Aug 23, 2021

US Home Prices - What Goes Up Must Come Down

We have seen unprecedented increases in home values and prices all over the United States primarily driven my very low mortgage interest rates and increased demand way beyond supply.  Having lived through at least 3 real estate cycles, I start to get very nervous when I seen prices this high.  It is great for sellers and not so great for buyers.  Certainly, any buyer with a short term horizon is at risk if suddenly it becomes necessary to sell the home in a down market.  It probably should not be a problem provided the buyer has put at least 30% down; but if the market shifts badly, with much less down payment, the owner could find themselves upside down meaning that they owe more than the mortgage amount. 

It is bad enough to lose some or most of a down payment; but it would be much worse to owe money to close out the mortgage.  In those instances, sometimes it is possible to do a short sale where the lender agrees to take the hit beyond the monies the owner may have lost to stop a foreclosure from happening.  Let us hope we don't get there; but if markets fall dramatically for those buyers who purchased with very little down payment, it is possible. 

In the next few years because we are still short 5 million housing units, the market should stay relatively strong; but buyers just need to be very careful.  Condos tend to fall in value in down markets more than single family homes so buyer beware.  And remember, location, location, location and if you buy crap you will own crap.  So, make a wise decision when choosing a home to buy.  In down markets, crap will be go down even more.  There are no bargains in real estate.  Homes in good locations, with great curb appeal in good school districts will always be worth more than homes without these attributes.