Real Estate

I've been reading lots of articles about what will happen if the real estate market "bubble" that people have been talking about for the last few years finally pops once interest rates rise and other factors make the economy go down the tubes. One today in Sunday's NY Times Real Estate Section sparked a thought. If houses are in a bubble, and there's lots of evidence suggesting they are, then folks who are in houses with payments they can afford for the long term shouldn't have much to worry about, so long as they don't have to sell.

The way I see it, even if you're like us and are recent homeowners, slowly building equity through your payments, then so long as the amount you have to pay don't change, and your income dosen't decrease, then you should be able to ride out any downturn, right? All a deflated housing market bubble means is that if you have to sell, and prices have gone below what your mortgage balance is, only then will you have to (a) take steps to make up the difference, (b) refinance the house to stretch out your remaining debt over a longer term so that you can either continue paying off the debt, or rent the thing out to someone who will pay it for you, or (c) stay put in the house and keep making the same payments you always have.

Now, I realize that adjustable mortgages like ours make this thought a little more complicated, but I think that most adjustable mortgages have caps built in so that your interest can't rise extraordinarily. My idea is to pay off as much of the principal as possible before rates rise, thus cutting the chance that any interest rate increase won't break our proverbial bank. I know that this is playing chicken, but on balance the risk seemed acceptable for the house we wanted to buy.

OK, back to the bubble. I can see this really affecting people who are leveraging their way into very high mortgage equity, but even they would have to be caught bya very quick and dramatic downturn, otherwise, flippers who turn houses over regularly and quickly will sort of ride the decline down, unless they are overextended and get stuck in a house. Then it's every man for himself, and hopefully the person hasn't gotten himself in a position of having to pay a bunch of mortgage debt they cannot afford.

But what do I know. These are just thoughts I have - I'm just feeling my way forward like any other fool.