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situation and clamp down on spending for big ticket items such as homes. And, you guessed it, demand drops causing continued divergence between supply and demand. Median prices are falling and could fall much further.

Mean prices are following right behind it.

The good news about all of this noise is that the affordability index is becoming attractive relative to the cost of renting. And for those who are in a position to take advantage of this, the music is playing louder by the day. A few basic principles to remember when buying a home in this paradigm shift: Is your job/career stable: If no or you are not sure, take a pass and just rent. Have at least eight months of cash on hand: If you spend $3,000 per month to live, including rent or potential mortgage payment, then you need to have $36,000 in cash not including 401K/IRA, stocks or any other investments or assets. This ensures if a job loss occurs you have eight months of funds to get back on your feet without tapping credit card or selling investments and assets at inopportune times.

This strategy would minimize risk of ruining credit or increasing debt. The standard rule of thumb under normal circumstances is six months of liquid funds but since these times are unprecedented increasing threshold is prudent. Please do not rely on unemployment income as that does not cover 100% of your monthly expenses. Eight months cash on hand as a security will come a long way if ever needed, trust me. Make a reasonable down payment: 10% at minimum, 20% preferable. This is more important now than ever before. When buying during unprecedented times like today, the down payment cushions any future losses in the short term. Don't expect prices to rebound any time soon either. If your time horizon is less than 5-7 years, think about whether it is prudent to actually buy. Chances are you will see a minimal return on your purchase, if any, during that time span. Do not overpay for your home: A home for most people is their biggest purchase. Why would you ever overpay for it?

A good rule of thumb is to determine the annual income the home could generate if rented. For example, if the price of a home you are interested in is selling for $300,000 and could rent for $1,500 per month you may want to think twice. $1,500 a month means $18,000 a year in potential rental income. Divide sale price by $18,000 and you get 16.666. This ratio gives you the factor you are willing to pay for ever dollar of annual income the house could generate.

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