How can I say that when the price of houses has been going thru the roof. (good pun, huh?). That was yesterday and this is today. The roof is falling in and there are some good reasons why this is happening.

Your friend (?) at the Federal Reserve, Sir Alan Greenspan, reduced interest rates again and again. Each time he did it made the cost of owning a home easier to afford. Mortgage rates dropped to 5.6% and as a result now 69% of American own their home or share it with the mortgage holder.

Fannie Mae and Freddie Mac got into a hissing match to see who could give the easiest qualifications for a mortgage. As the requirements to qualify for a mortgage kept being watered down so that almost anyone, even someone with a recent past bankruptcy, could qualify for a home loan. To reduce payments lenders have started giving 45 year mortgages. Is the house going to last that long? Of course it will, but maybe not the mortgage holder’s finances. As a result this easing of qualifying drove up home prices.

To make it even easier lenders reduced down payments and knew the applicant was lying on the application about his income – and didn’t care. The mortgagor sold the piece of paper (mortgage) to Fannie Mae or Freddie Mac. Banks gathered together mortgages they knew were sub prime and sold them as a bundle to borrowers who wanted a better than average return. Sometime in the future we may hear the immortal words of Mark Twain who said, “I am more interested in the return OF my money than the return ON my money”.

Recently we have seen the stock market take a serious “correction”. Call it whatever you want, but this is going to affect the housing market. More than half of home owners have stocks or mutual funds.

There is also the rumor that banks will again be required to verify a mortgage applicant’s income. Fudging no longer allowed. As the real estate market softens we will see more and more “walk-aways”. These are investor-speculators who have put a few thousand dollars down on a not yet completed (or sometimes not even started) property with the idea that when it was finished they could immediately sell it for a nice profit. Suddenly thousands of properties could be thrust upon the market that will drive prices lower and lower.

In Brevard county Florida home sales in April are down 32% and condo sales dropped a whopping 81%. There are now 8,000 single family residences available in that one county. Speculators are hurting.

If anyone decides to invest in real estate it would be wise to wait until the market firms.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2006 All rights reserved.

Copyright 2006 Albert W. Thomas All rights reserved. Author of "IF IT DOESN'T GO UP, DON'T BUY IT!"