5 New Rules of Real Estate (part 2)

by The Real Estate Faction on June 27, 2011

1. R.I.P., Big Housing Price Jumps

If you want to buy a house, you have to have enough income to support the mortgage. Now, take it the next step: If everyone in a particular neighborhood earns around the same money, then all the houses in the neighborhood will be priced about the same and home values will only rise 3 percent per year.

That’s about the typical raise most Americans used to get, but the decidedly old-fashioned expectation went out in the 2000s because banks told borrowers that exotic mortgages (like the infamous pay-option adjustable-rate mortgage, or ARM) would allow them to “leverage up” to a much more expensive house payment. It was a payment most clearly couldn’t afford; the bulk of those loans started going delinquent within three months of closing. Now that every borrower has to have a job and some sort of down payment, and the only basic loan types available are 30-year and 15-year fixed-rate mortgages, you won’t be able to leverage up with your mortgage, and housing prices will remain far more steady.

In short — buy now, but don’t expect a huge pop in home prices. It ain’t going to happen.

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