Sushi Money

    Among our many personal finance challenges, selling a home can be a daunting task even in the best of times.  And now isn’t the best of times for most of the nation.  Okay, an understatement to be sure- the housing “slump” has gone on for more than a year and most experts are not predicting a turn-around any time soon.  But depending on where you live, real estate may not be too bad, with some economists even seeing a turnaround in progress in places such as Denver, Colorado for example.  Many metropolitan niche markets across the nation are also doing fine… but most of us don’t live in those places.  So lets not get ahead of ourselves- in 2007 housing construction fell by the largest amount in almost three decades in an unprecedented national downturn.  And foreclosures may continue to rise over the first half of 2008 before finally stablizing later this year.

 ”Mark Zandi, chief economist at Moody’s Economy.com, is forecasting that median sales prices for existing homes will fall by 2.5 percent for all of 2007, which would be the first annual price decline on records that go back four decades.”

Yet even with the pessimism, there is reason to hope.  The National Association of Realtors (NAR) forecasts existing home sales for 2008 to stablize and gradually increase.  And for many people, it’s time to buy or sell a home regardless of what the market is doing.   For others the rental market looks pretty good right now as well.

Our lives are so often a tangle of priorities.  If you are selling a home because of a job change or family situation change, then your proverbial plate is pretty darn full.   And if you’re selling because home ownership (and mortgage debt) is not something you can or want to handle anymore, then you may feel a lot of stress based on finances and a need for change.  Heck- selling a home is never easy no matter what your situation.  But if you’ve got some time on your side it can make the process a lot easier.

On that note there is a wealth of information available, and it bears repeating a few key themes.  Bankrate.com has written about 8 Tips for Pricing Your Home.   Solid information that boils down to knowing your market, seeking professional help and working hard to understand valuation and price strategies.  But I think we can do a lot more.  We looked at some of those strategies in Get Ready to Sell That House.    Selling by owner is also a challenge, so think hard about the FSBO approach.  And if you’re facing financial challenge and struggling with mortgage payments, we examined what you can do to avoid foreclosure.

Among all the negative news and gloom out there I try not to give into the hype.  The day is a lot brighter when I simply focus on our personal goals and priorities while turning down the volume of pessimistic commentary from the media.  I won’t tune it out completely because it’s important to stay informed.  But as with so many things, finding a balance in life is important.  A few years from now our memories will fade as we face the challenges of a new day.  I prefer to envision a positive future… setting  intentions for what we plan to achieve over time.  We can create a new future…  I wish you well!

***Update: October 2008***  With the financial crisis in full-swing in the second half of 2008, many see bailing out homeowners as a necessity in order to stabilize the housing markets.  As the government bails out financial institutions and takes ownership positions, it may only make sense to stabilize the mortgage market through a structured approach to helping refinance troubled loans for homeowners.  In the middle of the crisis it’s time for action, and what may have not been considered previously may now be necessary.  It will be interesting to look back years from now to see the effects of these economic choices. 

So the FDIC Chairman is advocating freezing ARM rates for mortgage borrowers who are in trouble?  Wow…  I have to say I have very mixed feelings about this proposition.  Especially since the percentage of mortgage borrowers in trouble is very small compared to the mortgage spectrum across the nation.  What signal are we sending to lenders and borrowers if we travel down this road?

“Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it,” Federal Deposit Insurance Corp. Chairman Sheila Bair said in prepared remarks at an investor’s conference.

   In many ways that does not seem fair at all to millions of homeowners and mortgage holders that prudently shopped for their loan and took out more appropriate loan terms, most likely with higher interest rates.  For example, let’s say borrower #1 found a really big house for $450,000 (that they shouldn’t have been purchasing), and took out an ARM with a low teaser rate for 1-3 years.  Now they’re in trouble making payments. 

Borrower #2 bought a house at the same time, but realized they couldn’t afford such a large mortgage, and didn’t want to take the risk of an ARM with potentially higher rates in the future.  They would have loved that $450,000 house… but they could only afford a $300,000 house with a higher fixed rate loan.  They continue to make their payments at the higher fixed rate, and are somewhat mystified that those who got low rate teaser ARM loans might now be rewarded and get their loans converted to fixed rate loans, maybe even at lower rates?  

