Purchasing
- Your first home
- Your next home and move
- An investment property
- A vacation home
Refinancing
- To tap your home equity
- To save money
- To avoid rate increases
- To lower monthly payments
Home Equity
- Loans and lines of credit
- Finance major expenses
- Consolidate Debt
- Invest
Housing slowdown cold be a lot worse
The “boom” of the housing market is now over, and we are well on our way to the epicenter of the slowdown. There is an overwhelming surplus of homes on the market and prices are slowly declining.
But what goes up must come down, and this is no different from the housing market. This slowdown was inevitable; it was just a matter of time before we started to see the results. So, with all this said, we need to look on the bright side and acknowledge the fact that yes, we are in a slowdown, but it really is not quite as bad as everyone is making it out to be.
An August 30, 2006 article by James B. Stewart of The Wall Street Journal, “Upsides to the housing slowdown,” gives some informative facts on the positive aspects of the slowing market.
“Let's be honest with ourselves: Aren't you just a little glad the real-estate boom is over? No more bragging from self-congratulatory owners of property in high-priced areas. No more breathless tales of bidding wars and comparative sales.”
“Last week's figures for sales of new and existing homes, both showing sharp declines of more than 4%, make it clear that the long-anticipated real-estate downturn has begun. I realize that a significant downturn in any market causes hardship for some. Tales of woe are mounting from the real-estate industry, from home builders and architects, to empty-nesters and retirees hoping to cash out of big homes and move to smaller places.”
Obviously, there are some reasons why everyone is in a fluster about the housing market, because not only does it affect the real estate worlds, but many other sectors of our economy as well.
“But let's look at the bright side, too. The real-estate market during recent years had many unhealthy economic and psychological effects. Soaring prices forced many people, especially young people buying their first homes and starting families, out of many markets. It pushed too many people into dreadful mortgages. It misallocated capital to construction for which there was no fundamental demand.”
As with any situation there are both pros and cons. The real estate boom pushed many people into mortgages they could not afford, and they are now paying the price. Although there were many negative effects of the booming market, the economy should be able to stabilize itself during the slowdown.
“Purging the market of excess speculation will no doubt yield some tales of plunging prices and hardship. But I wouldn't expect an out-and-out collapse, or even anything as severe as the downturn in the early 1990s. As Toll Brothers Chairman Robert Toll said last week, there's no recession, long-term mortgage rates remain low, and there's still demand for housing. This is a pretty healthy environment for housing, even if there are price declines still in store.”
One other big advantage to the slowing market is that since there is such an increase in the inventory of homes for sale, prices have also been dropping; making this environment a buyer’s market. People looking to sell their homes are out of luck, but those looking to purchase couldn’t have picked a better time.
“Property itself may also begin to be attractive, either as an investment vehicle or for your own use. In some markets, falling prices for condos compared with rents are beginning to make them attractive to yield-oriented investors. It is a paradox of falling real-estate values that buyers balk at paying far less than they would have in a rising market, simply because they're afraid the value may decline further after they buy. All of a sudden they're market timers, aiming for an elusive bottom.”
During this uncertain time, always think extra hard about any financial decisions you may make, because what looks good today, could plummet tomorrow.