Take a Deep Breath: Buying a house for the first time is always nerve-racking. Try doing it when the economy is dropping off a cliff.
On an especially frigid Saturday in December, the day's newspapers are filled with gloom: One headline warns, "Mortgage Troubles Rise to Record Level," another that "U.S. Loses 533,000 Jobs in Biggest Drop Since 1974." Yet, even with housing prices showing no sign of halting their steep decline and amid the greatest economic insecurity in decades, Diego and Jessalynn Gomez are driving up Interstate 270 toward Gaithersburg, planning to take their inaugural plunge into a real estate market that's gone ice-cold.
Diego, who is 30, glances at the digital clock on the dashboard of their blue Honda Accord. "It's 11:11," he says to 32-year-old Jessalynn. "Make a wish."
"I wish that we could find a house we fall in love with and can afford," Jessalynn declares.
Newly married in October, the Gomezes are eager to purchase their first home and move out of the two-bedroom apartment they have been renting in Alexandria. The way they see it, if they are willing to take the risk that the downturn might get worse before it gets better, the market's loss could be their gain.
Just three years ago, the Washington area's housing market was so overheated that bidding wars -- sometimes more than 20 bids on a single house -- and price-escalation clauses were commonplace. Now the area is awash in unsold homes that sit for months amid an ever-growing inventory of foreclosed properties.
Problem is, there's no way to know when the market will hit bottom, acknowledges Diego, who says, "You can't help being a little bit paranoid watching the news." Nevertheless, he and Jessalynn are confident that their jobs -- he's an IT systems manager in downtown Washington; she's the catering sales manager for the Ritz-Carlton in Georgetown -- are safe from layoffs. And they believe it's still true that building equity in a home is far better than sinking a couple thousand dollars every month into that black hole where rent money goes. Plus, as Jessalynn has explained to their Realtor, Tricia Messerschmitt, "We want to start a family," which is going to require more space than their apartment provides.
Diego, a friendly, low-key guy with a wry, slightly cynical sense of humor, says he has weighed the pitfalls of buying in this kind of market. He's aware that prices could continue to plummet for months to come. It's not as though he's a fuzzy-headed optimist. "It's funny, but if you ask my friends they'd say I'm a pessimist," he says. But he and Jessalynn are ready to embrace the next stage of their lives, which includes children and a home of their own. "We've got to move ahead."
There are thousands of buyers in the Washington area facing the same set of calculations as the Gomezes. Should they buy or wait? What will happen if they misjudge and get stuck with a mortgage that is soon larger than the value of their newly purchased home? Could they stay in the house long enough for it to regain its value?
"It is a scary time to buy because you have a lot of information telling you that there's more foreclosures, that prices might fall further," says Gadi Kaufmann, CEO of Bethesda-based RCLCO, a real estate consulting firm. He adds that "in the short-term future, there's a good chance that prices will be lower."
But for buyers such as Diego and Jessalynn, he says, waiting may be more of a gamble than buying. He and other housing experts point to the confluence of plummeting prices, incredibly low interest rates and wide selection of homes for sale. All of that adds up to a big green light for first-time home buyers who can meet more stringent loan requirements and stay put for several years.
"We know that every housing market cycle since the Great Depression has seen home prices rebound from their bottom within a year or two of the beginning of the downturn," says Kaufmann. "So, in at least five years from now, we should be well off the bottom."