So what kind of incentive is that for people to make prudent decisions in the future?  What does that say to future potential homeowners and mortgage borrowers?   I think it says to do whatever the heck you want and you don’t have to worry about the financial consequences.  Which is absolutely wrong of course.

 I think people who have made prudent decisions have a right to wonder about this.  Some of the least appropriate lending decisions and home buying decisions have been made by people who misrepresented both income and their ability to repay a loan.  Perhaps unintentionally for many people as well.  But now that real estate has dropped in value for many homeowners, why is it in the nation’s best interest to reward those who put themselves in this situation?  

     Foreclosure rates are still climbing across the country, and some areas are having much more difficulty than others.  Some of the largest housing bubble regions (e.g. California) are seeing home values drop so much that homeowners cannot refinance their homes, even with excellent credit and documented income.  Some folks are simply riding out the tighter credit and lending situation and working very hard to make payments on a large mortgage.   Some lenders, including Countrywide, are apparently working equally hard to help consumers stay in their homes and handle the mortgage loan. As of last week Countrywide says they’ve helped over 35,000 homeowners with arrangments such as modified loan terms, repayment plans, refinancing and even postponement of payments.   Yet it’s still a political issue, and even the Democrats are split on ways to solve the mortgage problems Americans face.   Legislators are coming up with many ideas for a bailout, but a lot of people think that’s not such a good idea.   No matter what argument one takes however, the fact remains that there are people struggling to keep their homes and continue payments on their mortgages.   To highlight the problem and give homeowers some ideas, we even addressed the issue on SushiMoney with Avoiding Foreclosure: What You Can Do. 

    When are we going to be out of this mess?  Probably not for a couple of years.  Most experts indicate that foreclosures may rise into early 2008, with more than 500,000 foreclosures adding to an already heavy supply of homes for sale across the nation.  I’ve read reports that homes will hit a 12-month supply for sale next year, but then things should start getting better.  The caveat is that many economists are looking at meager economic growth over the next 6-12 months.  Couple that with potential reduced consumer spending and it raises some concens for overall GDP, corporate profits and maybe even stock market fundamentals.  But I’m an optimist… I think economic growth and consumer spending will hang in there, while we work through mortgage issues and the glut of homes for sale.  How long will that be?  Good question.  MSNBC also reviewed some foreclosure prevention strategies with data on specific markets, and a humorous look at this issue.

     President Bush held a press conference discussing mortgage problems in the nation, and outlined a few initiatives he would like to see to help homeowners who are struggling to keep up with mortgage payments.  Realistically, few things will change right away, but the President’s focus does help bring attention to the problems and put it where it belongs- in the lap of Congress.  The legislative branch needs to get to work and overhaul various aspects of the lending laws, as well as modernizing the Federal Housing Administration.

“It’s not the government’s job to bail out speculators or those who made the decision to buy a home they knew they could never afford,” Bush said in the Rose Garden. “Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders or a little help from their government.”

     Will lenders work with homeowners more now?  Maybe…  The President also cited the tax code as being a burden when a homeowner may receive “forgiveness” of a portion of their debt or mortgage balance.  The tax code does treat debt “forgiveness” as income, and it would be fully taxed in the same year.  Although I applaud possible changes to the tax code in certain situations, I have two concerns or doubts about this as being effective:

         1.  Why should an individual or family that is struggling to pay their mortgage receive any greater tax benefit than a similar individual or family that is paying their mortgage on time?  In other words, if two individuals or families (in a similar tax bracket) are paying for a similar mortgage amount, what happens when one family chooses to run up their debt and credit cards, buy new cars,  take out an adjustable rate mortgage on a house they can’t afford… and when they struggle to keep up with house payments their lender helps them out, forgives part of their loan, and Uncle Sam gives them a tax-free (or reduced tax) gift?  Now let’s say the other family made more prudent decisions, were careful with their debt and credit cards, managed their expenses carefully, didn’t take out an ARM (or if they did are paying it on time), and because of their wonderful financial management discipline… do they get a tax break?  Nope.   Does that seem fair?  Nope.  Nobody ever said the tax code was fair however.   But tell me, how is this an incentive to to foster financial discipline and positive money management for homeowners?  It’s not… it’s just a political hot-potato that will receive some level of attention.  

