Real Estate Slump Isn’t All Bad
By J Finnis
There’s been much ado about the current problems in the real estate market with foreclosures rocketing and prices dropping like a stone. But the situation isn’t all doom and gloom. Here’s why…
Like all markets, real estate is cyclical. It has ups and downs. Owners have enjoyed a length period of substantial growth. It was inevitable that some of that growth would eventually be reversed. Unlike certain other markets, real estate deals in tangible assets. It’s quite possible for company stock to become worthless. With real estate you always have the physical asset, and as a growing population will always need somewhere to live real estate will eventually recover any losses and resume its upward trend.
Soaring prices have been making it increasingly difficult for many gain entry the housing market. These new buyers provide the capital for existing owners to trade upwards. Without them, the rising prices of the last few years are unsustainable. Lower house prices, coupled with lower interest rates will mean more people will again be able to purchase first homes.
Most of us don’t move home very often. The value of our home may be psychologically significant, but until we come to sell it’s only of academic interest. Just sit tight; your home still offers exactly the same benefits, so just enjoy it and forget about its “paper” value.
But now could be a very good time if you’re trading up as more expensive homes have probably fallen more than cheaper ones. For example if your $100,000 home has dropped $15,000, the $200,000 one you had your eye on has likely fallen $30,000.
Even if you’re selling out of the market you’re probably still sitting on a very nice profit on what you paid (unless you bought very recently at the absolute top, in which case sit tight unless you absolutely have to sell).
Finally, if you’re an investor, you could be looking at the best period of opportunity for quite some time. There are bargains to be had all around. And many troubled owners will be only to happy to accept any reasonable offer if it avoids foreclosure and saves their credit history. And many will be only too happy to rent their home back from its new owner.
Johnny Finnis is editor of personalmoneymanagement101.com, a simple and unbiased introduction to finance and investment for ordinary people to make the most of their money. Have your say on our blog
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