So today we learned that the number of new home sales has dropped to its lowest level ever since record keeping began in 1963.

To put this in perspective, the U.S. population in 1963 was 189 million. The U.S. population in 2009 is approximately 305 million.

So with nearly twice as many people living in the U.S., the number of new home sales has still dropped LOWER than 1963.

That’s really something.

Might be a good time to rent, if you can. Just a hunch.

Might also be a good time to get some land and grow a garden. Slash your grocery bill and enjoy fresh produce. Food for thought. (Ha!)

So the great real estate shakedown of 2008/2009 continues.

Lot of interesting statistics are being thrown around, none of which is as interesting as this one:

The median price fell 11.3 percent to $183,300 from a year earlier, the largest year-over-year decrease since records started in 1968.

What was that? Home prices always go up?

Hahahaha!

I bet Lawrence Yun, the Chief Economist of the National Association of Realtors (NAR), has had a hard time eating his own foot so many times over.

Of all the so-called experts who’ve been proclaiming real estate is a good investment, he’s probably the biggest wanker of them all. Only 13 months ago on October 10, 2007, Yun said:

The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains.

Uh-huh. Right.

Even more recently, Yun proclaimed on July 24, 2008: “I think we are very near to the end of the housing downturn.”

Of course, *IF* you believed Yun and the NAR (and you shouldn’t), it is ALWAYS a good time to buy a house and the recovery is ALWAYS just around the corner.

Be careful who you listen to.

I expect we will see home prices drop significantly between now and Spring 2009. I wouldn’t even dare to venture when we’ll see prices start to recover. That could be years away.

Since the run-up in real estate prices began circa 1996, I wouldn’t be surprised if we see prices returning to pre-millenium levels.

Naturally, only time will tell.

In the mean time, best to liquidate your real estate, rent, and wait out the storm. But that’s only if you believe an uneducated hack like me. (I’m no expert, consult your financial planner, yada, yada, yada.)

The last couple of weeks have been very emotionally exhausting.

Let me tell you why…

First of all, the house we’re renting had a kitchen faucet leak for a couple months. We hired a plumber to fix it in June. The fix only last for two weeks. Then the leak returned.

We’re not talking an annoying “oh, I’m losing water” leak. We’re talking about a “clear out everything under the sink and mop up the half-bucket of water” leak.

It was frustrating to say the least.

The trouble is my landlord is really a homeowner who rented out his home. Since he lives in another state, it’s difficult to get things fixed. He usually asks me if I’ll do the fix myself.

In this case, I finally did.

I bought a new faucet from The Home Depot, got some new plumbing tools, and asked my brother to come over to help.

A couple hours later, we had pulled out the old faucet and put in the new one.

Fortunately, colder weather is setting in. Because a couple of the sprinkler heads aren’t functioning properly either. And I don’t really want to mess with it.

The point: Logically, it makes sense to continue renting; emotionally, I’m ready to be a homeowner again.

So my wife and I have been seriously looking at buying a home.

We found one last Friday and made an offer on it. We’ve gone back and forth a few times, but haven’t agreed on price yet.

Who knows. We may walk away from the deal and see what happens.

Anyway, as I talked with my wife yesterday (our 9th Anniversary!), I mentioned why it might make sense for us to use our funds to pay off debt and continue renting until 2009.

1. If we pay off debt, our credit score will rise, hopefully giving us a lower interest rate on our mortgage.

2. By paying off debt, we could increase our monthly cash flow by $500 to $750 a month by 2009. (Which makes buying a home easier on the pocketbook.)

3. Since I’m self-employed, I will have a new tax return I can use to get qualified for a mortgage. Since my income is up this year, we will be able to extend our home search to homes that are slightly more expensive. (Right now, I’m qualified for a mortgage based on my 2007 tax return.)

4. By waiting until January to buy a home, I’ll be able to pay my 2008 taxes without worrying about a larger home payment. (I have to pay taxes by January 15; usually about $12,000 or more.)

So that’s the story.

I really want to move out and buy a home. I’d love to be in a place where I knew I wasn’t going to have to move in a few months. A place that actually feels like home. (My current house doesn’t feel like home; it feels like my landlord’s home.)

On the other hand, there are some clear benefits of waiting. Possibly better selection and lower prices. (November and December of 2007 saw some of the biggest drops in home prices and sales volume.)

If you were in my shoes, what would you do?

Over the weekend, I wrote a “Pros/Cons” list to help decide whether we stay in our current rental home or try to buy a home.

After finishing the list, I had four items listed as “negative” and 16 items as “positive.” The cons were against buying a home, while the pros were in favor of buying a home.

Big difference.

So this weekend we spent time looking at “inventory” homes — basically, new homes that had been built on speculation, but hadn’t sold yet.

There are literally hundreds of these homes available in almost every major city. They’re sitting empty, so they cost the builder money every single month.

When the builder starts to have cash flow issues, he’ll heavily discount a spec home just to get it out of his inventory.

Often, when a builder has a large number of spec homes, he could be forced into bankruptcy.

