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(WoodleyWonderWorks)

The ups and (mostly) downs of the housing market, combined with tax incentives have left many wondering whether or not now might be a good time to finally buy that dream home. Average interest rates on thirty year mortgage loans have plummeted once more, falling a full percentage point below the lowest rate at any time last year. According to Yahoo! Finance, the average thirty year mortgage rate is now a pavement-scraping 4.78%. That’s down from 4.83% just last week, and it matches the record low set in April of this year. Putting the numbers into further perspective, Freddie Mac reports the average 30 year rate at this time last year was 5.97%.

Thirty year mortgage rates were not the only ones to drop this week. Average rates on fifteen year fixed mortgages also sank, from 4.32% last week to 4.29% this week. That’s the lowest 15 year fixed mortgage rates have been since statistics were kept on them beginning in 1991. Additionally, five year, adjustable-rate mortgages saw their average rates fall to 4.18% this week from 4.25% last week. One year, adjustable rate mortgages held steady at 4.35% for the second week straight.

(Daryl Davis)

The rapid fall can be traced back to last November, when the Fed began its gigantic $1.5 trillion shopping spree of toxic, mortgage-backed securities to lower lending rates. By and large these efforts have succeeded, as rates have hung around the 5% neighborhood since April and triggered a flurry of mortgage refinancing. According to Freddie Mac chief economist Frank Nothaft, a homeowner who refinanced today would stand to save about $100 per month on a $200,000 fixed-rate mortgage.

On the surface, the falling rates discussed above seem to bode well for the struggling housing market. But according to the Wall Street Journal, refinancing activity may be slowing to a crawl. In the week ending November 20, refinancings reportedly fell 9.5% in spite of falling rates. The Journal also states that the “overall pace of mortgage applications also dropped in the week ended Nov. 13, down 2.5%.” It appears that the housing market’s problems may run too deep for low interest rates to correct, at least presently.

At MintLife we strive to make complex financial topics easy-to-understand. Most homeowners are already familiar with the concept of a mortgage. A Reverse Mortgage lets you borrow money against the value of your home without your needing to pay it back until either one of two things happen; either you die or you sell the home. With recent government regulations in place, the Reverse Mortgage is a financial instrument set to explode with the wave of retiring baby boomers. These mortgages not only affect the borrower, but their heirs as well, so it’s important to understand the ins and outs of process and product. The Reverse Mortgage can be a lifesaver for some, but is not for everyone. This factsheet will show you how it works.

Provided by Reverse Mortgage Guide

For more personal finance visualizations see: WallStats.com

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If you’re a first-time home buyer you might be interested to know that Dan Marino’s 10-bedroom, 12-bathroom mansion in Weston, Florida, is up for sale for $13.5 million. Marino originally listed the home in 2006 for $15.9 million, but recently decided to make his offer more enticing by cutting the price and throwing in some designer furniture and an autographed football.

If those new incentives get you excited, you need to stop and take a breath. Would you really be induced to spend $13.5 million on a house only because the seller throws in an autographed football? After all, you can get one on eBay for less than $100. For $13.5 million, Marino should come back once a year and hold a football camp for your son. He should be the guest of honor at an annual barbecue with you and your friends where you can all stare wide-eyed while he tells war stories from the NFL — and then make fun of him after he leaves for never winning a Super Bowl.

Honestly, if you’re a first-time home buyer, you would do well to not get too starry-eyed at the prospect of sitting in your living room gazing at a Dan Marino football on your mantelpiece wondering how you’re going to make the next $85,000 mortgage payment.

Here are some other common mistakes people make when they decide to take the leap from renting to owning.

Falling in love with perks that don’t add value

The Marino football is just one, unique example. Some people fall in love with a built-in swimming pool. (Marino’s house is loaded with them by the way.) What a lot of people don’t know is that a swimming pool is expensive to maintain and it may cause your homeowner’s premiums to go up. (Insurance companies call it an “attractive nuisance.”) Also, when you go to sell your home, many people will avoid homes that have swimming pools or ask that, as a contingency for sale, the pool be filled in.

So when you’re shopping, don’t get too attached to the house with the sinking foundation next to the freeway just because it has got a wet bar and pool table in the basement. If you need any perks, add them later to a house that is a better value.

