No one can forget the Housing Bubble bust, especially since we are still affected by this. We have not come out of this hole and it will take some time.
What could have caused this bubble bust? This whole situation was not caused by one problem; it was due to numerous wide ranging affects in the economy that caused this to happen.
For instance, construction companies built and sold over a million houses in 2005, compared to half of that being built in sold in years before that.
This was a plus for construction companies; they saw their shares rise from $3.00 to over $42.00 overnight. Then, in 2005, it was reported that many homeowners took out home equity loans or did cash out refinancing that totaled over went from $700 billion compared to $106 billion in 1996.
Since the houses were valued at more than what they paid for, they took advantage of it and used the money to pay off bills, home improvements or just for personal use. Then of course there are the lending practices that were going on at the time. Pretty much anyone could get a house even if they could not afford it. Let’s not forget that the mortgage rates rose and many homeowners could no longer afford their homes.
As it startled to tumble downhill, those cities and areas that had the fastest growth were the first ones to experience high foreclosure rates. Everything started to spiral downwards and at a fast pace. Another thing to remember, when the foreclosures began, the country still had not mentioned that we were in a recession, at that point it became worst.
Many homeowners were already struggling to stay above waters and could barely pay their mortgages. When the recession hit, it was a losing battle for many and their homes were foreclosed. Could this have been prevented? The following tips can help you avoid making the same mistakes again.RESEARCH
Before signing on the dotted line, do some extensive research. When many homeowners purchase their homes, they did not bother checking anything out. They trusted completely the person they were dealing with. Also, they were oblivious of the changing mortgage terms they struggled afterwards and didn’t understand in the first place. They were just so excited about the house that it never crossed their minds. To prevent this from happening again, try reading books on real-estate transaction, get professional advice from a financial advisor and definitely look into the credentials of the person who is advising you. If anything can be learned from all this, be careful who you trust.
BE REALISTIC
Many homeowners were purchasing homes and living in them for a year or so, waiting to see the value of it increase. Once it increased they would sell and move into another, even pricier and with the same intentions. When the bottom fell out, they were left with a house with a huge mortgage and it was worth less then they paid for, sometimes over 25% less. To avoid this, when you purchase a home, don’t purchase it with the hopes to see an increase immediately. Instead purchase it with the idea that you will live there for a long time and make sure that when you purchase the home, your mortgage interest rate is as low as possible.
AVOID REFINANCING
Due to the real-estate market boom, many dipped into their equity by refinancing or adding a second mortgage to pay off credit cards. By doing this, later as the economy was crumbling, they found themselves with a more debts and unable to pay their mortgages, in some cases have lost it all. In the future do all you can to keep your home free and clear of debt, keep it clean. You should build up your cash reserves in your home; this is your biggest investment. Don’t dip into your home’s equity. Instead manage your debts as best as you can and ignore the fact that you have equity in your home. You will want to keep your home as long as possible.
WITHIN YOUR MEANS
Many bought homes they couldn’t afford just to ride the wave of rising equity. They thought that this was going to go on for quite a while, not once thinking it could fall. They were waiting to see it hit its all time high and then sell, well that didn’t happen as they thought it would. It’s just like those right now waiting to see it hit its all time low; no one seems to realize you can never truly predict what will happen in the housing market. You just can’t time it. Instead, when purchasing a home, make sure you can afford it, don’t go overboard. Sit down; write down the numbers, figure out what your monthly payments will be and if you can do it. Always take into account things that can happen in life and the economy. Make sure you will be able to keep your home no matter what happens around you.
MORTGAGE RATES
When the market was going up, many seem to find adjustable mortgage rates appealing. They liked the idea they would get the lowest rates available and sell them or refinance them before the mortgage rates changed. That dream never came true, instead the housing market crashed. By the time they tried to refinance their homes, they just didn’t have the equity they hoped for because prices fell rapidly. Now, when you think of purchasing a home, think long-term financing, think of five years down the road. Make sure you can keep your home just in case anything like this happens again. If you have learned anything from this is that is there never is a sure thing.
Many seem to have forgotten that saying, “if it’s too good to be true, then it is”. Many homeowners realized this a little too. Due to all the bad choices, many have lost everything and now are trying to get back on their feet. Will this be the last time it ever happens? No, it will happen again because we are creatures of habit and when things are going great we forget all the bad in the past. However, for those that don’t wish to go through this again, will take this lesson to heart and do everything in their power to avoid getting caught up in any future housing bubbles. Be smart, do research and don’t fall for any of the fairy dust many throw your way just to get your attention.