This is just what’s happening in the Denver area.

In the Sunmarke neighborhood south of where I live, the builder pulled out, leaving empty lots filled with weeds sandwiched between owner-occupied homes.

A builder of paired homes in the same area has a handful of units he can’t sell — and he was already telling me how much he was willing to reduce the prices before I even expressed any interest.

And another builder (Neumann Homes) went bankrupt, leaving a similar situation as that in Sunmarke: Empty weed-filled lots, brand new bank-owned homes, and (I’m sure) many disgruntled home owners who feel stupid for buying in that neighborhood.

So the outlook is not good for sellers. But it could potentially be good for buyers.

And we wanted to at least investigate before we made a firm decision.

Our conclusion: It’s best to stay where we’re at for now.

Home prices are still simply too high. Anything worth buying out here starts in the low $300s. Homes in this range are usually nice homes, but are poorly located. For instance, they might butt-up to a major road or intersection.

The prices go up from there, of course. To get a really nice home in a good location, you’d pay about $375K to $425K.

And remember: Our family is a bit unique. Since we have three kids and I work from home full-time, we need at least a 3-bedroom home with a study; preferably 4 bedrooms and a study.

So the decision, for us, is to wait a little bit longer — despite having more reasons to move than not to move.

Which brings me to a question: What’s better — a higher home price with a lower mortgage interest rate… or a lower home price with a higher interest rate?

I bring this up because a TIME magazine article posed this scenario in an article published in February 2008. One of the builders (Village Homes) had made photocopies of the article and was using it as a marketing piece to encourage people to buy now instead of later.

Here is their hypothetical case study:

As you can see, the author of the article, Dan Kedlec, uses this example to make his case against waiting to buy.

He argues: “Finance costs will rise as the economy recovers, so trying to time real estate might not pay off.”

Translation: If you wait, home prices may drop, but interest rates will rise, negating any advantage you might have gained from waiting.

That’s his logic.

But does it hold up?

I don’t think so. Here’s why.

When you buy a home, the price is the most important factor, not the interest rate.

That’s because you can’t change the price of the home after you buy. After you’ve bought, you’re “locked in” so to speak.

Interest rates, on the other hand, fluctuate quite a bit. So while you might pay a higher interest rate later (emphasis on might), chances are you’ll be able to refinance to a lower rate sometime down the road.

Furthermore, Kedlec’s conclusions are based on the idea that you will make minimum payments and take a full 30 years to pay off your mortgage.

But what if you want to pay off your mortgage sooner? Would you rather pay off $197K or $218K?

The answer is quite obvious.

All things being equal, I would MUCH prefer to buy a home at a lower price with a higher interest rate vs. a home with a higher price at a lower interest rate.

That’s why I think Kedlec’s argument against waiting to buy simply doesn’t work. It looks good at first glance, but doesn’t stand up to scrutiny.

Given the current market conditions — and the probable economic crisis that’s coming — I feel it’s best to exercise some patience and postpone a home purchase for at least six months.

I was going to put this tip in yesterday’s article about renting vs. buying, but the article was already getting long, and I didn’t have a good way of weaving it in. But it’s important, so I’m going to share it with you here.

Here’s the situation:

A lot of home owners who would like to sell can’t find buyers. If they are fortunate enough to find a buyer, it might take 10 months or longer. And most home owners don’t have the luxury of time. When they need to sell, they need to sell as quickly as possible.

So what’s a time-pressed home owner turned seller to do?

Answer: Become a Landlord & Try to Find a Renter.

The family who owns the house we’re living in had a job transfer with only four weeks notice. There was no way they were going to sell their home that quickly, so they decided to rent their house instead. We became their tenants.

I share this story with you because home owners being forced to become landlords is a relatively new phenomenon. In the past, only business-savvy investors who wanted to generate cash flow from real estate would become landlords.

Now, your neighbors down the street are becoming landlords… and they don’t even want to be landlords in the first place!

So a word of caution: When you rent, do your best to find a REAL landlord — somebody who rents property as a business.

By doing this, you’ll get a landlord who actually understands what it means to be a landlord. You’ll be able to call on him for repairs. There will be no ambiguity about your relationship with each other.

Not that I have a bad landlord, but I’m finding home owners turned landlords have higher expectations. They want you to take care of their property as if it were your own (even though it’s not). They want you to do things for them that go above and beyond a normal landlord/tenant relationship.

Plus, since our landlord now lives a few states away, is it really reasonable to call him to say something broke and that he needs to fix it? What will he be able to do about it anyway?

The fact is, he can’t really do anything. And he has no management company to call on. So we have to manage repairs that would normally be handled by a landlord, and then ask for reimbursement for the hard costs associated with the repair.

Not really an ideal situation.

So… *IF* you decide to rent, simply be aware of who you’re dealing with. Is it a home owner being forced to rent his house… or is it a real landlord who rents property for a living?

The answer to that question could play a huge role in how positive your renting experience is.

For more information about renting vs. buying, please see:

• How to Decide Whether to Rent or Buy