Failing to budget for all those things that will break down

When home repairs need to be done, a renter picks up the phone and calls the landlord. When repairs need to be done and you’re the owner of the home, you’re on the hook. You are the one who has to replace the hot water heater when it busts open like a water balloon. You are the one who has to change the filter in your central air unit, make sure the gutters are cleaned out and replace broken appliances. You’ve got to buy a lawn mower, a snow shovel and salt when it snows. All of these things cost money — and they add up (big time).

Foreclosures are happening everywhere today because people borrowed the absolute maximum they qualified for so they could get into the biggest house they saw. They could barely afford their mortgage payments and that left no money to do repairs or even routine maintenance.

Your best bet is to buy a little bit less house than you can afford. That will leave money in your budget for maintenance and any other surprises that come up; then you can focus on funding your savings account so that in a few years you can do renovations (kitchen, bathroom) that will increase the value of your home.

Overestimating the tax savings

You may have heard that a lot of European millionaires live in Monaco because the principality has no income tax, whereas countries such as Great Britain have nothing but income tax. A lot of people look to buy homes because they think the tax deduction they’ll receive will turn out to be a similar tax haven for them.

It is true that you get a tax deduction on the interest you pay on your mortgage; but remember, when you are a renter you don’t have a mortgage so you don’t pay interest on a gigantic loan. That’s what a mortgage is: The biggest loan you’re ever going to take on in your life.

Getting a tax deduction on the interest you pay on a mortgage makes the interest a little more affordable, but it’s still not better than paying no interest at all. If you don’t believe us, we’ll make a deal with you: You pay our mortgages every month and we’ll write you a check for the tax savings at the end of the year.

Everybody hates paying taxes, but some people don’t have a really big tax burden. If you have a couple of kids and your household income is less than $100,000 per year, then you don’t pay a lot in federal income taxes. The tax savings on a mortgage wouldn’t really be all that great.

That’s not to say there aren’t any compelling reasons to buy your own home; but don’t fool yourself into thinking the tax savings are going to be a windfall for you. Read our article on the home buyer tax credit.

Not researching the neighborhood

“Hell is other people,” said the existentialist philosopher Jean-Paul Sartre — and sometimes they live next door.

Try to do all the due diligence you can on your new house. Check out the school districts (even if you don’t have kids, the quality of schools in the area will affect the resale value of your home), get a home inspection done and ask people you know about the neighborhood. Still, there’s one thing you might not really know until you’ve been in the house for a few years: That’s the painful idiosyncrasies of the freaks that live on either side of you.

Sure, renters have neighbors too, but if the situation becomes too painful they can get up and move when their lease is up at the end of the year. You can’t just turn around and flip that house when your neighbor takes to doing part-time auto body work in his front yard.

When you buy a house, you’re also buying a whole neighborhood. Ask the mailman if you have to, but try to find out as much about the people who live around you before you move in.

Overestimating your enthusiasm for renovations

A little “TLC” said the listing. It’s awaiting your special designer’s touch, your creative flair. You can paint the walls any color you like. You can put in permanent fixtures. You can build a patio, a deck and remodel a bathroom if you like.

Unfortunately, in a lot of cases you have to do those things. The linoleum in the kitchen floor is a fake brick pattern and 30 years ago some teenage boy epoxied a Fonzie poster to the wall in his bedroom. The realtor can call it any thing she wants, but most people call it what it is: work. Owning a home that needs a lot of updating is like having a part-time job that you don’t get paid for.

It’s great if you have experience doing those things or if you like that kind of work. But if neither of the above is true, then you’re going to need to budget a lot more time into doing the simplest of chores than you think. It’s going to be learning on the job. You’re going to be chasing guys with orange aprons up and down the aisles at Home Depot.

If that’s your idea of fun, then buy the fixer-upper. If not, you might want to consider a townhouse or a home that’s been built in the last 10 years.

Do your homework

This isn’t to say that you should be afraid to buy a home — just do it with your eyes open. Owning a home can be personally and financially rewarding over the long term. But in recent years a lot of people didn’t educate themselves beforehand and our whole economy is paying for it today.

After all, you don’t want to be stuck in a few years trying to unload a house that nobody wants — like poor Dan Marino.

First-Time Home Buyer Mistakes Provided by AskMen.

