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First, if your income drops below Medium income for your state for a six month period (which is adjusted yearly, so if you lose your job you fall below the Median Income) you still file Chapter 7 Bankruptcy and keep your home PROVIDED THE MORTGAGE IS PAID UP TO DATE AND THE TAXES ARE PAID.
If you are behind in Mortgage payments then you can File Chapter 13 Bankruptcy provided you can pay the mortgage up to date within 3 years of filing Chapter 13 (if you do not the house will be sold from underneath you).
Secondary problem, if we have hyperinflation and you have a fixed Mortgage rates (or an adjustable rate with a max limit) the mortgage will go down in real terms with inflation. It might even fall so low that the mortgage could be paid in Small change (if paying in Chinese Yuans, Japanese Yens or European Euros). I do not see the US government permitting this to happen, but given how Bush has skewed up the economy a acute shortage of oil (for any reason, including War or Peak) will send the value of the US Dollar downward, causing Inflation in the US, maybe even hyper inflation if the US continues to pay in Dollars for Oil escalating in Price.
Now Deflation is also a possibility, given that a lot of homes are valued based on their location and cheap oil. With an acute Shortage of oil such locations may no longer be prime and you will see a sharp drop in price.
Another factor is how long its takes people to accept they can NOT pay their mortgage and how long its takes the Bank to Foreclose on such families. People will try to make payments on their Mortgage even if other bills have to be deferred (In many cases this is what happened in the early 1930s people paid their mortgage and tried to delay paying their taxes and other bills). After the family accepts they can NOT make the payments then the Bank has to decide to Foreclose on that house (Often not much of a decision but can be a few months). After the bank decides to foreclosure then you have the foreclosure action, Judgment against the Family in Foreclosure and then a Sheriff Sale of the House. In my Home State State of Pennsylvania this works this way:
1. The Family gets an Act 91 Notice informing them they are behind in their Mortgage payments and they have 30 days to get caught up or Contact the Pennsylvania Housing Assistance Agency (PHFA) for Mortgage Assistance.
2. The Family Contacts Mortgage Assistance and fills out an application for Financial Assistance. This takes about 30 days.
3. If the PHFA finds that they is a good prospect for the family to resume mortgage payment within two years and the cause of the Mortgage is NOT the fault of the Family (i.e. you did not quit your job) Pennsylvania will pay the Mortgage for up to two years (and put a Second Mortgage on the Home for the amount paid). This delays everything at least two years IF YOU HAVE A GOOD PROSPECT TO RESUME MORTGAGE PAYMENT if you do not PHFA will DENY you any assistance.
4. If you are denied assistance you an ask for a telephone hearing which will be held within 30 days of the request for the hearing. At the hearing you an testify and say why you need and entitled to the aid. This delays any Foreclosure another 30 days (Act 91 prohibits the bank for proceeding with the Foreclose during the pendency of the request for Mortgage assistance.
5. IF you again lose, you an file an appeal to Common Wealth Court but the delay in the foreclosure action can go on.
6. The Bank has to file an action of Mortgage Foreclosure with the local Court who has the Sheriff serve it on the Family. The family has 20 days to respond.
7. At the end of 20 days, the Bank sends a letter to the Family that they are in default and has ten days to response to the Complaint of Mortgage foreclosure go a Default Judgment will be entered against them.
8. Since the only defense is payment of the Mortgage up to date, the Judgment is entered.
9. The Bank then pays the Sheriff $1500 to advertise the house for sale and to sell the house.
10. Depending on the County, the Sheriff list the property for sale on or before the date of the next Sheriff's sale for sale at the following Sheriff sale. This is to give the Sheriff time to post the property for the Sale. In my home County of Cambria the Sheriff sale are Second Friday of March, June, September and December. Thus to sell the house in June you must list it before the March Sheriff Sale. In Allegheny County (County Seat of the City of Pittsburgh) this is done monthly. i.e. list for sale in February closes on the sale date in January.
Thus you are looking at the following time:
30 days to react to the Act 91 Notice
30 days to appeal any decision of PHFA
30 days for the Complaint in Foreclosure to become a Judgment
90 days between Sheriff Sale.
Thus it takes at least 180 days to foreclose on a house in my home county. In Allegheny County 120 days. Now they are ways to shorten this time period, for example NOT filing the request for Mortgage assistance. If you do not make the request within 30 days of receipt of the Act 91 Notice the bank can file a Complaint. This reduces the time to 150 days from the date of the Act 91 notice in Cambria, 90 days in Allegheny.
Another way to reduce the time period is for the buyer to sign a Deed in Lieu of Foreclosure, which gives the house to the bank upon signing the Deed. I have done this when my client has already moved out of the house and had no other liens on the property. The bank likes a Deed in Lieu for it permits them to try to sell the house through a Realtor almost 6 months earlier than in a Foreclosures action.
Notice I use the phase Minimal time, it is often longer, for example many banks will wait more than 30 days from the Act 91 letter before filing an Complainant in Foreclosure. If the Judgment is entered on the day AFTER a Sheriff sale, the house has to be listed almost six months later for sale (The next Sheriff sale is three months away, that is the date the house can be listed for the sale AFTER that sale, in effect six months later).
Some states have faster ways to foreclosure, some longer. My point here is that it may take up to a year for someone to lose their home or investment house in a Sheriff sale. This is AFTER the family tried to keep the mortgage payments up.
