The housing bubble bust can be a good thing

Aug
30

There was a great article at Times.com from Michael Kinsley yesterday that brings an interesting point of view on the current housing bubble bust. I always get a little edgy when I hear about how the real estate market is tanking when I'm not sitting on my duff. However, let's look at the common view points on both sides of the real estate market coin.

You know me, I like to look at the bad side of the coin first so that I feel better at the end. So the negative side of the real estate bubble bust is that people can't get as much for their home as they could a few years ago. This could be a very bad thing if they have gotten a second mortgage or equity line and have run it up. Now, chances are, they owe more than their home is worth. That is one of the reasons why foreclosures are on the rise.

But let's look at why Michael thinks there is a bright side to the real estate bust. He says that there are 3 kinds of people in the real estate market and the bust affects them each differently.

The young buyer: They are usually first time buyers and the rise in housing costs has kept them in rental status forever. Now, with prices going down, they can actually afford the hoe they should have been able to get last year. This age seems to be the big winner in the housing bubble bust.
The average homeowner: These owners tend to get caught in the middle. They can't seem to trade up as easily as they could when they were watching their home go up in value each year. For instance, if you bought a home 5 years ago and the market value was $250,000, now you would want to see the market price your home at least at $300,000. This would seem reasonable if prices keep going up. But if you bought during the highest point in the real estate market when prices were inflated, now you are looking at a much lower amount of equity than you had hoped to find when you go to sell your home. This age group, to me, gets caught up in the real estate catch 22.
The older homeowner: These owners have watched the prices of homes go up and down for years. They have usually ridden out the housing market woes and have plenty of equity simply because they have been in one place for a while and the fluctuation of the market doesn't really affect them. They are either going to downsize or retire to a community that doesn't let you own your residence anyway. Either way, it seems that they are the only ones that win with higher home prices and won't be too hurt if they fall.

I guess we should all hope to be there at some point in our lives. The moral of the story is that the longer you live in one place, the better off you will be when you go to sell. Real estate shouldn't be looked at by the general public as a guaranteed money maker. You have to be careful with your finances and your investments.

Thank you, Maricel for the tip. Great article.

Rescuing a Broward County home can be rewarding
Why a certified home inspector is important whether you are buying or selling real estate
Top 10 reasons why the population explosion in Broward County is a good thing
Homeowner's Insurance rates should be getting some help from legislators
To rent or buy real estate? That is the question...