Yomanimus

Making money in real-estate is all about timing. Despite the fact that many people lost not only their shirts but their homes in the mortgage meltdown, real-estate has historically been considered a safe investment. But if current trends continue, there may be more bust than boom. In fact, we may never see a mortgage market as booming as it was during during the early 2000’s. In addition to the flood of new homeowners, the housing boom saw an unprecedented number of speculators acquiring multiple properties, hoping to capitalize on ever-increasing housing prices. The combined effect of all this activity was a mortgage market of tremendous size – roughly $10 trillion in residential mortgages by late 2007, which equates to nearly a quarter of the total debt market in the US. But every boom eventually busts, and since ‘07 the mortgage market has shrunk into a shell of its former self.

It should here be noted that the shrinking mortgage market is not only, or even primarily a US problem. BBC News reported in November 2008 that it was likely that, “…net new mortgage lending – gross new home loans minus repayments and redemption – would fall below zero in 2009 and see only a modest recovery in 2010.” These remarks were made following 2007 where net new mortgage lending stood at £108bn. Similarly, the UK’s Independent reported the findings of a study by Nationwide predicting that, “…the UK mortgage market will contract by 80% this year [2009],” and also that, “…house prices will fall for another 12 months.” Nationwide group development director Tony Prestedge estimated the total value of the mortgage market to be £18bn in 2008, compared with £90bn in 2007. Both estimates reach the same chilling conclusion of a drastically shrinking market.

The effects on the US market have, of course, been more prominent in the news. While the recent lowering of interest rates has spurred some activity, HousingWire.com recently reported that the number of mortgage applications filed in the week ending September 25 declined 2.8%, “…on a seasonally adjusted basis”, citing the Mortgage Bankers Association’s survey that measures total gross applications in the US. The refinancing index is also said to have decreased (albeit only by 0.8%) while the purchase index fell 6.2%. Another weekly survey, Mortgage Maxx, reached similar conclusions. After adjusting to “account for multiple submissions by the same borrower”, Mortgage Maxx found that total applications declined by 7.3% in the same week.

Casey Serin

Trouble began brewing before this year, however. According to BuilderOnline.com, 1 in 3 mortgage applicants was turned down in 2008 (a 32% denial rate) the same year that total mortgage applications were down by a third from 2007 and at less than half of 2006 levels. Even such mortgage activity as took place was largely of the government-backed variety. According to BuilderOnline, “…loans backed by the Federal Housing Administration soared to 21 percent of all loans made last year [2008] from less than 5 percent in both 2005 and 2006.”

The fallout from the housing bust has even affected tiny countries thought to be irrelevant to a crisis originating in the US. Bulgaria, for instance, saw the size of its mortgage market shrink twenty times in the first two months of 2009, according to Novinite.com. Only BNG 18 M was invested during January and February, as opposed to the BGN 355 M that was invested during the same months in 2008.

WoodleyWonderworks

All in all, the housing bust and the recession that followed have made for tough times in the mortgage market. Because mortgage-backed securities were packaged and sold to investors all over the world, what began as a US problem is very much an international problem with international repercussions. The silver lining (if there is any) may be found in the aforementioned recent lowering of loan interest rates to below 5%. As Reuters reported on October 7 2009, new mortgage applications are at a four month high. As a “tentative early indicator of sales”, these numbers may hold promise for the mortgages Nevertheless, substantial growth remains to be seen.

Let’s face it – the typical real estate transaction is pretty boring. Few of us can get all that excited about yet another “three bedroom, one and a half bath” changing hands in the town or city we live in. The daily occurrence of these deals – and the ordinary properties involved – are simply too commonplace to react any other way. However, every once in a while a truly remarkable property comes on to the market or is developed for sale. Whether it’s a house that’s only nine and a half feet wide or one made entirely of glass, these bizarre properties provoke more than a passing glance. The following are some of the most noteworthy:

World’s Most Expensive Home

Plenty of us have complained about our high mortgages or rent, but no one louder than whomever winds up buying this place. The German website Spiegel Online International describes the house for sale at an eye-popping €6.3 million (roughly $9 million US) What is even more mind-blowing about this particular deal is the size of the home. Most people would expect a sweeping, palatial mansion that casts a majestic shadow on passersby for such a steep asking price, but alas, the property clocks in at a tiny 322 square feet. Spiegal offers some hints as to the astronomical value of the property, which sits on the German holiday island of Sylt:

“According to owner Heinrich Haase the building stands on 2,400 meters of land in the millionaire’s neighborhood of Kampen on the island, off Germany’s northern coast near the Danish border…”

The property is also said to be situated amidst natural sand dunes and offer an unrestricted view of the sea. Interest is rumored to be high in the historically expensive home, including amongst people “whose names you would know.”

