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How to Take Advantage of the Real Estate Correction

By: Steve Johnson

2/16/2009 - 63 Comments

It's been interesting to watch the real-estate industry collapse for the past two years. The average house has lost 30% of its value.

Like other investments, real estate has its cycles and this is obviously a down trend. The big question is where is the bottom and can you take advantage of it or will real estate be a bad investment for the next ten years no matter how you play it? 

I hope not, because a lot of people are sick of the current direction.  Millions of families have lost their homes and are now living in less favorable housing.  Yesterday I read about how many of these families have begun savings money for a down payment so they can get back into a house like the one they lost.  Once you have lived in a house of your own, its painful to move into an apartment or rental house and that pain is cause for millions of people to re-think their budgets to get back into a house of their own. 

My Plan

A lot of things can happen in the next three years, but I think we are going to finally see a bottom in the housing market.  Like many others, I would like to make a move into a different house and sell my house for a good prices and here is how I plan to do it.  In my case, my family is growing and I would like to move into a larger home.

I bought a new house in 2001, when the housing boom was just getting started. I watched the value (and property tax) go up and down. When the housing market started to topple in late 2006, the builders began going out of business and today most new housing construction has stopped. That means that when the millions that lost their homes to foreclosure get their down payments saved up and start shopping for a home they are probably going to be looking for newer starter homes - like mine.  But, because construction has stopped for several years, starter homes will be in high demand and short supply - which means that I should be able to get a good price for my house.

At the same time, high end homes should be in very low demand with a high supply.  Therefore, high end homes should be down 40-60% in value, while my home should only be down 10-20%.  This will be my opportunity to take advantage of the house market correction and move into a much larger home with a very good value exchange. 

My guess is that it will take another 2-3 years for the market to get into this opportune position and at that time interest rates are likely to have also risen significantly.  But if I purchase the home with mostly cash, the higher interest rates should only help by putting further downward pressure on the price of the larger home.   I'll let you know how this plan works out over the next three years.

What do you think about this plan or do you see the housing market playing out in different way?


This week I participated in several blog carnivals

They did an excellent job and as usual, there are tons of great articles. If you have the time, I highly suggest you skim through this week’s carnivals.

Festival of Frugality: Singles Awareness Edition

Money Hacks Carnival #51 - The Office Edition

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The Homeowners Guide to Renewable Energy

The coming energy crisis caused by a peak in global oil and natural gas production will profoundly affect the lives of all North Americans. As the price of these vital fuels rises, homeowners will scramble to cut their fuel bills. Two options for meeting the upcoming challenge are dramatic improvements in home energy efficiency and efforts to tap into clean, affordable, renewable energy resources to heat and cool homes, to provide hot water and electricity, and even to cook. These measures can result in huge savings and a level of energy independence.

Your Money or Your Life

There's a big difference between "making a living" and making a life. Do you spend more than you earn? Does making a living feel more like making a dying? Do you dislike your job but can't afford to leave it? Is money fragmenting your time, your relationships with family and friends? If so, Your Money or Your Life is for you. From this inspiring book, learn how to, get out of debt and develop savings, reorder material priorities and live well for less, resolve inner conflicts between values and lifestyles, convert problems into opportunities to learn new skill, attain a wholeness of livelihood and lifestyle, and much more.

The Millionaire Next Door

This book is a study of the America millionaires. The results tell that most millionaires are hard working people, as eighty percent of America's millionaires are first-generation rich. They became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way. The conclusion is that anyone can do it, with planning and determination.

Your Money After the Big 5-0

Your Money after the Big 5-0; equips readers with the knowledge, financial tools, and wisdom needed to ensure their fiscal well-being in the second half of life. By following Burkett and Blue's definitive direction, we learn to build a portfolio that provides for our family, honors God, and better positions us to bless the generations that follow with a legacy of stewardship and resources.