An article in Sunday’s Wall Street Journal picked up by the OC Register caught my eye: “Don’t Bet Against Your House.” At first, I thought, duh… but then it hit me, the majority of us do just that. We’re basically gambling when we hope that our homes will increase in value… it’s all one big poker game. What cards we are dealt include the house, how the market if performing, all of those variables. What we bet is based on our income/savings, confidence in the market, etc.
The President of FiLife.com, a personal-finance website, Dave Kansas writes in his WSJ article some pointers on how to deal with these falling home prices and not bet against your house. Here are some excerpts I thought were of interest:
Take a Deep Breath
“Perspective, not panic, is always the first step in assessing the situation. Despite the scary headlines, the vast majority of homeowners are still sitting on decent gains, even if the value of their homes has declined over the past couple of years.”
“… homes are the great investments over time that many homeowners believe… the average return on a home is about 3% a year, roughly on par with inflation.”
Focuse on Your Portfolio
“For starters, rather than worry about your home, focus on the rest of your portfolio as an overall hedge against falling home prices. This would require steering clear of real-estate-oriented stocks such as real-estate investment trusts, home builders, mortgage companies and home-improvement stores.”
“Interest rates remain low and you may be eligible for a refinancing, which is something a shrewd homeowner should always consider. If you are carrying expensive debt, such as credit-card debt, using a refinancing enables you to substitute cheaper debt for more expensive debt.”
Ride It Out
“… talk to your bank. While bankers are in a stingy mood, many will talk with you about reworking your mortgage if you are under particular stress… Banks would prefer to work something out, if possible, and keep you in your home rather than foreclose.”
“In addition, get creative about extracting more cash from your home. An obvious way is to rent out the basement or a room. Defer putting in that new kitchen, instead putting that money into your investments to build a larger cash cushion to weather the hard times.”
We all know the odds in gambling. You’re more likely to turn over you hard-earned cash to the “house” than to go home with a new wad of cash. These folks in Tustin all bet on their house, and, big surprise, the “house” won.
1352 Foresterra Ln, Tustin 92780 ; 4 bed/2 bath house; 1,535 sq ft; bank-listed foreclosure for $390,500 (last sale $630,000 on Jan 6, 2006)