How to Protect Yourself From the Next Housing Crash
The housing market crash of 2008 was a disastrous time for many homeowners. Home sales had been booming for years, and banks were handing out irresponsible—and untenable—zero-down loans like candy. When the recession hit and layoffs rolled in, many homeowners found themselves out of work and quickly upside-down on the mortgages they could barely afford in the first place.
The market has been focused on rebuilding and rebounding in the decade since, but many experts estimate that the bubble is once again becoming unstable and may burst soon. If you’re worried about the next housing crash potentially tanking your finances, you may be wondering how to protect yourself and asking, “Should I sell my house?”
It’s hard to know the best time to sell a house, but there are a few big things you need to evaluate if you hope to protect yourself from the next housing crash, which may be more a matter of “when” than “if.” To avoid defaulting on your mortgage, do the following.
1. Understand Your Budget
Lending isn’t as out of control as it once was, but many lenders still allow buyers to put down as little as three percent or less on the cost of their home. And real estate agents benefit—through their commissions—from selling higher-priced homes, so it’s in their interest to convince you that you can afford that spacious stunner you’ve got your eye on.
But don’t let a lender or an agent be the one to determine what you can afford. You should be spending no more than 25 to 28 percent of your monthly income on housing costs (mortgage, insurance, property taxes, and homeowner’s insurance combined). This way, if you fall into financial hardship, you’re not on the hook for a number you simply can’t meet.
2. Know Your Timeline
Many people buy a home simply because it feels like “time” to do so. But they often don’t think ahead about what the next five to 10 years of their life will look like.
If you think you may need to sell a home within five years of purchasing it, don’t buy it! It takes at least that long to level out your finances considering all the costs involved with buying and selling a home.
“Flipping” homes has also become very popular, but be aware that in today’s somewhat volatile market, you never know if you’ll be able to resell the home for a profit—or at all! It’s always a risk to buy a home you don’t plan to stay in for more than five years, so understanding your timeline and being comfortable with staying somewhere for a while if necessary is key. Otherwise, you’re better off renting.
3. Protect Your Equity
Taking out loans against your home or leveraging that equity for other purchases is a very risky business. Yes, your home is a valuable asset, but you should avoid borrowing against its equity unless absolutely necessary.
Emergencies happen, but short of that, try to avoid tapping that well. And even for emergencies, do your best to have a different primary source of backup funding, such as a savings account or a mutual fund. Your home’s equity should be your last resort.
4. Get Out Now
If you’re worried that you’ve bought above your means or won’t be able to make your mortgage payments when the market inevitably takes a downturn, now might be the best time to sell a house. Prices hit a peak in the last quarter of 2018, and many major markets are starting to see falling prices and stagnation of sales. The time is now; if you’re in over your head, you need to take steps today to protect your family and your money.
If you’ve found yourself in a tight spot financially and are asking yourself, “Should I sell my house?,” give The Buy Guys a call today. We work exclusively with individuals, and our experienced team can get you a quote right away and help get you to the closing table in less than 30 days. Don’t take a chance and risk losing everything; make the smart call before it’s too late.
