Oh those golden years we thought would never end. Those wonderful years in the early 2000’s. The housing prices kept rising and seemed like they would never go down. But then came 2007 and the housing bubble burst. Everyone was shocked and horrified by the 30% drop in housing values. The housing market tragedies continue today and are being compounded by other defining factors such as the robo signing scandal just to name one.
So what did we learn? Well, hopefully enough to make sure that it never happens again. But here are a few things that we can all use as a “what to do and what not to do” guide to avoid another housing bubble.
1. Remember that housing prices don’t just go up. Housing prices go up and down and they always will. Adjust your expectations, many people buy a house expecting it to increase in value about 5 or 10% in just a couple year. “You will never sell at the all-time high and you’ll never buy at the all-time low by planning it,” says Tim Burrell, a real-estate agent for Re/Max United in Raleigh, N.C. “The market will time you. You will sell, and on occasion you may happen to hit the all-time high or happen to hit the all-time low, but to study it and plan it and figure out and actually do it — it doesn’t happen.”
2. Think long term financing. You must put a significant amount of money down on your new home. Don’t count on the appreciation of your home to get you out of a bind when it comes time to sell.
3. Your home is not your piggy bank. Do not borrow money against your home in order to finance other things such as a new car or your next vacation etc – ever! At the height of the real-estate market boom, “We had a whole bunch of people refinancing high-interest credit cards with a low-interest second mortgage on their homes,” Olefson says. Today, some of those people have lost their homes or are in danger of doing so because they were unable to handle the mortgage debt. “As a country, we’ve all gotten way too comfortable with credit and having debt in our lives,” Olefson says. “But the problem really came when that morphed into our homes.” We need to promote the value of owning your home free and clear again, because residential real estate really is the backbone of our country. It’s the biggest asset for most people,” Olefson says. Likewise, instead of depending on your home for all of your wealth, continue to build up your cash reserves, Burrell suggests.
4. Don’t make improvements expecting a huge increase in value. Only make the renovations if you have the cash to pay for them, you plan on staying in your current home and will be there to enjoy them and never over improve beyond the value of the neighborhood. If you do, you will never get your money back.
5. If you buy a home “as is”, the worst thing you could do is not to make the necessary repairs. You should always keep up with home repairs and maintenance. So when it comes time to sell, you will not have to drop the price of your home in order to cover the cost of the repairs. Additionally, most people are looking for a home that is “move in ready” and do not want to be hassled with a bunch of repairs.