I know it, you know it, everyone knows it. There’s a market correction coming in between 2019-2022. Our economy is artificially propped up and it’s currently teetering on its stilts. The last time the Dow Jones lost over 54% of its value was from 2007-2009. If we’re in for another roller coaster ride like that, there will be a few headaches before we get off. But should everyone be screaming? Who will make it through the ride just fine?
You may be saying ‘Just fine? Our property values are going to drop!’ Yes, there’s a good chance they will! We’re due for the correction that is coming. But property values only matter when you are buying or selling a property. During the last crash, many people responded by selling their homes. Some were ‘underwater’ with their equity and felt more comfortable selling or refinancing in order to – I’m actually not sure what. In some cases where people did lose their jobs and were forced to even short sell their homes while they were underwater. This however, is not the case I’m referring to. I’m talking about people selling simply out of preemptive panic. So again, when your home value takes a dip, don’t panic! Unless you plan on moving in the very near future, decreasing property values don’t matter.
Some other good news is your mortgage payment is going to stay the same (assuming you have a fixed rate). If your property value decreases no one is going to ask you to fork over more money on the property you own. That’s the beauty of a fixed rate. If you have an adjustable rate mortgage (ARM), your interest rate almost always increases after the predetermined amount of time. Put simply, your mortgage payment gets more expensive. Because of the correction, the value of your property has tanked, and you can’t refinance your home. Now you’re stuck paying more money out of pocket every month on your property, and depending on your job/personal savings, that can only be sustained for so long. That’ll leave you with no other choice but to short sell or foreclose because you’re all out of options.
Now for some potentially bad news. If you own a rental property, that stream of income can take a serious beating when the correction comes. The rent your able to charge may very well have to decrease when the overall value of housing drops. And you can’t get rid of the property because of its devaluation. Just like the above scenario with the ARMs, making mortgage payments on these rental properties becomes more difficult and you could be faced with a short sale or foreclosure. The good news is if you buy smart, and minimize the risk of your investment, rents often don’t crash as severely as property values. Rents are generally protected by the supply-and-demand of housing. But, one of the main focuses when choosing a rental property is picking a property where rents have a lesser likelihood of decreasing. The magic word here is LOCATION!
In summary, take a deep breath with me. We’re going to be okay. Try to understand the actual effect this will have on you and your family. Just keep making those mortgage payments and try to avoid selling your home soon.
Until next week,
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.