     But honestly- in good faith, I’m glad our government is focusing on ways to help people who really need help. Many times we don’t know the reasons an individual or family is struggling… it could be for some totally different reason like a death in the family, etc.   That is important, and we can do more.  Some homeowner or tax advocates might say it could be treated like capital losses or gains.  We’ll see…

      2.  More realistically perhaps, how many lenders are really going to “forgive” $20,000 of mortgage debt someone owes?!  I don’t really know how often this has happened… maybe they do.  More often I believe lenders will establish a “workout agreement” of some type where the homeowner’s payment is reduced or modified for certain time period, or the loan is re-negotiated or refinanced.  I really don’t think many lenders will be “forgiving” debt outright.  I could be wrong, but I suspect most will become creative in the way they can keep people on the hook for the debt they do owe.  And morally or ethically perhaps, if we owe a debt, then we should repay it.  If we cannot because of life-changing circumstances, then bankruptcy is another option to help someone start over. 

    All in all I’m glad that housing and mortgage woes are getting national attention.  In so many ways it speaks to the confidence and psychology that we all share for how the economy, and the country, are doing.  Our economy is chugging along pretty well considering housing and a few other areas, but if the mortgage woes continue… guess what?  Consumer spending will dive and so will the rest of the economy.  I don’t know… what do you think?  I’m guessing housing still has 2-3 years before it recovers.  If the banks and finanical institutions can get the lending and money-flow thing figured out, we should be fine. 

     Anna from Widow’s Quest has posted a terrific weekly round-up of articles on How to Solve Your Money Worries, and was kind enough to include Sushi Money’s discussion of Avoiding Foreclosure.  The Widow’s Quest site is dedicated to supporting those who are rebuilding their lives as widows, and how to reinvent yourself and move forward.  It’s a very interesting site and I appreciate the focus on solving money worries, as well as grieving the loss of a loved one.  From a personal perspective, my father passed away in 2005, and I know my mother has faced many challenges and questions along the way.  Losing a loved one at any stage of life is very difficult, but especially for seniors and those with long-established relationships.  The financial aspects of this change and separation can pose an additional burden at times of great stress.  For anyone going through this challenge there are many ways to find help.  Widow’s Quest talks about finding support as well.   For financial questions and concerns, I strongly recommend finding an objective fee-only certified financial planner in your local area.  You can use the Financial Planning Association’s search tool to help.

    Everyday it seems we read of increasing foreclosure rates, and how people all over the country are behind on mortgage payments with their lenders.  Foreclosure is nothing new across the nation; there has always been some percentage of the population affected by loss of income or another factor that leads to foreclosure and turning a home back to the lender.

In 2006 and 2007, some experts believed the media was over-hyping the foreclosure problem simply because of the real-estate and economic climate.  That may have been true, but it didn’t change the fact that Americans in record numbers are indeed facing foreclosure, and some are now calling for government action.  In concert with the U.S. economic problems, foreclosure is hot-button a political issue and 2008 has shown that foreclosure problems remain. 

**Update September 2008**   Before working with any company that tells you they can help solve your foreclosure problems, be sure to check them out thoroughly.  Find a financial counselor to review your situation, and be careful of scams.  Foreclosure scams and “equity skimming” are a huge problem across the nation today.  Work with qualified state or government counselors.  See below for more information.

There are a myriad of reasons for foreclosure… job loss, local economic changes, loss of a family member or divorce, a house that won’t sell, or an inability to make payments or refinance based on current income and the type of loan.  The latter is a real issue for some today… lender standards have tightened and some people have simply got in over their heads with an unsuitable loan.   So what can you do if you think you might be at risk of foreclosure? 