The Bubble House

Now may be the most inopportune time to be cracking jokes about bubbles and houses, but that didn’t stop Pierre Cardin from snapping up this bad boy. OddityCentral.com chronicles the story of this strange property in photographed, high-resolution detail, describing its early history as follows:

As the story goes, Pierre Cardin was looking to buy a nice house on the Cote d’Azur, but was horrified by all the unoriginal designs that he had seen and that didn’t match his avant-garde fashion designs. That one day he stumbled upon a construction site, where an architect by the name of Antti Lovag was building a bubble-house for some industrialist who happened to have died. Cardin was thrilled to acquire the almost finished residence that finally satisfied his exigent taste.”

OddityCentral goes on to note that the bubble house was far from an instant hit upon its 1990 completion. In fact, some even referred to it derisively as the “crazy-house.” However, it is today a popular landmark, visited by thousands of tourists every year.

The Harlem Castle

Few types of real estate are as compelling as domineering, Gothic castles that cast their shadows down from on high. This is precisely what we find in the recent sale of Harlem’s Grey Gardens castle, deemed by New York Magazine to be “the steal of the year” at $1.5 million. NY Mag’s reporters who researched the story noted that they were

“…blown away by the gorgeous 8,250 square feet of interior space, the quirky architecture, the original stained-glass windows, the herringbone wood floors and the coffered ceilings, the history (it was built by a circus impresario and was later a funeral home), and most of all the $3.5 million price tag.”

The $2 million discount (75% off!) came about due to the extensive repairs that will have to be done by the new owner, ranging from rotted floors to cracking plaster to a “jungle” in the backyard. However, the consensus is that the new owners got a steal and that there is “no other property like it on the island of Manhattan”.

New York’s Skinniest House

(Marcin Wichary)

Many an unhappy home owner has lamented the lack of space in their homes. Belongings pile up, discomfort builds, and life at home becomes too cluttered for our liking. But few of us know “small” like the owner of the house covered in a recent Yahoo! News story:

“It’s 9.5 feet wide and 42 feet long (2.9 metres wide by 12.8 metres long) and is billed as the narrowest house in New York City. But there’s nothing small about its asking price: $2.7 million.”

These absurd dimensions make the Greenwich Village house in all likelihood even narrower than the one pictured above. Yahoo also notes that the current owner paid $1.6 million in 2001 for the property, which a real estate broker quoted for the story describes as “a place for someone who wants a little history.” It remains to be seen whether the new, higher price will be met (especially in this economy), but the eventual sale of this property is sure to attract attention one way or another.

The Glass House

(Christopher Peterson)

Everyone’s heard the line about how people who live in glass houses shouldn’t throw stones, but no one ever gets to say it to an actual glass house owner – that is, until this dwelling came along. Designed by American architect Phillip Johnson, the glass house was erected in New Canan, Connecticut in 1949 as Johnson’s own residence according to the house’s website. In addition to being declared a National Historic Landmark in 1997, the house passed to the National Trust For Historic Preservation upon Johnson’s 2005 death, and has been subsequently opened to visitors and tourists. The only non-glass materials used are brick for the floors and charcoal-painted steel for the exterior beams.

The $25 Million Bounced Closing Check

One thing all real estate deals have in common is the closing, where buyers and sellers (or their attorneys) meet up to consummate the final details and sign off on all remaining paperwork. Typically these are rather ordinary affairs containing little of interest to outside observers. In 2006, however, a closing unlike any other in history took place in New Jersey. TheRealEstateBloggers.com tells the story of Solomon Dwek, a real estate investor from Ocean Township who deposited a $25,000,000 check from a closing he had just wrapped up nearby. The check was deposited from a drive-through teller window (which was apparently Dwek’s usual method of depositing) and promptly bounced, creating a domino effect whereby $23 million in checks written against the money bounced thereafter. The story behind the bogus check remained shrouded in mystery for several years, stating only that the FBI was investigating. In 2009, however, TillerStillers reported that Dwek had been arrested for using the illicit funds to repay old loans, as well as trying to cash a second $25 million check at a different PNC branch.

