Are Last Rites Due for the "Bottom Feeder"?

The days of the "bottom feeder" may be numbered! A look at recent sales activity shows a sustained pick-up in the lower and middle-priced tiers of the market. Well-priced and nicely appointed homes (and some "fixers" on good land) are drawing multiple offers and selling above asking price. A significant portion (but not a majority) of buyers are offering more than 20% down with more "all-cash" offers than I have seen in a long time. Whether there "all-cash" offers are truely that or are just a "get the contract approved" ploy (technically unethical) will be seen. If the home buyer tax credit is extended past April 30th, then this market may continue to boil for sometime as there is still pent-up demand out there. That could mean the death-knell for the bottom feeder as they will continually and consistently get out-bid for properties that they want.

The botton feeder wants a steal. And they need a buyer's market with a large inventory to gain the leverage needed to squeeze the seller for the lowest possible purchase price. A year or more ago that may have been the case. Of late, however, the low inventory, the availability of historically low rate mortgages and the threat of an end to the home buyer tax credit have combined to fuel the market and drive prices to the first signs of stability and even an increase in many areas. Unfortunately, this makes it harder for first-time homebuyers to compete with high-down payment buyers and investors. But the flip side is that the bottom feeder may becoming an extinct species!

The FED's Conundrum

Ben Bernanke and the Fed face some tough choices in the coming weeks. With the termination of their purchase of mortgage backed securites due to occur on March 31, what will the Fed do with these assets? Bernanke has indicated that the Fed will slowly release them but only after the expected re-tightening of credit has begun via other methods. Nonetheless, the Fed faces a conundrum. If they hold these securities too long, they face the possibility of flaming the fires of inflation and also contributing to the givernment's deficit. If they sell these securities too early or too quickly it will drive up interest rates and mortgage rates. If they try to finance these sales they run the risk of depleting capital that could be used by private companies for growing their businesses and the economy in genral. It's a tough balancing act. If Bernanke manages this tightrope successfully, he will have earned his place in history.