The most important first step is to make an honest appraisal of your situation.   In other words, make a realistic analysis of your budget… look at income and expenses in detail to see where you stand. If you know the house payment is simply too much, or you feel “frozen” without knowing what to do… then it’s time to explore options.   And a disclaimer: I won’t pretend to be a credit counseling expert and I encourage you to seek professional assistance. But I do have the experience and knowledge to offer some insight and direction, along with links to resources that may be helpful.   

If you’re reading this and concerned about your situation, you obviously are on the right track.  Whatever you do, don’t give in to destructive thoughts or actions  that will simply make things a lot worse for everyone.  In some cases, believe it or not, people are relieved by foreclosure and see it as a way to start fresh again.  With the burden of an overwhelming debt situation gone, one can start again and move forward.  Let’s assume you are facing the prospect of foreclosure, and want to approach the situation rationally, looking for solutions.  If we also first assume we want to stay in our home (not everyone does), then there are some prudent steps to take:

1.  Face up to the problem.  Makes sense… sometimes we simply try to ignore something we don’t want to deal with, or we procrastinate, thinking “it will all work out.”  Maybe, but don’t count on it.  It’s important to think positively, but it’s also important to take action.  There is no time like the present… so don’t ignore potential problems.  If you are falling behind on debt, then it will become that much harder to fix the problem later on.  Deal with it now.

2.  Consider Financial or Housing Counseling.   If you’re not sure you have a problem yet, but you’re having a difficult time keeping up with house payments and staying within the budget, there are some excellent (and awful) credit counseling agencies that can help you figure out how to maximize your income and manage money.  Find a legitimate organization such as the Consumer Credit Counseling Service.  Check with the National Foundation for Credit Counseling’s DebtAdvice.org Locator and find a competent local agency.  Do not run out and sign up with just any “fly-by-night” credit counseling outfit.  There are some very poor companies out there that make money by signing people up for “counseling” or “debt reduction” or ”credit repair” programs that will not help your situation. 

•      Take a look at this excellent factsheet from the Federal Trade Commission.  It talks about scams and considerations before signing up with some agency you know little about.   When it does become time to really find financial counseling assistance, find a legitimate agency.  
•      Check this page at the U.S. Trustee Program from the Department of Justice for a list of approved credit counseling agencies for each state.  Search your state or local area and try to find an agency you can visit in person. 
•      The U.S. Department of Housing and Urban Development also funds low-cost housing counseling.  It may or may not be available in your area, but that is another option.  In some cases, they can even speak to lenders.
•      If your income and credit situation allows, it may be best to refinance your mortgage.  A fixed rate loan will allow you to have a predictable mortgage payment for the life of your loan.  Understandably, your income and/or housing situation may not make refinancing feasible.  Often, other lenders or local banks may be your best bet for refinancing. 
•      Find ways to increase your income if possible.  Can family members help?  Consider selling items you don’t need, and lower your total monthly expenses.  Yet working at two jobs, or selling all your assets may not be the best thing to do over time. Also consider selling the home, and downsizing into a home, and mortgage payment, that is more affordable if possible. 
•      If you are behind on debt payments, the mortgage comes first!  In other words, if you’re going to be behind on payments of some kind, don’t pay your credit cards.  Why?  Because most credit card debt is “unsecured debt” and they cannot (depending on state law) take your home or property from you if you are late making payments.  Car loans are also “secured” debt and creditors can typically “repossess” your car.   But some creditors may call and threaten or harass you… if it’s for unsecured credit card debt however, that is the last debt you pay.  Take care of essentials first: Groceries, Utilities, Health needs and Mortgage payment.  But cut back where you can…

3.  You’re really concerned, or having trouble making house payments, no bones about it?   Then you must call your lender as soon as possible.  

250 Questions You Should Ask to Avoid Foreclosure 

     BUT!  Do your homework first.  Know your Mortgage Rights.  Prepare for the call and conversation. The bank or loan servicer does not want your home… they want you to keep making payments.  Many loan companies are making a renewed effort to work with consumers facing financial difficulty.   Be proactive, ask questions, and try and arrange a viable solution.  It may not always work however, and with some loans the lender is not able to modify the loan terms. 

