The bigger they are the harder they fall.

That statement definitely applies to Fannie Mae and Freddie Mac.  Unless you've been under a rock the last week, you've heard about the trouble they're in.

Fannie and Freddie are a big part of why your local bank can offer mortgages. The bank loans you the money to buy your house. But it's going to be a long, long time before they get that back. And, it doesn't take too many mortgage loans before they're out of money to loans. So Fannie and Freddie buy mortgages from your bank. Your bank then has money to make another loan. This keeps a lot more money available for buying houses. It also keeps mortgage rates lower.

I don't think anyone feels good about the steps the government is taking to shore up these two behemoths. This is not how the free market is supposed to work.

But Fannie and Freddie have never really been pure capitalism at work. They are an odd blend of a corporation and the government entity.

Something had to be done now to keep the real estate and financial markets from further imploding. But I think there needs to be a short term strategy, meant to keep the markets calm and functioning and a longer term strategy that looks at the functions performed by these two entities and how those functions are best performed.

My belief is that if Freddie & Fannie weren't allowed to buy any more mortgages, eventually, another entity (and hopefully 3 or 4) would be created to fill that void. So, long term, how do you begin to ease Fannie & Freddie out of the business or at least into a smaller role.

The biggest problem here may be the shareholders of these two corporations. But, given what their stock prices are doing, it shouldn't be long before they are easy pickings for an enterprise that's truly commercial.

Now, does the political will and the creativity exist to envision something different than our current mess?

For some odd reason there seems to be a class of real estate pundits out there who believe that a potential recession is a good thing for the real estate market.

It's an odd line of thought. But I understand their logic. The belief is that if the economy continues to look like it's headed for recession the Fed will have no choice but to lower interest rates. Lower interest rates will get all those buyers who are currently sitting on the sidelines to jump in and buy a home. And, voila! the market improves.

There are some serious logical flaws in this argument. First of all, even with some data suggesting the possibility of recession, the Fed's in a tough spot. While they'd no doubt like to lower interest rates to bolster the economy, there are also plenty of worries about inflation. Oil hit $100/barrel this week. Rising oil prices impact the prices of almost everything in our economy. It's hard to see how continued high oil prices aren't inflationary. And, food prices are rising fairly rapidly. While this is not included in most official measurements of inflation, it is certainly something that will be watched by the Fed. So, maybe they cut interest rates. Maybe they hold steady. There's not enough data to provide an answer right now. And, the truth is you never know for sure until the Fed meets.

Secondly, as I've mentioned here before, a lowering of rates by the Fed is no guarantee of lower mortgage rates. Again, inflationary worries often have more of an impact on those rates.

Next, recessions are not good for real estate! People insecure about their financial prospects do not go buy new homes! If you're worried about losing your job you don't look to move up. You look to hold on to what you've got. Time to batten down the hatches!

And, lastly, there is no quick turn around for real estate. And, that's certainly true here locally. There are not enough buyers waiting on the sidelines to completely turn around this market in the short term. It took time for us to dig the hole we're in. It will take time to fill it back up! I'm hopeful we'll see a bottom in 2008. Anyone expecting much more than that has got some serious rose colored glasses!

As a consumer it's got to feel a little confusing right now, trying to figure out what's going on in the real estate market.  If you're trying to decide whether now is the time to buy or sell there are a host of opinions coming at you, and new news stories every day about the latest in real estate.

I thought today I'd try and summarize some of what's out there and see if I can make any sense of it all.

I can't tell you whether we're at the bottom of this slump. What I can tell you is that, unlike some areas of the country, we've already seen some pretty significant price cuts. Yes, there are still overpriced listings out there. (There are always, in every market, overpriced listings!) But people who are serious about needing to sell their homes are getting it.

What I suspect is that we're going to see the number of homes on the market stay fairly flat for a couple of months and then spike significantly again in the spring. I don't think we'll see enough sales between now and then to compensate. That means, at the very least, no price appreciation any time soon.

If you're buying and are comfortable you can stay put for five years, I'd suggest going ahead and buying. If you're looking at a more short term situation, perhaps a transfer in a year or two, you may be better off waiting.

From a selling perspective, I think things will be flat for at least the next year. And, I think we're a couple of years away from seeing any price increases at all. So, if you're not willing to wait more than two years, you might want to sell now.

The other big question in all this is what will happen with interest rates. Right now I wouldn't bet on them going any lower. There still appears to be plenty of worry about inflation out there. As long as that persists don't count on lower interest rates.

And, in the background is all the noise about government and private plans to help with the subprime mess. Most of that will be too little too late to ease much of the pain. At best, it provides a little cushion and keeps things from getting any worse. The efforts on all those fronts may, finally, have given us a bottom. And, for that, we can be grateful!