil doesn’t help anyone. It doesn’t help the people who erroneously got themselves into bad loans, it doesn’t help the people who intelligently avoided them, and it doesn’t help everyone else standing on the sidelines. Considering we can’t pass energy legislation and likely won’t before Congress recesses in a week, we might as well take what we can get.

So, what’s going on? Here are the bits that are likely to affect you.

The Main Bailout

The FHA will be allowed to insure up to $300 billion in 30-year fixed mortgages for those at risk and who are living in owner occupied homes. The net result of this is that some loans will be restructured from their current state to an FHA insured loan. It’s help but it’s not a get out of jail free card, you’ll see why in the second paragraph of the gotchas section.

Who is qualified? You qualify if you have a loan that was issued between January 2005 and June 2007, must be spending at least 31% of your gross monthly income on mortgage debt, the total debt cannot exceed 95% of the home’s appraised value, and prove that they will not be able to continue to pay their mortgage. (LendingTree has a lending tool to help determine if you’re eligible) They can be defaulting or current, that won’t matter, but they have to retire all other debt on the home.

What happens? If you think you qualify, go to an FHA-approved lender and they will take it from there.
Any gotchas, catches, or tricks?There are two types of gotchas. First, in order for this go through, the lender will have to write down the value of the existing loan to 90% of the home’s current value and take the hit. Lenders won’t do this unless they think they’ll lose more than that, so you will probably really have to be in trouble to qualify.

The second type of gotcha is the restrictions and extra payments the borrower will have to bear. You can’t get a home equity loan for at least five years, you’ll have to pay the 1.5% annual insurance premium to the FHA for the guarantee, you’ll have to pay a 3% exit fee on the principal to the FHA if you sell or refinance, and finally you’ll have to give up all profits to the FHA if you sell or refinance within a year. After a year, you’ll only be on the hook for 90% of the profits and drops by 10% each year until it gets to 50%, where it will be forever. That’s a long time.

The Supporting Cast Measures

There are a few other additions to the bill that may be of interest.

Conforming Loans ceiling set to $625,500. A temporary measure increasing the maximum value of a “conforming loan,” or loans that would be guaranteed by Fannie Mae or Freddie Mac, was increased and pegged to home prices in a geographic region. I mentioned it as the Little Footnote on the 2008 Tax Stimulus Package and it really was a boon for the higher end housing market. Well, it’s permanent now.

10% home-buyer “credit,” up to $7,500. It’s not really a credit, it’s a 15 year no-interest loan of up to 10% of a home’s purchase price, no greater than $7,500. I don’t know if this will induce many folks into buying, there’s no sense rushing to buy something if you think it’ll still go down in value. No one loses money by sitting on the sidelines in this market.

My Thoughts

Overall, I think the way the “bail out” was structured was reasonable. Borrowers might be bailed out, only if the lenders accept the writing on the walls, but they don’t get to reap any rewards on the back end. I like the idea that the government gets at least 50% of a bailed out home’s appreciated value if it’s sold or refinanced. That’s a hit and the cost of doing business. Qualified borrowers get to keep their homes, lenders don’t lose as much, both sides seem to win.

It appears that the only losers are those excluded from the deal (taxpayers included). Lenders may be stubborn and refuse to take the hit, borrowers may find themselves close but not quite over the 31% gross income rule, and others may be left out because of the date of issue on their loan.

You can’t save everyone.

(Photo: respres)

I recently had the pleasure of receiving an email from Debrajoy in which she shared a very positive mortgage related story I felt was worth posting because it hit on a lot of excellent points. Essentially the story is about how she lowered her mortgage rate and used other clever techniques to help ease the loan.

However, I think the most important lesson in this note has nothing to do with money. I’ll touch on that after you’ve had a chance to read the note.

Here is something I did to get the best locked rate on our 30 year mortgage:
US Bank offers “No Closing Costs” here where I live in Fort Collins Colorado. So about a year and a half ago, I began hearing stuff on my local NPR radio station that suggests that the interest rates might be going up again. I told my husband that I think we should lock on our interest only loan that we had for about 5 months.

US Bank was offering 5.75% locked-30 year. I contacted another bank and a couple brokers and got them to e-mail me ‘good faith estimates’ on a 30 year refinance at 5.50%. I took it (hard copy) to my banker and asked him if he could match it. (Mind you these estimates had closing costs up the wazoo written into it.) But without even blinking an eye he ‘bested it’ and offered me 5.49%. I came home and told my husband, Bob, “that was too easy”, I’m going to see if I can get better.

So I went thru the process of contacting 2 more (different) brokers and got them to e-mail me good faith estimates giving me a 5.25% interest rate. Now one of these brokers told me “you can get whatever rate you want, you will just pay higher closing costs for it”. I took those “offers” with their closing costs to over $3000.00 (hardcopy, in hand) back to my bank. My husband was embarrassed and said, “I’m not going to go over there with you while you beat those people up”. That is not how I see it, I am not embarrassed to save my husbands hard earned money. I said to him, “the bank isn’t embarrassed to take my money and I have no hesitancy in keeping my money!”

