Well folks, it's been almost a year since I last wrote a column addressing the crazy real estate market. If you look back and observe what's happened over the last 12 months, it's pretty easy to say that I've been dead wrong.

Last March, I cited some real-life examples of what was happening in real estate in the Washington, D.C. Metro Area. Houses were being sold for $100,000 over the list price, folks were camping in the street to place contracts to buy in a new townhouse development, resales were receiving dozens of legitimate offers hours after the home goes on the market… stuff like that.

Clearly, there was a severe imbalance between supply and demand. The focus of the column was a suggestion that, such a scenario cannot be sustained. Affordability will eventually come into play because wages and salaries are not rising to the extent of home prices.

One year later, it's still going strong. Here's a typical situation. A homeowner decides to list his house for sale. He chooses a real estate agent and they decide on a price of $350,000. The agent lists the house on a Saturday. By the end of the day, there are ten contract offers. The listing agent tells all interested buyers that he will review all offers on Monday evening.

The agent and seller get together on Monday night to review the paperwork. The offers that immediately get thrown in the garbage can, are the ones that offer full price with a pre-approved mortgage (subject only to an appraisal) and a 20 percent down payment.

Yes, you read it correctly. Full price, pre-approved, and a large down payment. Sounds like the perfect buyer. Nope, not in this market. After reviewing all offers, the sellers decide to accept an offer from a buyer who:

• Added an escalation clause agreeing to buy the property for $375,000.

• Waives the financing contingency. This means the buyer defaults on the contract and loses his earnest money deposit if for some reason he cannot obtain a mortgage.

• Waives the appraisal contingency. This means if the property appraises for less than the purchase price, the buyer agrees to pony up the difference.

• Waives the home inspection contingency. This means that the buyer cannot have a professional inspector check out the house to see if there's anything markedly wrong before he commits to buying.

It's a seller's dream and a buyer's nightmare. A year ago, I had predicted that eventually the market would cool down. I made no time commitment, but I secretly thought the market would have peaked by now.

But I'm stubborn. Remember the saying, the "bigger the boom, the bigger the bust". Affordability will eventually play a bigger role and home values will level off and perhaps decline in some areas. I'm seeing signs of this happening in the suburbs of Washington. There are more houses in planned developments on the market, and some are staying on the market longer. The recent rise in interest rates doesn't help.

Over time, real estate has proven to be a winner. But after several years of an overwhelmingly lopsided market, it is surely prudent for would-be home buyers to enter into the home buying process with the notion that they may be buying at the peak of a cycle. For long term holders, this is not necessarily a bad thing. But for speculators who obtain 100 percent financing and plan on making a killing by "flipping" the property in a year, it could be ill-timed.

To compare residential real estate with the stock market is hardly accurate and certainly unfair. Stocks are freely tradable in small amounts and are not owned for the purpose of shelter. But at the same time, I can't resist ending this column by pointing out that five years ago, in March of 2000, the Nasdaq Composite stock index peaked at an all time high of 5,048. Today, five years later, it's hovering a little over 2,000. Cycles happen.

Published: March 17, 2005

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, the president of PMC Mortgage Corporation in Alexandria, VA, is a mortgage columnist whose work has appeared in numerous consumer, real estate, and mortgage publications. Mr. Savage welcomes your questions for possible use in this column, however because of the volume of mail received, Mr. Savage cannot answer questions individually.