My Point is the real estate bubble will not burst like a balloon, but slowly deflate. It may take a year AFTER families can no longer make payments on their home before we see them sell in a foreclosure action. At first Banks may take the home back in Deeds in Lieu of Foreclosure to avoid having to bid less then the mortgage value of the home in an effort to keep housing value up, but after awhile that will end and you will see homes sold at al lost. Please note Banks have the right to bid what is owned to them in a Foreclosure sale, the banks may just do that to avoid a short term loss and then try to sell the house at the price foreclosed on. This may keep the value of the homes up for awhile, but even this will have to end as the Banks end up holding more and more houses and having to pay the taxes on those houses.
Thus sooner or later the house value will fall, but it will stagnate for years first. The last few Housing Booms did that, the house value Stagnated till Inflation reduced the value of the Dollar to what the homes held by the bank were worth. Thus no one took a paper lost, but sold the homes for there "value" even if you use constant Dollars it is a clear lost. Tied in with inflation is that we have had booms in the same areas of the Country for the last 20 years, thus After a few years you enter another housing boom, prices start to go up again and these homes were sold by the bank at their listed value. This may take Four to Five years to kick in.
In a nutshell that is the problem, the Housing Bubble will take at least Four to Five years to unwind. It will start slowly and drag on and on with the Banks hoping that everything will turn around "next year". This is where I think Peak Oil will kick in. If peak was in 2005 (and some people contain) then about the time for the turnaround in real Estate the price of Gasoline will out of control. This will kill any turnaround as people will have to adjust to high price for gasoline. The areas with the highest Housing Appreciation over the last 20 years are the areas most dependent on Cheap Oil. Thus I just do not see housing prices in those areas turning around, they will continue to decline. This decline will spread to other Suburbs as people, to reduce costs, move closer to where they work. Other techniques will be used, Mopeds will become popular as will Small Motorcycles and you will see more and more people biking but Bicycles and Mopeds are just not compatible with high speed Automobiles and you will see growing tension between people who can afford to drive a car and people using non-conventional means of Transportation. Demand for Mass Transit will increase, but so will the demand for lower taxes so that people can buy the Gasoline they need to get to work. It will be a mess.
That brings me to your question, there are no safe bets as to what the economy will do. We may have inflation (Do to higher fuel prices), Deflation (Do to OPEC turing to the more Stable Euro) AND stagnation (Do to both of the above occurring at the same time). The best bet is to pay cash for a house now for houses will go down in price less then other items you will invest in. Now I know most people can NOT pay cash for their homes, but instead have a mortgage, my advice buy a home with a Fixed Mortgage rate thus if inflation kicks in you are protected. If you lose your job you have to play the game of foreclosure, but Unemployment runs for six months and with it you can delay any start of Foreclosure for that six month period. If you still do not have a job after six months you can still live in the home for up to a year (depending on your state) before you are kicked out of it by the Sheriff.
AS to what type of home to buy, first look at your job. Try to buy a home as near as you can to your work. This will minimize your commute. Check out the Secondary roads for usability by Bicycles, if gasoline gets to high it is an option you want to have. I would check out the Mass transit options, but I will warn you now, it will be the first alternatives of most other people and as such can not be counted on when the price of Gasoline goes through the Roof (There are exceptions for example New York City). While I would NOT rely on Mass transit as an option, I would check it out as an alternative. Get a good bicycle for commuting, I would opt for a Touring bike, it has the geometry of a racer but wider tires for comfort when used on the Road (and this is from a person who is using a Mountain Bike). If you have a good bike don't trade it in, but use it now so that you are use to using it when you need to use it.
If you have a choice opt for the smallest house you can live in. Sooner or later you will get married and have children (or Shack up and have children) thus the house should be something you are comfortable to live in with your mate and children (and get your mate involved in the decision, your home has to be joint decision). If both of you work try to make the house in a location BOTH of you can commute to your work by Bicycle. Further than that is just to far apart and sooner or later will cause strain in your relationship. If it is to far apart, think about getting a new job or new mate to solve the problem (or have your mate get a new job closer to your job).
Also look at where you an go to shop for Food and other items. You will still have to shop even if Gasoline is $10 a gallon. The closer such stores are the more likely you can BIKE to such stores with a trailer for what you want. Even if to far to bike, a close store will cut your gasoline bill over a store much further away.
The chief problem with the present situation is that we are on two tracks. The first is the Cheap oil track of the last 50 years. That is the track our society in on, and you have to be on to survive in our society. The other track is that if peak oil and high gasoline prices. We are NOT quite on that track but we are heading that way and you have to plan for that track. The key will be making the adjustment from one to the other. If you adjust to soon, you will lose the benefits of what cheap gasoline is left, if you adjust to late you will incur huge losses to to the need to junk all you own based on Cheap gasoline. My suggestion is to buy some place that is both Auto usable AND bicycle usable (Most of the old pre-WWII trolley Suburbs meet this criteria). If your job is in the inner city (and that is NOT as common as it was 30 years ago) you may want to move into the city itself to be as near to your work as possible and incur the slightly increase costs of Auto Ownership in the city (Slower speeds, more stop signs and red lights in addition to increase insurance rates). Many communities are "gentrifying" do to the influx of young professionals and older retirees and you should look into these communities (avoid Run down Communities for the Police tend to use them as Dumping grounds for undesirables who either finished serving their time in Jail or have not done enough to go to jail but will be, these "criminal" types are what gives certain inner-city communities bad names but the real problem is that is where the police leave them operate and dump them where the Police have no place else to put them).
Thus my advice is to buy, but be selective. Buy a place where Mass Transit exist, you can drive your car AND ride your bicycle to work and shopping.
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