The New Realities of Real Estate

A 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 can.
4. Trade down to a smaller house that is more affordable.
5. Purchase some land where you can grow food or add on other structures.
6. Look for tax breaks for agricultural land and homestead exemptions.
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 cliff.

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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