Critical Perspective for the Current Real Estate Market

By Raynor James

Real estate has often been viewed as a solid investment for a number of reasons. One of those reasons is the fact it tends to be fairly stable. This rule has been flipped on its head this decade.

To understand the real estate market in the 21st Century, you have to maintain a critical, objective perspective. Getting caught up in the moment is a huge mistake, which brings us to a critical element that most people ignore – time.

How is time a critical element in the real estate market? Well, the market has been swinging like a drunken sailor this decade. Imagine owning a home in Las Vegas in 2003. Your home was appreciating at a scalding 27 percent a year. Think about that for a minute. Real estate has historically taken 10 to 15 years to double in value. In Las Vegas, it was doubling every three years. A majority of the country saw 10 to 25 percent gains per year as well.

Could the 2003 market continue on forever? Of course, not. Sooner or later, prices would be so high that people simply could not buy. Throw in the fact that interest rates were so low they fueled the buying frenzy and it was clear things would pull back at some point in time.

If you were maintaining an objective perspective of time, you had to know that in 2005, 2006 or 2007, things would cool off. It didn’t take a genius to determine that a big correction was likely when the bubble burst. This is exactly where we stand now. Those that planned for it are fine. Those that took out huge home equity loans are not.

As of this article, we are sitting in an ice cold real estate market. Values are dropping. The rate of homes being sold is dropping. Basically, the sky is falling in real estate. Once again, however, we need to focus on time. 2008 may look ugly, but what about 2009 or 2010? Sooner or later, the market is going to recover and you need to remain calm and focus on that if you are a homeowner.

Many homeowners are short selling or having their homes foreclosed on because they owe more than their homes are worth. This is a huge mistake. If you default or have a negative sell of your home, no lender is going to touch you in the future. Ah, but why hold on to a home you owe more on than it is worth? One reason – TIME!

Yes, you are upside down on your home. Yes, it is depressing and stressful. To get over this, you must focus on time. The market is going to rebound in 2009 or 2010. When it does, your home will appreciate to the point where it is worth more than you owe.

Don’t look at the term of your mortgage. Instead, you must focus on one thing and one thing only – survive the next one to two years until the market rebounds. Rent out a room. Rent the entire home. Do whatever it takes to get through the next two years. If you can survive that period, you will end up with a home that has equity instead of a credit score that is destroyed by a short sell or foreclosure. If you can make it through a year or two, time will indeed be on your side.

Raynor James writes about issues surrounding real estate FSBO for FSBOAmerica.org where you can list your property for sale by owner for free for 1 month.

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