Adjusting Your Mindset
The period of the last five years or so has been the most active period
in history for Real Estate in North America. Not only have sales boomed, prices have rocketed through the roof
in many areas. House prices doubled, tripled or more in some areas in just a short amount of time.
Things began to turn in 2006, however, and many localities saw prices stabilize or fall from periods a year earlier.
Activity levels also dropped nationally as well as in many specific locations. Because of the big run-up in both
prices and sales, this retreat is not surprising at all. What is a bit surprising, though, is the reaction we've
seen from many buyers and sellers. Call it denial, call it misreading the signs that are fairly obvious, but we
see a good many people who are not able to adjust their mindset to a changed--and changing--market.
To be a successful home purchaser you need to be first and foremost an educated buyer (there are over 200 pages
of information on this site to help you with that) but you will also need to be agile--you must be able to change
and adjust with the times or you may make some very costly mistakes.
Changing with the times means adjusting your mindset to fit the realities of today's Real Estate market--not a
year or two ago when things were quite different. It means "going with the flow" of the market as it
exists in your particular locality rather than just paying attention to national trends and patterns. What is happening
in one part of the country can be very different from what may be happening in the area in which you are interested.
Most importantly, it means adjusting to today's market, using the tools that are at your disposal, to determine
what makes sense for your situation. It means making decisions based on your research rather than cliched advice,
some of which follows.
"Real Estate only goes one way--UP!"
In the long-term, meaning 10 or 15 years or more, this is virtually always true. In the short-term, meaning 10
years or less, this definitely not chiseled in stone. Numerous areas of North America--California, Texas, New England
and others--saw decreases in values various times in the 1980s and 1990s. Again, in 2005, 2006 and 2007 we see
similar situations in a number of areas--prices are falling on a year-to-year basis. Buying at the peak here, and
paying maximum dollar for a home, coupled with the desire or need to move a few years, could cause considerable
As an antidote, educate yourself fully on pricing and negotiation. You will find these resources helpful:
Setting a Value
"Push yourself--Buy as much as you can afford"
This was excellent advice when the Real Estate market was making
gradual but steady gains and when the majority of mortgages were under fairly conventional guidelines. Today's
"creative financing" mortgage market, where loans are available where your mortgage balance increases
on a monthly basis (even though you are may be making a hefty payment every 30 days), coupled with the potential
for lower price appreciation (or declines) changes the landscape completely.
Since the payments on many of today's mortgage products can change substantially over time, what you are able to
afford today may not be affordable just a couple of years in the future. If you take the conventional advice and
push your budget to the absolute limit and your payment increases even 10% (let alone 40% or more which is possible
with some loans) you will likely have difficulty maintaining your mortgage payment, you lifestyle or both.
Resources that may be helpful:
"Buy now or you will never get the opportunity again"
This one goes hand in hand with the "Real Estate only goes UP" theory. Some, usually those with vested
interests, will have you believe that if you don't move now you will be forever shut out of the market, forced
to live in a cardboard box along a major interstate highway.
In reality, you must take action (or, as the case may be, not take action) based on a number of factors, including:
+ The trend in the market in the area in which you are interested. Are prices rising, falling or stable?
+ The amount of housing inventory in the area. Is the number of homes available for sale increasing (likely a soft
market) or decreasing (likely an active market)? How do the inventory levels compare to six months ago? To a year
+ Are mortgage interest rates increasing or declining? What trend is forecast for the future?
Finding a Home
Current Mortgage Rates
Any time can be a good time to buy a home if you are equipped
with the right--and current--information. To simply accept advice
as gospel without doing a full investigation (both market and pricing) relating to your personal situation can
lead to some expensive lessons in the future.