Why the “Housing Bubble” is Overhyped

 Why the “Housing Bubble” is Overhyped

The current flat trend in the housing market (actually a down trend in some areas) may not be as serious as the current crop of economic talking heads might have you believe.  Those likely to feel the biggest effect from stagnating prices include:

  • Those who must sell now due to a job transfer or other fundamental life event.
  • Those who rely on home equity loans to bail them out of credit card or other “discretionary” debt.
  • Home builders and contractors who are experiencing a near-term problem with higher cancellations due to buyers backing out of contracts due to reduced sale prices and longer wait times to sell existing homes.

   For the average person, the value of a home only has relevance when it is sold or refinanced.  Both events are relatively rare, and you continue to live in your existing home all the while.  And if you are selling, you are probably buying in the same “down” market, thus your “loss” on sale is offset by your “gain” on the bargain purchase.  Only if you are cashing out of the home market entirely (or moving to a “hot” market) do you really feel the pain. 

   Wait times to sell are longer, but we have become accustomed to that “instant” sale mentality where multiple buyers fight over the same house.  That was unusual; having to wait a few weeks or months to sell a house is not.

   If you must sell now, here are a few tips to protect yourself:

  • Consider offering the buyer’s agents a higher commission – perhaps an extra percent – or some other incentive to get more potential buyers looking at your home before they look at others.
  • If your listing agent is part of a large brokerage company, make sure your agent is not limiting his or her efforts to buyer’s agents employed by the same organization.  This can happen due to the obvious economic incentive of capturing both sides of the deal, along with the buyer’s title insurance premium, mortgage and insurance business.
  • If you are selling a house and buying a new one, include a resale contingency in your agreement to purchase, making the deal contingent upon completing the sale on your existing home with a minimum sale price included.
  • Include a mortgage contingency in your agreement to purchase so that if credit standards continue to tighten, making getting a loan impossible or economically unattractive, you can cancel.
  • Consider waiting to get your existing home under agreement of sale before even beginning to look for a new home.  This takes much of the pressure off.

   In summary, the frantic run-up in home prices and sales in recent years was exaggerated, just as the current housing bubble is exaggerated.  The truth lies somewhere in the middle.  Stated differently, don’t panic.

 – Kevin Palmer


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