The Scary Bubble
"Housing bubble” has such a dramatic ring to it, and it sounds scary. Plus, these words sell newspapers.
Is it possible that house values in The Jersey Shore area will decline soon? No one can really predict. However… we can learn from history.
In the '70s property values appreciated faster the in the recent three years. In the following 10 years home appreciation doubled. Beginning in the late 80's we saw property values decline for about five years. A total of about 12%.
What’s different this time? Numbers, expressed in dollars, the recent increases in value seem extreme. As a percentage of the home’s cost, appreciation has been more rapid in the past and there could be many more years of appreciation in the future.But no one knows.
Housing Bubble Protection:
If no one can predict if or when prices will decline or by how much, how do you protect yourself? You do it the “old-fashioned way.”
When you buy a home, buy one you intend to own for a long time. The cost of a house isn’t just the price you pay for it and price may not be as important as your carrying costs. The largest cost is your mortgage payment. With low interest rates, people can afford more expensive houses because their payments will be low. If possible, skip the “first-time homebuyers” house and buy the “move-up” house. That saves you one move, saves you costs, and puts you in a position where you don’t have to sell.
You see, how much your house goes up or down in value each year doesn’t make any difference at all – until you have to sell it.
Then, if you’re selling in a slow market – you’re also buying in a slow market. If you’re buying in a hot market – you are also selling in a hot market. It equals out, provided you have equity enough to make your next purchase.
But if you’re buying a home to “flip” it in a year or two and the market does turn against you, you could be hurting – providing you have to sell. If you're buying just before a down market and you get transferred or relocated, you could be hurting, too - providing you have to sell the home.
Conclusion:
There probably is not a “housing bubble” in the way that there was a Nikkei bubble or a dot.com bubble. However, it is quite likely that there will be some time in the future when values decline, at least in certain areas. It could be in a year or it could be in sixteen years.
How did most people cope in the past? They rode it out. They didn’t sell. Later, prices recovered and bypassed previous highs.
Right now, those are some pretty happy folks.
Pete & Bev Petridis
www.petepetridis.com
Pete's Cell: 609-377-4023
Bev's Cell:609-352-9257
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