Much has been said about the current housing slump that started way back in 2005. Sales, in quantity and in prices, are declining. The number of unsold houses in the market is on the rise. Foreclosures abound and mortgage borrowing is tapering down.

Though there is much debate on whether the bubble is expected to burst or if the slump is just a phase, a temporary decline in an upward trend, it has caused enough tension in the markets to cause concerns. Some people are predicting that the housing market in the near future maybe akin to the technology bust last decade. The hopeful ones are predicting that the phenomenon is just balancing the rally of the previous years, a “correction” as they call it.

One of the largest mortgage lenders, American Home Mortgage Investment Corp., sought Chapter 11 bankruptcy protection recently as a result of the slump. Defaults on loans due to rising rates on adjustable rate mortgages, inability to restructure loans, and foreclosures have been affecting lenders most especially the subprime ones. Subprime lenders loan to people with weaker credit.

But I Want to Buy A House?

But what does this mean to a first time home buyer? If you have no house to part with, thinking of buying of your next home or just a renter, read on.

If you are itching to buy that dream house or you already want to move out of your small apartment, should you join the fray and be cautious or should you buy? Be cautious if you buy a house to invest. You might find yourself holding on to a property with declining value and price. But if you are buying a house to have a roof over your head, start keeping your eyes and ears open to the changes in the market. It could work to your favor.

In every market, there are still opportunities to pounce on despite its effects on the general economy. Economics 101 dictates that when supplies abound and demand leaves much to be desired, it is good news for the buyer.

The National Association of Realtors said that though business has slumped, it’s not yet a buyer’s market. But being bearish about it is not opportunistic either. Sellers do not have the aggressiveness as they used to have. Price setting is not leaning solely on their side. It is not uncommon for sellers to reduce their asking prices three to four times before making a deal.

In Florida, for example, sale prices have decreased of up to an average of 30%. Certain builders have cut its prices by as much as 80%. The glut has also affected the states of California, Nevada and Arizona and areas which have historically high performing real estate sales records: Madison, Las Vegas, New York City, Phoenix and San Diego.

There is a reported increase in the number of houses being put up for sale with sellers decreasing their prices more than once. Builders are putting up incentives to entice buyers to part with their money for a house. Most of these declines are affecting “entry-level and first-time move-up market.”

An economist in the research firm of a rating agency (agencies that determine the probability of success of certain investments) has predicted than housing prices will continue to decline up until middle of next year. Another analyst in another rating agency quantified that price declines would be as much as 7% by year-end compared to current prices and another 3% by early quarter of next year.

When a house you have been eyeing hits the price that has become favorable to you, make an offer. But do not buy yet. Following the general trend, the seller might decide to reduce the price further.

Could I Still Borrow Despite the Credit Crunch?

But what if you have found your house and at the price you wanted, is the mortgage market favorable for you with this housing glut?

Lenders are reportedly being cautious with the number of perceived risks in lending under the current conditions. But if you are have a relatively good credit standing and have been diligent in documenting your sources of income and assets, you might just get a good deal with attractive terms on a mortgage.

It is a good time to deal with lenders. Though standards, requirements, qualifications and terms are being constricted due to concerns about the housing slump and its effect in the credit market, you will be relatively protected. When you make it past their standards, it is most likely that you would not be involved in a credit mess later on. You would not have to deal with so many different parties-in-interest to your loan. And restructuring might be easier in the long run.

The limits being set nowadays that borrowers did not face years ago is, on one hand, a boon, not a bane, though most would see of them as such. Since these borrowers were not faced with these limits when they borrowed, homeowners now are finding it difficult to determine who to deal with when they want a restructuring of their loan or to seek reprieve on defaults and halt foreclosures. On a hindsight, the loose terms before did not help the current homeowners.

Current borrowers, however, will be most unlikely, be able to get interest-only loans and option adjustable-rate mortgages. But these should not stop anybody from seeking those loans or negotiating for one to hold on to your cash reserves or to preserve your liquidity.

Many financial institutions in the country would also want borrowers to put in a 10% equity on their mortgage. This means that the borrower needs to pay a 10% downpayment on the property.

General news and reports might be discouraging at first glance. But you would never know if you can get a loan or not if you would not start shopping and negotiating for one.

Financial institutions, after all, derive their revenue from interest borrowers pay. They could not afford simply to drive away every interested borrower. So hold on your thought about your dream house. If the housing market continues has it has been, you and your family may soon have a home to call your own.

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