Today’s New York Times takes a look at words used to describe the current state of the real estate market. “Soft landing”, “pause”, and “melting down”, seem to be the most popular ones these days like “cozy” was a few years ago. The real question is which words should we be using to describe the market? Will we get the “soft landing” everyone hopes for, or is the “housing bubble” a reality?
The beauty of economics is that you can get a statistic for almost every viewpoint. Housing starts are up, but new home sales are down. Average national home prices haven’t declined since the Great Depression, but in Tokyo, Japan, residential real estate prices declined for 17 years.
So, in a city where prices seem to go up each week and where the pressure to “get in” before you can’t afford to, rises everyday, what’s a person to do?
Opinions are divided on the actual presence of a bubble, but there are a few things you can do to protect yourself whatever happens.
1- Think long-term. Prices may decline, but being able to ride out the market over five or ten years gives you more protection from those declines. Buying a place just to flip in a year or two maximizes your risk.
2- Don’t over-leverage yourself. Interest Only and Variable Rate mortgages are all the rage right now, but while your payment is lower on a monthly basis, you are not building any equity. Essentially you are just delaying the repayment of your mortgage and if interest rates go up in the future your payment could skyrocket.
3- Most importantly don’t forget that whatever happens you have bought a place to live in. Prices may go up, prices may go down, but as long as you have a roof over your head that you like you can ride those out.
For those of you out there looking, what are you finding and what do you think is going to happen?
