Not a day goes by without someone asking me about the sky falling. Is real estate crashing? What's with all the foreclosures? Are rates about to shoot through the roof? And frankly, to watch the news, I'm amazed at the negativity and fear that the old school media is spreading around.
Here's the deal as I see it. The fundamentals of real estate continue to apply. They never stopped applying. The three most important thing about real estate are: Okay, everyone together now:
1.) Location
2.) Location
3.) Location
If you buy right, for the right reasons, within the age old qualification strategies then you don't have anything to worry about (assuming of course that you haven't been fired, run over, or otherwise tragedy stricken) Where the trouble comes from is those who got in a bidding war in Aurora, Colorado in July of '05 for a property with no great attributes compared to the neighbors. Then when they financed that home with a 3/1 COFI ARM that teased them with a starting payment of $1100/month for a $500k mortgage for the first three months and that's all they could qualify for at the time-- then the payments went up $100/month every month for the last year while the excitement for the neighborhood wained-- that's big trouble.
It's dissapointing that real estate professionals whether brokers or lenders participated in getting homes bought with some of those ridiculous mortgage programs but here's my summary:
Real estate, whether as a career or as an investment in a home is a long term proposition. Real Estate is not particularly liquid and comes with many barriers to liquidity. Homeowners, brokers and lenders who made short term decisions on real estate deals in the last 3-5 years using less than adequate thought processes are now facing problems, whether it's brokers having career problems, lenders looking for jobs or homeowners having cash flow problems. the real estate market has a knack for reinforcing the fundamental principals of the game-- the old borrowing ratios work: 28 % of your gross income can be used for your mortgage and you shouldn't exceed 36% of your gross income for all of your monthly obligations. Find the best location you can afford and finance with a 30 year fixed rate, choose wisely and live in it, enjoy life and watch your equity grow.
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