The next morning I approached my favorite banker (who offered me the 5.49%) with papers in hand and said, “Mason, you’re gonna kill me, but I have a better offer and want to know if you’ll match it.” and showed him my 5.25% write up for 30 year fixed.

He was hesitant this time, and said he’d have to ask his manager.

He called me back, at home later that afternoon and was sincerely excited sounding and said that they would give me 5.24%. Needless to say, we locked and have been happy ever since.

Recently I took $15,000.00 of our home loan and put it into another US Bank offer of 1.99% for the LIFE OF THE LOAN with a 3% fee.($450.00) And then I pay it down monthly on autopay, paying $200.00 a month, more than the minimum requirement AND put some money down on the principal of both loans as much as possible (sometimes twice a month). We now have $119,000.00 left on our original $172,500.00 home loan.

And the real kicker here is I learn all this stuff because I’m a news junkie –Love my National Public Radio and read the newspaper and a “professional” saver. I moved into a Christian commune in Chicago (1977) and lived there for 23 years from the age of 19 — never had a bank account, had no credit card — BUT I sure knew how to stretch a dollar. I loved shopping the thrift store and was very good at finding very quality stuff for my family. Our family moved out in 2000 and our credit history must have looked like we just came in from the planet Jupiter. At least we did not have BAD credit.

If there is a bargain out there to be found — I will find it. My Mom tells me that I get more for my money than anyone she knows. And now I found your site and am so happy to have company in the “Festival of Frugality”.

[... some really kind compliments about BFP, etc. ... ]

Please keep up the good work!!

Debrajoy

Lessons:

1. When Debrajoy got 5.49% right off the bat, her first thought wasn’t “Wow! That’s great where do I sign?” but instead “That was too easy, I’m going to see if I can get better.” That’s a great mindset whenever you’re buying anything, let alone a loan for the next thirty years. You had to work hard for your money, make the other person work harder for your money.
2. “I’m not going to go over there with you while you beat those people up”. That is not how I see it, I am not embarrassed to save my husbands hard earned money. If you had to boil the entire story down to just one poignant line, that’s the one I’d pick. I know sometimes I’ve been too embarrassed to ask for something because I thought I might look cheap or greedy; but that’s not the point. Why do people do all this work shifting around funds in an online savings account over half a percent of interest and then overspend on something by at least that margin? It’s hard to do and easy to say, but don’t be embarrassed about it. The more you save, the more food you can put on the table.
3. If there is a bargain out there to be found — I will find it. I was once told of a psychology experiment where individuals were given a ring of one hundred keys and a locked door. Some were told that the key to door was in the ring, others were told the key to the door might be in the ring. In both cases the key was in the ring but the ones that were told the key was in the ring had a much higher probability of actually opening the door before giving up. There is always a bargain out there, you just have work hard enough to find it.

Thanks Debrajoy for sharing that story! If you have a story or a tip or just want to say hello, you can use the contact form or email me directly at the address in the upper right hand corner.

A reader recently sent an email asking about a program United First Financial runs called a Money Merge Account and whether it was legitimate. United First Financial promises that the program, which costs $3500, would have you pay off the mortgage in one-third to one-half the time it normally would take. Knowing nothing about money merge accounts and knowing a little bit more about simple math, I smelled a fat $3500 scam brewing. The only scenario in which I could see $3500 cutting your mortgage in half is if you had a $7000 mortgage. But, setting my mental scam alerts aside, I did some more research about the plan.

Apparently it’s a fancy name for an accelerated mortgage repayment scheme. The first step in the money merge account is to take out a second mortgage on your home, a home equity line of credit. Then, what you do pay your entire paycheck towards the first mortgage and withdraw money from the HELOC to cover your expenses. You save a little money because the interest on a HELOC is calculated based on average daily balance rather than the final monthly balance. This lets you pay off more of the mortgage at the beginning of the month and then be charged less interest on the HELOC. (this assumes the same interest rate, which is a big flaw)

However, the plan also has a lot of other assumptions and flaws.

1. It assumes that your HELOC interest rate will be the same as your first mortgage interest rate - very unlikely. The bigger the HELOC rate, the less you save on that difference.
2. It assumes a single monthly paycheck so it’s a plan that loses some of its power if you are paid irregularly or every two weeks.
3. One big flaw is that there is never discussion of HELOC fees. I’ve never opened a HELOC but I imagine it’s not free.
4. This plan requires that you don’t save at all for anything else. Since your entire paycheck goes towards the mortgage and you withdraw expenses, it penalizes you drawing on the HELOC for non-essentials. Why pay $100 towards a 6-7% mortgage and then borrow $100 from a 10% HELOC?
5. Finally, as if all those weren’t enough, you have to pay $3,500 for a program to help you do this!?

