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Will my house lose value when the housing bubble crashes?
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Question:
I notice that home prices have fallen in the recent months. How much will they fall? Will my area be subject to it?Answer:
Most experts and amateurs agree that - in many parts of the USA - house prices have gone up beyond what is reasonable. What is reasonable is the relation of a traditional mortgage payment versus income or cost of renting.Traditional mortgage payment refers here to a 30yr fixed, fully amortizing loan, . No, I do not say that renting and making mortgage payments should be the same price. It used to be comparable only 8-10 years ago (1996-1999). I had immigrated to California from Germany and in Germany -at that time- renting was cheaper than buying.
However, in the so called 'bubble areas' now renting is cheaper, significantly cheaper, than buying. Interest rates have gone up a little but renting is still cheaper.
Most people will agree that prices will fall (further). But how much? And which areas will hold up better?
Even in the stock market crash 2001 there were stocks that did well.
In the case of residential real estate, I would like to point your attention to the degree of 'investors' who bought in a given area.
Areas like Las Vegas, Phoenix, Salt Lake and Northern Carolina have been (approximately in this order) invaded by 'investors' who were looking to buy cheap in the expectation of appreciation. The high number of investors artificially increased demand and prices went up.
These areas are most vulnerable as investors will get nervous and try to unload their 'investments', seeing that there is no further appreciation higher than inflation (or it could even be negative).
So I suggest to look at the area you are interested in, and try to determine
- how many out of state investors have bought here (they will sell quicker)
- how many homes are empty
Some areas have seen high appreciation but not as a result of investors coming in in droves.
I use the term 'investor' in quotes as these people do not really invest in the house as a rental.
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