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My husband and I have been very skeptical of how some of our friends are buying their homes. Many are doing $0 down/interest only. We always figured this would come back and bite them in the butt. Looks like it might be happening very soon.

Our decision - in order to own a home in less risky manner - is to relocate our family. My husband has a good job in Reno and next month we will begin looking for a house. We also are ready to leave the California liberals and the schools.

Is it possible that some people, those who purchased with ARM's and such, will panic and sell? Will they be more willing to deal? Being first time home buyers we have questions. Being a Freeper - I know I can count on y'all for good advice. Thanks!

Based on what happened in Texas (primarily in Houston) in the early '80s, which was the first residential housing collapse following the price appreciation of the '70s, it will take at least 1 to 2 years for people who are being squeezed by increasing interest rates to throw in the towel, and either walk away, or sell for their existing mortgage principal. Prices may soften by 5 to 10%, but no significant drop will occur immediately. When it does happen, look for 20 to 25% decreases from the peak, maybe more, depending on the locale and economic conditions. The 1980's Texas price depreciation was caused by a downturn in the petroleum industry. People lost their jobs, and thousands of homes came on the market, overwhelming the demand.

If some homeowners panic, and put their homes on the market cheap, the real estate agents will know it first, and grab the good deals. This is happening here in Kauai, where many agents are actively speculating. A house across the street from us, built as a spec home by a contractor, sold to an agent for $1.7 million, who then flipped it in 2 or 3 months for $2.3 million. Obviously, the last speculator before prices drop will get burned.

My husband and I have been very skeptical of how some of our friends are buying their homes. Many are doing $0 down/interest only.

House prices are ultimately determined by how much the buyer can afford to pay per month.

The drastic lowering of that payment with "$0 down/interest only" gimmicks, has allowed sellers to charge highly inflated prices that the buyer will not be able to afford once the grace period expires.

If you like their house, save up your cash for the day the "interest only" grace period ends and they are forced into foreclosure.

My husband and I have been very skeptical of how some of our friends are buying their homes. Many are doing $0 down/interest only. We always figured this would come back and bite them in the butt

It may. 9 years ago I bought my house with 5% down. Had the market been flat and I was forced to sell the 7% realestate commission alone would have put me unable to sell without still owing money. If it declined I'd have been worse.

That was 9 years ago though and a combination of appreciation along with prepaying substantial amounts of mortgage debt have left me with no worries at all about the collapse of realestate. Unless it falls more than 50% that is .......

To your question though on relocating to a cheaper market. Be careful. A house is not cheap if it sells for less than what you'd pay back home. "Cheap" markets may have experienced a rapid appreciation as well.

Do your research and you should be ok.