UFO House

(robinart.com)

Conspiracy theorists will find much to explore in Chattanooga, Tennessee’s UFO house. In an investigative piece on the property, Gizmodo.com conducts a photographed overview, describing it as “one of the most bizarre abodes we’ve ever seen” and recalling that it boasts “a button activated stair case, curved bar area and customized bathtub, as well as various UFO paneled controls throughout that are simply priceless, or so you would think.”

Unfortunately for the Gizmodo crew, the home’s asking price of $100,000 puts it “about $99,999 out of our budget.” Perhaps these extraterrestrial home owners will be forced to beam down their price a bit in light of the economy.

$1.8 Billion NYC real estate investigation

As the above example illustrates, some of the craziest real estate deals involve not just the property itself, but the insane manner in which the deals are carried out. Another fascinating example is the $1.76 billion Riverside South project in NYC, on Manhattan’s West Side. According to the New York Post, the deal (which involved 77 acres of waterfront real estate destined for luxury condos and is said be the biggest in NYC history) saw a Chinese consortium “evade taxes by having the buyers, developers Extell and the Carlyle Group, pay a $17 million finder’s fee to a British Virgin Islands-based shell corporation.” As of September 19, 2009 there had already been one arrest in connection with the convoluted deal, which alleges that consortium members funnelled bonus money and other payments through illegal tax havens in foreign countries.

Charges brought against Barry Gross thus far include “grand larceny, falsifying business records and offering a false instrument for filing.” It remains to be seen how much more chaos unfolds from this strange and apparently deceptive deal.

Photo: jeroen020

Foreclosed on? Just because you may have lost one home doesn’t mean you’ll never be able to buy another. But first, you need to engage in some credit score Rx.

“A foreclosure will cause a credit score to drop sharply, typically by 200 to 300 points,” says Andrew Housser, co-CEO of Bills.com, a free consumer portal of personal finance information. “That would drop a score of 700 – considered a ‘good’ score – to as low as 400 – considered pretty terrible.” The minimum FICO score is 340. This drop can affect your ability to not only purchase a home, but also to secure a car loan and even gain employment. “Lower credit scores can result in being denied credit, such as credit cards and car loans, and facing much higher rates for loans and even other items, such as insurance, that rely on credit scores,” notes Housser.

Don’t lose hope, though. While a foreclosure can remain on your credit report for seven years, it won’t ruin your credit score for life, adds Housser. “If you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as two years. The important thing to keep in mind is that a foreclosure is a single negative item. If you keep it isolated, it will be much less damaging to your FICO score than if you had a foreclosure in addition to defaulting on other credit obligations.”

In fact, The Federal Housing Administration will allow a new mortgage to be approved if a past foreclosure was more than five years old,” explains Alan M. White, assistant professor at Valparaiso University School of Law in Indiana. “The impact of foreclosure on your score diminishes over time, depending on whether you have other active, on-time accounts,” he explains.

Of course, it’s preferable to avoid foreclosure altogether. Here are some ways to accomplish that goal. (Keep in mind, however, that many of these options require you to resume normal mortgage payments at some point. If you can’t afford to resume payments, it may not be worth the effort required to stop or reverse the foreclosure process.)

• Lender negotiation: If there is a reasonable expectation that you will be able to resume making regular mortgage payments within a relatively short time frame, the lender may be willing to work with you to establish a payment plan to bring the loan current. “Especially in today’s market, this is a greater possibility,” says Housser. “Many individuals are having trouble due to an unexpected job loss, medical expenses, divorce or other personal trauma. If the situation has some resolution so that the regular payments may be able to be met again, it is worth it to call the lender.”

• Forbearance agreement: For a temporary hardship, the lender might grant you a forbearance agreement to lower – or eliminate – payments for a limited time.

• Loan modification: This entails a permanent change to the loan, such as lowering the payment and extending the loan’s term or incorporating any delinquencies into future payments. “Lenders are more willing to discuss this now than they were before,” adds Housser.

• Deed-in-lieu of foreclosure: In this case, the lender takes ownership of the home, but that will not eliminate the negative impact of a payment delinquency or foreclosure that has already begun. “Bankruptcy remains on a credit report for 10 years, but it can offer a way to become current in payments, which will improve the credit score,” White notes.

• Refinancing: It may be possible to refinance a mortgage for a lower interest rate and/or lower monthly payment. But if you have already had late payments on a mortgage, the interest rate offered may be too high to lower your monthly payment. Housser recommends using online rate comparison sites and calculators to determine the “real costs of refinancing.”