It’s important to pursue all options:

•      Review your loan documents in detail so you understand them before you call.  Make sure you read the terms of your loan agreement, and prepare to ask questions if you need more information
•      Review the foreclosure laws in your state.  Each state has different timeframes and things lenders can and cannot do regarding foreclosure.  If you don’t know your foreclosure laws, you won’t understand the timeline or how much time you have to take certain actions. 
•      Make a list of your reasons for falling behind.  Income change or job loss?  Sickness or change in family situation?  How have you tried to manage the situation?  What other income or assets do you have available?  How long do you think this income situation will go on?  What do you ultimately want to happen?  Do you want to keep your home?  What kind of payments can you make each month?
•      You may be able to establish a “workout plan” with your lender.  This is basically a new plan for how you will pay your mortgage.  It may be temporary, or for a longer period, but does not change your committment to the loan debt.  It simply is an arrangement to help you pay your mortgage until your income improves.
•      Keep good records of any communication with your lender or loan servicer.  Ask for names, and write down times and dates.  If you ask for something, or they ask for something, then respond with a letter after the phone call to confirm and re-state the situation and expectations on both sides.  When you send the letter, use registered mail, with a return receipt.
•      If you want to keep and stay in your home, do not move out!  If you move out or try to rent the home, it will no longer qualify as a “principal residence” and your lender may not work with you any further on payment arrangements.  In fact, it will probably be classified as an “investment property” and be more difficult to arrange payment plans or to refinance.
•     Remember that your lender has a host of laws and legal requirements to comply with.  Don’t tolerate abusive phone calls with loan service personnel.  Ask for a supervisor if you are not getting anywhere on the phone.  If you have an attorney, have them send a letter to the loan servicer’s management and customer service divisions.

4.  If you do not want to keep your home, or if you’re ready to get out from under the debt of home ownership:

•    Consider selling your home.  Many are already doing so in today’s markets, but it’s difficult to find a buyer.  Do everything you can to make your home attractive to a buyer, including a low asking price.  This is no time to haggle over prices or pride, or to worry what your neighbors will think.  It’s your life… take charge, make your decisions and move on.
•    Consider a “short sale” or “fire sale” where you allow someone to buy the house at a much lower price.  That would be difficult to do, but depending on your situation, it’s something to consider.  Remember, if the sale doesn’t pay off the loan, you will still be responsible for the remainder of the debt with your lender or loan servicer.  It may be less, but you’ll still owe the money even though you are no longer in the home.
•    Deed in Lieu of Foreclosure: Basically, you just sign over your deed to the bank or lender, if they agree not to foreclose and/or as payment for the debt you owe.  It may only be for partial payment… but consider getting a real estate lawyer to help with this process and ensure your best interest.

5.  Be careful of scam artists who may approach you with fantastic solutions to your problem.  See # 2 above.  If you haven’t talked with a legitimate credit counseling firm, now may be the time to do so.  Make sure they are legitimate!  If you have been working with a credit counseling company, maybe it’s time to review your situation.  But stay alert for scams.  When you’re in a tough situation, many things sound good that you may not have considered before.  Don’t let your guard down, and make sure you know who or what company you are becoming involved with.

6. Use Your Assets? What about Bankruptcy? Many people recommend using any or all of your available assets to generate income and keep making payments on your home.  But let’s say you know you will go through foreclosure and are considering bankruptcy. It may or may not be possible depending on your income and asssets. 

The key about bankruptcy is that once officially filed, it immediately (but perhaps temporarily) stops the foreclosure process until the bankruptcy court and debt repayment agreements are established.  In other words, it gives you more time.  It may not keep your home from foreclosure.  We won’t go into the details regarding bankruptcy here, but there does come a time when paying money toward your mortgage may not benefit you in the long run.  Depending on your state’s laws and the type of bankruptcy, it may be in your best interest to save the money you have on hand for living expenses and other needs.  Only you can determine this, but if you are going through bankruptcy, giving your lender all of  your assets may leave you with fewer options. 