In researching this article I researched a lot of sites and they were nearly unanimous in their opinion that these types of programs are not worth the money (not surprisingly). They’re not scams in the sense that you pay your $3500 and they disappear into the night but it’s something you can do yourself.

This begs the question, should you use it to force discipline? I could justify paying $100 to enforce discipline because it can save you quite a bit in the long run, if you can overcome the failings, but $3500 is ridiculous. If you have $3500 and you want to pay off your mortgage sooner, send a $3500 check to your mortgage company. (if you want a legitimate and easy way to pay off a mortgage faster, consider making mortgage payments every two weeks)

It’s not very often you get an unexpected check but this week I received one from my title company in the amount of $202.00. Apparently there were outstanding stale dated checks that weren’t cashed and, as required by law, were returned to me from the escrow account.

Thank you for choosing [Title Company] to handle your previous real estate transaction. During a routine audit of our files, we found funds from outstanding stale dated checks that remain uncashed past the statutory time.

Accordingly, we are refunding the excess amount that remains in the escrow account. Please check with your lender to be sure these funds are not required for your escrow account.

Again, thank you for choosing [Title Company] and … [blah blah blah]

Hooray for free found money! I thought it was particularly honest of the title company since I would have no way to confirm this.

Looks like it’s time to get a Wii Fit (I realize that’s not the responsible thing to do, but it’s for our health!), if only I could find it somewhere.

That One Caveman recently took on the task of managing his home mortgage’s tax and insurance payments, essentially replicated the services of his lender’s escrow account, because of a very favorable appraisal. The appraisal raised the listed value of his home by $15,000, lowered his debt to value ratio to 80.4%, and thus enabled him to manage the funds himself (80% appears to be the sweet spot for this).

I thought about doing this myself but scrapped the idea for two big reasons. The first, the profits are small. I do the math for Caveman’s situation, a max $5500 escrow, but my escrow is lower at around $3500; so I would’ve earned even less than the analysis below. Secondly, while I trust my diligence, stuff happens and the risks are too great.

Profits Are Small

Caveman said his escrow maxes out at around $5500. If we assume monthly payments of $458.33 and a single $5500 payout at the end of the twelve months, 3% interest (or 0.25% each month, if compounded monthly) earns you $76.26 total. That $76.26 will appear on your 1099-INT and taxed at your marginal tax rate. If you are in the 25% tax bracket, that’s $57.19 in your pocket. If your escrow pays out twice a year, your earnings are even less ($57.61 pre-tax, 43.20 after taxes in the 25% bracket).

In return for $57.19, you have to send out payments to the county or state for property taxes and make payments to your homeowner’s insurance provider. That’s a lot of headache for a relatively small payoff.

Mistakes Are Costly

If you miss your tax payments, you start accruing penalties that eat into that small gain you would otherwise pocketing. In the worst possible case, the county puts a tax lien on your home, someone purchases it, and you fail to respond to the mailings for the entire tax lien holding period. Then you lose the house. The odds of losing your home are pretty slim, but they are greater than zero. Perhaps you move out in 5 years, start renting out your home, and forget to change addresses on record. Perhaps you go on vacation and forget to schedule a payment.

I’m always a fan of optimizing your personal finances. This is a case of where you can definitely squeeze a little more out of your money if you are diligent and put safeguards in place, but it simply wasn’t one I was willing to try given the small upside (recall, our escrow is max at around $3500, so we would’ve earned far less).

Do you manage your own escrow?

If you weren’t a fan of President Bush and believed he, and politicians in general, only pushed for tax breaks for the rich then you’ll want to pay close attention to a recently Fortune that sheds some light onto the little footnote on the 2008 tax stimulus package. Most people focus on the tax stimulus check they’ll be receiving in a month or two, I know I did because that’s what affects us and most Americans. Fortunately, we have people like Allan Sloan focusing on all parts, including the little piece about raising the “maximum size of a ‘conforming’ mortgage to $729,750 from the previous cap of $417,000.”

What the heck does that mean? A conforming loan is one that Fannie Mae and Freddie Mac can buy. Since they can buy them, the interest rates on the loans are generally lower because they’re less risky. If a bank knows it can sell it to Fannie Mae and Freddie Mac, they can charge less in interest. The spread these days, according to Fortune, is a significant 1.27%.

My friends that share a half-million dollar mortgage, and those who own homes that are worth more than $417,000 but less than $729,750, benefit the most from this. Borrowers have access to lower interest rates and thus are able to purchase “more house.” (Nothing changes for those above the $729,750 amount)

For example, for the monthly mortgage payment of $1,500 can get you a $250,188 loan at 6.00% or a $219,448 loan at 7.27% - that’s a difference in the purchase price of $30,740! And, it obviously gets bigger as your amounts get higher. This makes homes in that range more affordable and thus helps increase their value. That’s stimulus people!

