Perspective on The Current Real Estate Market
In the last eight to ten years many people have
been treating real estate, including their personal
residence like a business. Many homeowners and
house investors had visions of becoming rich from
their real estate. It also seems everyone thought
they were an expert. Many real estate investors
were looking like gambling addicts who thought
they could make up for their losses with just
one more roll of the dice. Based on some popular
TV shows, many homeowners still think they can
continue to see big profits. All the experts keep
telling them that they just need to wait a little
longer for the market to turn around.
Sadly, I have some bad news. We are not at the
bottom of this market so home prices will continue
to fall. Add to that the rising foreclosures,
not just from the bursting of the real estate
bubble but now from many hundreds of thousands
of new layoffs. When you consider the following
pressures on real estate buying and selling, how
could anyone think prices are going to turn around
any time soon? These include, 1) A huge inventory
of houses, 2) Growing number of foreclosures,
3) Continued massive layoffs, 4) Extremely tight
lending standards and 5) Banks and mortgage companies
going out of business right and left.
It is unfortunate but true that Real Estate doesn’t
always go up in value. It might take a generation
or more for real estate prices to just recover
in some locations.
To illustrate this point with a real life example
from the Great Depression, we knew a woman who
was living off real estate in the 1990s her father
bought during the 1920s and 1930s.
Seventy years is a long time to wait for an investment
to pay off. It should change the way we manage
our personal real estate investments. If you are
paying on a big mortgage you experience severe
risk in the event of job loss or an economic downturn.
Owing the bankers and loan companies just puts
you under more pressure. So what should you do?
You want to get rid of the obligation as soon
as possible. It makes you vulnerable to any income
glitch like a layoff. If you own the structure
outright, it means you only have to pay taxes,
insurance and utilities.
Here are some potential strategies.
1. Put aside money until you can put down a sizeable
down payment if you are buying.
2. Get a short-term mortgage or better yet buy
what house you can with no mortgage.
3. Pay off your existing mortgage as fast as you
4. Trade down to a smaller house that is more
5. Purchase some land where you can grow food
or add on other structures.
6. Look for tax breaks for agricultural land and
7. Get rid of car payments and apply the income
to your home. Cars are terrible investments. Even
now real estate is better. I’ve seen car
payments greater than many mortgage payments.
Forget trying to keep up with the proverbial
Jones. They have gone or are going right off a
Lastly, prepare yourself and your family for
an even further drop in home prices. Also, expect
lots more foreclosures creating a continued downward
spiral. If you prepare for the worst and it doesn’t
happen, think how much less stress you would have
in your life without big house and car payments.
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