If you are considering bankruptcy, ensure you speak with a competent bankruptcy attorney, and work with a legitimate financial or credit counselor to explore this situation. There are many non-profit agencies that can help as well, such as the Housing Opportunities Collaborative in San Diego, California.  Their services may only be local, but there are probably similar organizations in your area.  But again, be careful of scam artists, even with bankruptcy!  This article talks about how foreclosure scams are on the rise, and CNN/Money talks about Rescue Scams to avoid.  Finally, read this Consumer Alert from the U.S. Trustee Program about Mortgage Foreclosure Scams.

7. Stay positive and take care of yourself and your family!  Life is full of challenges, both personal and professional.  Try to keep things in perspective and remember your long-term goals.  Life is nothing if not full of change, and we must change as well.  Take care of yourself and your family, and have faith that things will get better over time.  Talk with a counselor or member of the clergy if desired.  You are not alone!  Others are facing the same challenges.  And Clark Howard even talks about how foreclosure might be avoidable. There are countless others who are going through a similar situation.  You can get through it, and one day you will be moving forward in a new direction.  I wish you the best as you work with a challenging situation.

Is it just me, or are the warnings and doom about the real estate market finally reaching a loud chorus of negative sentiment lately?  Stirring the national emotions has always been a chosen tactic of the media to enhance readership, but it appears the media wind is behind the back of those predicting calamity rather than examining key issues.  The debate centers on the question of whether the real-estate and mortgage markets, with great effect on the national economy, are going to crash or just continue to slide for a time.  What does ”crash” mean exactly?  Are property values going to crash steeply all at once, or will we see a slow drizzle of devaluation over time?  Will the economy go into recession, or worse a full-blown depression?   Some are predicting the worst case.  But I just don’t believe it.  Not yet.  Lots of real-estate “bubble regions” may have a lot more pain to go through before prices stabilize.  Other regions that barely knew the existence of a real-estate bubble may simply stagnate for several years or more.  I watched a pundit on one of the major networks today say that effectively, “this is the worst real estate devaluation since the Great Depression.”  I’m not sure I agree with that statement… but I don’t have the statistics to debate him yet.  No question the credit markets are tightening and the subprime lenders are in trouble.  But I’ll take a wait-and-see attitude on the economy this year.

Let’s look at some more media reports.  This recent article by AP in the Seattle Times, Coalition warns of “Mortgage Tsunami,” urges reforms reports that the National Community Reinvestment Coalition is warning of the growing mortgage default problem “affecting millions of Americans, particularly minorities.”  Reading the article we find that this “coalition” has been warning of the problem for years.  Now they are really pouring on the verbal equivalent of yelling from the treetops.  Are they right?  So far they have been, although it has been somewhat alarmist.  They have been on the right track with their concern over time and seeking more regulation and reform in much needed areas of mortgage origination.  Certainly foreclosures are increasing, but primarily in the subprime markets. 

This article from CNN discusses how the Mortgage crisis is overwhelming credit counselors.   The discussion centers on the subprime lending arena for lower income loan recipients.  But I simply can’t understand how someone can sign for the biggest loan in their life, with paperwork that spells out their loan terms, and later say they didn’t realize the interest rates would increase on an adjustable loan, or what that meant in terms of payments.  Are they loaning money to people who can’t read?  If there is outright deception and fraud, then the subprime lenders should be taken to the woodshed and made to pay for their crimes.  Reform and regulation should apply in areas where oversight is lacking on such a widespread scale. But I will also say that I’ve had four adjustable rate mortgages in the past 10 years in separate housing markets, and the loan terms are very clear.  Unfortunately people may see the information but not put two-and-two together to understand the long-term personal financial impact.  I’ve used an ARM very effectively for it’s intended short-term purpose, and refinanced when necessary later.  For a lower income family in a tighter credit market however, I can understand how they could find themselves pressed with few refinance options.  But mortgage rates today are still very low compared to recent decades… if you can’t afford a house at current fixed mortgage rates, then you probably can’t afford the house with any other type of loan.  I think that’s the heart of the issue… putting people into homes they simply could not afford, and should not have been buying.  “No kidding” I hear you say…  Well, down the road some people are going to get terrific deals as buyers and there are many perspectives on the issue.  Famed commodity investor Jim Rogers is also issuing warnings in a March 14th Reuters article by Elif Kaban titled “Top investor sees U.S. property crash.”  He is on the mark for many forecasts, but he’s also been very negative on various  markets for years… Seems like I only see him when the media circus looks for strong opinion in times of negative sentiment or emotion.

