Housing Bubble Tips

With home prices in the stratosphere, many buyers have been forced into more exotic types of mortgages to be able to afford to buy a home. Here is some advice from housing experts on what people should consider in the current environment.

Buy or not: Some people have hesitated to purchase a home, especially in the hottest sales areas, for fear they could buy at the top only to see home prices start to decline. Analysts say it is very hard to time the market. If you need to buy because you are being relocated and you plan to be in the new home for several years, the advice is to go ahead and buy. The chances are that even if home prices do fall for a year or two, they will begin rising and you will recoup your investment when you sell.

Refinance: For people who now have adjustable rate mortgages, the advice is to consider refinancing to a fixed-rate mortgage. Mortgage rates have been at the lowest levels in more than four decades for an extended period of time. The blow to the economy from Hurricane Katrina and surging energy prices may keep rates low for a while longer. But the expectation is that rates will eventually start rising again and could be above 7 percent by the end of 2006. Moving to a fixed rate would protect against seeing a sharp jump in a low introductory rate. If the adjustable rate mortgage is also an interest-only mortgage, there will be a second payment shock when the homeowner has to start paying interest and the principal of the loan.

Investors: People who have been playing the hot real estate market by buying homes only to turn around and resell them at a profit should reconsider that approach. That strategy could prove dangerous if, as expected, home sales retreat from their current record highs and prices stop rising at double-digit rates.

Other ideas: People who find they are still priced out of a particular area might consider moving to a smaller house or farther out. For people 62 or older and in need of cash, they might consider taking out a reverse mortgage that would allow them to borrow against the equity in their home and never repay the loan as long as they live in the house.

Source: AP