Around late 2007, the real estate bubble burst, bringing increases in foreclosures and grinding real estate purchases to a halt. Since then, the market has made significant recover- although we are not of the woods yet.
However, according to Shari Olefson in her book “foreclosure Nation: Mortgaging the American Dream,” there is silver lining.
Declining interest rates and plummeting real estate prices left many people wondering if the industry had reached its lowest; but even after surviving the storm you should always take notes so that you can avoid making the same mistakes with future endeavours.
Lesson One: Expect the Best, Plan for the Worst
Your grandparents will tell you stories of how they bought their homes for “shillings”. They could occupy it for years and then pass it on to their children who experienced an increase in wealth due to rapid appreciation. However, you might be telling your children an entirely different story after purchasing your first home.
One thing the market and real estate crash has taught us is that there is no guarantee that you will be able to resell you current home for a higher price. While real estate costs in some States appreciated by up to 80% (AZ, California, Florida, Washington), others had generated little to no appreciation (For example Detroit Cleveland). These cities witnessed a depreciation and increased foreclosures.
On the other hand, 2009 saw an increase in the foreclosure rates in some states where real estate had appreciated. California for example witnessed the greatest decline in property value and investors suffered.
A number of factors such as mortgage rates and demand can affect appreciation and while moderate price growth is good news for buyers, it is the complete opposite for sellers. The good news for AZ sellers is that home prices are projected to appreciate by 5.65% over the next year. In addition, it is worth noting that, the state ranks fourth in the nation for price appreciation, with the ninth lowest foreclosure rate.
Lesson Two: Research and Live For the Moment
Many people responded to the skyrocketing real estate prices by rushing to purchase a house despite financial difficulties hoping that they would benefit from rising equity. Similarly, many buyers have delayed purchasing a house in anticipation that the market will soon reach an “all-time low.’
When it comes to real estate, you may never be able to purchase a property at its lowest rate or resell at the highest rate. Your best option is to do your research and select a stable market in which the price of your home is more likely to increase as time progresses.
The Final Lesson: Protect Your Interest
When the housing bubble burst, many people prioritized their high interest rate credit cards rather than focusing on their mortgage. Today, many of these individuals lost their homes to foreclosure or a desperately low sales price.
As a society we have grown accustomed to buying on credit and being in debt. This is fine in a stable market. Ultimately, the collapse of the housing market was a lesson that taught us to expect change and adapt to new real estate opportunities.