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Headlines are saying that this is the worst downturn in real estate since the early 90's. It's being compared to the bursting of the .com bubble of the late 90's. Oh, and don't forget the disintegration of the sub-prime mortgage market of early last year, the event that triggered the economic slow down here in the US . The market is flooded with homes on the market and that inventory is inflated by the number of homes that are being sold by banks due to foreclosures.
How does all of this negative stuff going on “out there” affect you, safe in your own home? It can potentially affect the value of your home.
When we buy an asset, whether it's a home or a stock, we fully expect that it's value will increase over time…few of us buy a home or a stock with the intention of watching it's value disappear. We assume that if we take care of our asset all will return the favor and take care of us in the future…but the “market” has other ideas. Just like any other investment the housing market has it's cycles. If you purchased real estate in 2005 you purchased it at the peak of its most current cycle. You likely paid more for it than you would have if you had purchased real estate in 2003 or even today. If you were on the selling side of the transaction in 2005 you earned more than you would have if you had sold in 2003 or 2007. So what makes the real estate cycle different than other cycles in our economy…this cycle affects the roof over our heads, our safe haven, our home. The housing cycle is very personal.
Patience
So how can you protect your asset at the bottom of the cycle? First of all be patient. Just like every other economic cycle, this one will turn around at some point. In my experience the average complete housing cycle is 5 years…so if the most recent peak was in 2005, you can expect the next peak to happen some time around 2010, give or take a year or so.
Don't Sell
This is a buyers market. That means that there is a lot of inventory out there for the buyer to choose from. That gives the buyer the ability to be choosy and to drive the price down for the best possible deal…as the seller, you may take a bath just to get rid of the property. If you can avoid selling at the bottom of the cycle, do. You've heard the old adage, buy low, sell high; real estate is no different. If you have a 2 nd property that you are trying to sell, think about putting a renter into it for the short term, to offset your carrying costs.
Help Your Neighbor
The value of your home is also derived from the value of your neighbors' home. So if you neighbor is attempting to sell in this market, they may sell below what you would like them to. If too many neighbors do this, your home value will drop to the sales price of the other homes nearby. What can you do about your neighbors? Give them a copy of this message, first of all. Then if they still insist on selling, help them find a buyer. What a chance to pick your neighbors! But, the real reason you want to do this is to encourage a quick sale. The longer a property stays on the market the lower the price must go to sell it. Quick sales in your neighborhood will also keep interest in the area high, which will encourage other quick sales. Everyone wants to live where everyone else wants to live, right? This will keep the value of your home protected.
Curb Appeal
Another thing you can do to protect the value of your home is maintenance. Keep it in great condition. Fix the roof, the tiny drip in the bathroom sink, all the little things. Keep the front door and trim freshly painted, the grass mowed and watered and the bushes trimmed. There is nothing like seeing a neighbor painting his trim to get you to step back and look at your trim and really “see” it and realize you should have painted yours 2 years ago. As much as I disagree with the idea of “keeping up with the Jones's” in most respects, when it comes to curb appeal, I believe we should all try to have the prettiest home in the neighborhood. One bad apple does spoil the whole bushel, when it comes to neighborhood appeal. The nicer the neighborhood looks from the street the more secure the home values.
Even following my suggestions you are likely to see some drop in the value of your home, that's just economics. Be patient, be neighborly and be proactive with the maintenance of your home and you should be able to weather this market just fine.
Keeping your interests in mind,
Linda Aivalotis Related Items
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