Allan goes on to recognize that the boost will expire at the end of the year, since it was designed to help stimulate the economy, but he suspects it will remain. I just wanted to highlight this piece of the package since very few people discuss it and Allan does a great job. His ending quote is a gem as well - “The one thing I liked about the stimulus package was that the government had enough sense to not send money to people like me. But then it turns around and hands me a housing subsidy. I’ll gratefully accept the gift. But that’s no way to run a country.”

###

The 149th Carnival of Personal Finance is now available, I submitted my post on laddering CDs for your emergency fund.

If you’ve ever lamented the fact that you signed a 30 year fixed mortgage instead of a 15 year fixed mortgage (it was one of 8 regrets of 2007 for Trent of The Simple Dollar) because of how much money you could’ve saved, don’t. I’m going to do some simple Dinkytown.net (using this fixed mortgage loan calculator) math to show that the difference between prepaying a 30 year fixed mortgage and a 15 year fixed mortgage is big. The current rates on Bankrate (as of early morning on April 16th, 2008) for a 30 year fixed mortgage is 5.62% and for a 15 year fixed mortgage is 5.20%, so we’ll be using those. Rates have since changed but the analysis still holds.

If you had a $300,000 mortgage and made additional payments (~$677) onto the 5.62% 30-year mortgage such that the payments matched the 5.20% 15-year mortgage (~$2403), the difference in total cost (principal and interest) is ~$19,153 pre-tax across fifteen years. After you discount it by your marginal tax rate (say 25%), divide it across the 180 months, it’s only $79.80 a month. $80 difference on a $2403 mortgage payment is 3.3%.

You might say: “Jim, you’re just conveniently ignoring the $19,153 and focusing on the smaller monthly number of $80 - that’s just mathematical hocus-pocus. I’m upset about the $19,153! Also, $80 might not be a lot to you Mr. Money-bags, but I’d rather have that money than give it to a mortgage company.”

To which I would respond: “Ah, good point, but let us calculate the present value of that $80 a month and see how much it’s really ‘worth’ to us today. As for the $80, I too would rather have it in my pocket, but I’m not going to cry over spilled milk.”

If you assume that inflation will be at 4% a year, 180 payments of $79.80 is worth approximately $10,788 today (if I did it right in my TI BA-II Plus calculator). It’s a $10,788 difference on a $300,000 mortgage. Ten thousands dollars isn’t a trivial amount of money, but that’s the cost of having the flexibility to make the 30 year payment into a 15 year payment if you want to. If you have a 15 year mortgage, you are required to make that payment.

Lastly, if you still are bothered about the difference, you can always refinance.

(someone please check my math!)

A few years ago, it was a seller markets. In the Baltimore area, a home would list on Friday and a contract would be signed on a Monday. At the latest, it took until a Tuesday until it was finalized as buyers would compete with each other to get the house. List prices were the starting point, not the ending point, and if you really wanted a home you’d have to pay top dollar. The home I now own was listed at $270,000, I paid $295,000, and a competing buyer offered as much as $330,000 for the home*.

Today it’s totally different. I believe that right now, and for the next six months, you’re seeing the lowest point for sellers from a psychological perspective. Whether or not the housing market is factually at the bottom of the valley remains to be seen but I think we’re at the lowest possible point a seller can be and still keep their home on the market. If the market gets any worse, you’ll probably see any optional sellers, those that don’t have to make a move, pulling their homes off the market if they haven’t already. Homes that have languished on the market for months will probably slide a few renters in to tread some water and those foreclosures? Scooped up by opportunists or just left sitting on a bank’s balance sheet.

Why do I believe that we’re at the low? The stats don’t lie and there are only so many punches you can take. Home prices take the largest tumble in 25 years? Homeowners and builders offering all sorts of freebies like leases on cars and free appliances. I mean it’s so bad that the government is stepping in and thinking about freezing ARMs in order to stop the bleeding. Oh, and to pile on even more, it’s now winter which has historically been the slowest season for home sales.

If I were in the market, I’d probably turn to new constructions first because builders need to move inventory. They aren’t like regular sellers where they can opt to just live in the house a little while longer, they need to free up the capital they’ve invested so they move onto other opportunities. They are also more likely to offer up huge incentives for buyers because of this need to rid themselves of inventory. If new constructions are out of your league, I’m sure there is plenty of inventory in most of the US so pick your spots and you’re likely to find yourself a great deal.

What do you all think? Things will get worse? Much worse? Things will get better?

* The reason I got the house was because I was willing to rent it back to the seller for two months as they bought their new house. The competing buyer wasn’t willing to do that, so I lucked out big time.