It seems like just a year ago the US media was filled with positive stories about the housing market boom. It seemed like all you had to do was buy a house or a condo in a hot US market and you’d be on the road to riches. It’s looking so much gloomier now.
MSNBC has their top business stories of 2006, with the housing slump coming in at #2 (just after Wall Street surges).
CNN Money has an investors guide for 2007 with 6 strategies to survive the housing bust where they predict that 2007 will be bad, but 2008 will be worse.
“Last year the question was whether the housing boom would slow down. Now its how bad will it get.”
1) Sellers: lower your expectations.
“As painful as it might be to realize that your house isn’t worth what you thought, asking too much in a slow market is a mistake. “Trying to get last year’s price is wishful thinking,” says Hessam Nadji, managing director with real estate advisory firm Marcus & Millichap. “Often you’re unable to sell your house, which compounds itself, and you keep chasing the market down.”
2) Buyers: Drive a hard bargain.
“North of Sacramento, Pulte Homes recently agreed to part with a 2,700-square-foot four-bedroom home for almost 18 percent off the $497,000 list price, plus an additional $8,500 in credits. “I’ve never seen anything like it,” says Lance Pagel, the realtor on the deal. “I recently point-blank asked one developer’s agent what incentives she was offering, and she point-blank answered $80,000.”
3) Consider renting.
“Economist John Talbott, author of Sell Now!, applauds the notion of renting in a market like this – even if it isn’t part of the classic American dream of owning your own home. “Maybe you don’t live to the same standards, but don’t worry about it,” he says. “If we’re talking about the chance to bank $1 million, that’s real money.”
4) Step away from the exotic mortgage.
“ARMs have traditionally been the province of wealthy and sophisticated homebuyers. During the boom, however, banks went after anyone with a wallet. As a result, a lot of homeowners out there are living under a roof they soon won’t be able to afford.”
5) shop for a rate drop.
“In 2003 the mortgage industry originated $3.8 trillion worth of loans, according to the Mortgage Bankers Association. Next year it will hand out an estimated $2.1 trillion. “That’s nearly a 50 percent drop in volume, which means there’s tremendous pressure on company earnings,” says Doug Duncan, chief economist with the MBA. “They’re going to negotiate to get your business.”
6) Keep an eye on your equity.
“The good news, of course, is that reckless spending has kept the American economy chugging. But it has also saddled many American families with some major debt, which is particularly dangerous in a declining real estate market.”