 I’ve always understood that what we believe to be true can become true, whether it is true at the time or not, and even whether we really want it to be true or not.  Mass psychological energy, the “herd mentality” or whatever you choose to call it can have tangible effects in society for the momentum of popular focus and thought.  The media plays an enormous role of course in swaying popular opinion.  I must say that I’m more concerned with the hysteria that media reports generate over time for consumers.  But if reform and necessary market recalibration also occurs through the slow march of time then that is normal.  But it is often through great calamity and pain for real people that change happens in the first place.

I think it’s worth remembering some key aspects of real estate:

1.  Did you purchase your home to live in, and plan to stay for many years?  If the answer is yes, then don’t worry about the doom and gloom in the mainstream media.  Take care of your family and finances, pay your mortgage and take care of your home.  All markets have cycles, and this one will change again in the future.  Tune out the noise and enjoy your home. 

2.  Are you thinking of selling or buying, because of job or family issues and the time is right?  Then do your homework and take a hard look at what you will sell it for, or buy it for.  Make sure it is a home you want to give up, or get into.  Be realistic about the selling price!  And as a buyer, don’t overpay for a house you “just have to have.”  Don’t buy more home than you can really afford…  Read and understand the impact of the loan terms that you are accepting!  That is what many people forgot in recent years.  And yes, get a fixed rate mortgage… rates are still quite low today by historical standards and you won’t get in over your head.  I paid on a mortgage for years at 8-9% and thought that was pretty good.  I also paid off a truck loan in the mid 1980’s at 12.5% interest.  Sounds ridiculous now, but it was pretty good at the time!

3.  Did you purchase an investment property to try and flip it and make money?  If the answer is yes, then you are probably moving as quickly as you can to sell that home, even taking a loss if your situation dictates.  Or you can choose to hold on to it… possibly for years.  Nothing wrong with that if you can afford it. I bought a home years ago that I lived in for only a short time.  I planned to sell it but found that I would have lost money after I moved. So I rented… then found that the market prices didn’t change for many more years and still I refused to sell it.  Stubbornly I rented out that home for years, often taking losses and wondering how I got myself into that mess, even refinancing three times.  There were some positive tax advantages over time that surprised me.  And eventually the market turned and I sold quickly for a nice profit.  Some say I was lucky.  Maybe so… but if I was lucky, then it took over 13 years to get there.  Looking back I’m glad I stuck it out and went through the experience. 

My view of the real-estate market is that we will go through a sustained period of level and falling real-estate values until the markets can adjust naturally through the local and national economic cycles.  Areas of high unemployment will be hit pretty hard for standard economic reasons.  So for me that means 3-4 years from now until we see positive trends as population and economic growth absorbs the fallout.  But I’m also an optimist… I believe both the U.S. national and global economy will be much stronger over the next decade.  Corrections during the process?  Absolutely, and maybe even dramatic.  Depression?  No.  Ben Stein has it right in his recent article The Long and Short of Down-Market Investing.  Of course he’s always been one of my heroes.  Some folks think his views are too simplistic.  But you know what?  America needs people, economists especially, who can put things in plain language and provide a little perspective.

Here’s a few more recent headlines on the mortgage and real-estate frenzy.  I’m sure there will be more to come.

• Fingers Pointed Over Mortgage Meltdown
• Subprime Shakeout Threatens Specialists
• Countrywide Financial… Foreclosures could rise 10%
• Mortgage Confusion Costing Homeowners

I would really like to hear your perspectives on this…  and real-life experience if possible.  Do you see a crash coming?  Is the tsunami here?  Or is it a slow drizzle of falling valuations for the next few years?