Nearly all bubbles eventually burst (there are some apparent exceptions, such as the growth in per capita income since the industrial revolution), and conversely, most crashes eventually recover. So, although the plunge in home prices in the US appears to still have a long way to go (the plot of the Standard & Poor's/Case Schiller index of house prices shown below has yet to show any hint of an inflection point - the rate of decline slowing rather than accelerating), there will, inevitably, come a point at which the 'correction' in prices has been overdone and bargains are to be had. So, if you're an aspiring home-owner, it may be time to look at available home loans in preparation of making the plunge once house prices stabilize at more affordable levels.
Meanwhile, those with a home mortgage might take the opportunity for mortgage refinance
at a lower rate. A home has, and always will be, a long term investment. The transaction costs of real estate make it an unsuitable asset class for short-term trading (despite what "flippers" may have thought during the boom years). Therefore, there's little chance of getting out of real estate during a down-turn and buying back in at lower prices. Instead, the best most home owners can hope for is to ride out the storm, and make sure they minimise costs by pursuing avenures for home refinance while interests rates are relatively low.
Refinance.com has a website that provides information on mortgage refinancing specific to each state, provides a list of the currently available 15- and 30-year fixed rate loans, as well as ARMS with reset periods of 1- ,3- or 5-years. It's interesting to see that the 1-year ARM is currently higher than the 15-year fixed rate loan, and only slightly less than a 30-year fixed rate loan. The site has a few tools to assist in comparing refinancing options. For example, there is a refinancing calculator that provides monthly payments, total payments, and total interest paid when you enter values for loan amount, interest rate and term of a loan.
Copyright Enough Wealth 2008