• Short sale: In a short sale, the lender accepts less than the mortgage debt when the property value has declined. “A short sale will prevent foreclosure,” says White. “However, if it takes place after foreclosure was initiated, the foreclosure and the related delinquency in payments will be reflected on the credit report.” The only way to protect the credit score fully is to maintain monthly payments until the house is sold.

• Chapter 13 bankruptcy: If the loan default is past the point of being resolved with the lender, you may file for chapter 13 bankruptcy protection. This protection requires you to resume making regular mortgage payments but allows the arrearage (being overdue in payment) to be repaid over the course of the chapter 13 plan.

All things considered, a foreclosure won’t ruin your credit rating forever. It will lower your credit score and remain on your credit report until you’re able to re-establish good credit — which takes time and careful planning. Consider your home purchase wisely.

Provided by FreeCreditReport.com, a part of Experian. -
See your credit report and score today

Conventional wisdom says that buying is preferable to renting. Instead of throwing money away on a home, you can invest in your future and have the sense of fulfillment that comes from owning a home. Turns out, conventional wisdom is wrong. Today, many long-term renters are in a much stronger financial position than many recent homebuyers, and the last thing these homeowners are feeling is contentment. But the combination of firesale prices on homes, the drop in mortgage rates, and government assistance in the form of the first time home buyer tax credit, may have you reconsidering the idea of buying your own home. Is now a good time?

The Good

Here are a few of the reasons why now is a better time to buy a home than it has been at any point in the past few years:

Tax Credits

In the stimulus plan signed by President Obama, there is a first-time home buyer tax credit of $8,000, provided that you stay in the home for 36 months. This isn’t a tax deduction like your mortgage interest, which reduces your taxable income – a tax credit actually reduces your total income taxes owed. In addition, some states, such as California, are offering tax credits for home buyers that will further reduce your tax liability. Keep in mind that the federal program ends on December 1st of this year, and while it could easily end up being extended, it isn’t a given.

Rates last week dipped to an all-time low when the Fed announced that it would continue buying additional mortgage backed securities. Even though they ticked back up slightly in the past few days, with full income documentation and good credit, you can easily get down to 4.5% on a conventional 30 year fixed if you have 20% down, and if you want to get into an FHA loan, you can more typically get around 5.0% with a down payment of only 3.5%. Be careful when shopping for rates online, and think twice before giving out personal information. It is far better to ask friends and family for a strong personal recommendation, and use the information that you see on sites such as bankrate.com to approximate where your rate should be. Keep in mind that everyone’s scenario is different and there are a lot of new rate adjustments for conventional loans that didn’t exist in prior years, so you can easily end up paying 1 point (or percentage of the loan amount) for a loan that might cost your friend zero points for the same rate on the same day with the same lender.

Because You Don’t Absolutely Need to Buy

The best time to shop for a home is when you don’t need to. You can be as aggressive as you want to on your offer, and time is on your side because prices aren’t going to go back up overnight. If you are patient, you can find a home that you love, and just make sure that you can comfortably afford it and have a long-term plan to keep the property.

The Bad

These are factors that should not be driving your motivation to purchase a home right now:

Timing the Market Bottom

The same advice that applies to the stock market applies to the housing market. Don’t try to time it. If you have played around with the stock market in the past year and tried to catch a falling knife in the hopes of maximizing your return, you can probably look at the scars on your financial statements and let it serve as a reminder not to time the bottom. The turnaround in prices is gradual, and you are not going to miss out on an instant, overnight spike in real estate prices, no matter how fast the bank-owned properties are selling locally.

The Illusion of the Discount

Perhaps a new development popped up three years ago and was so shiny and perfect that you would have taken a third job to afford it. Now, the model that you love has popped up for $400,000 and all of the recent sales were at $450,000. In a stable market, that is great, but if you live in a declining market, you have now become the new comparable sale that any listings in the development in the near future will be measured against. So, if you buy this place for $400,000, and your new neighbor decides to move, they now will likely be advised by their real estate agent to price their property at or below your price in order to sell quickly. The same holds true for purchasing bank-owned properties. Bank-owned sales may be somewhat less frequent and given slightly less weight in determining the next sales prices in your neighborhood. However, if you buy in a neighborhood with a relatively high level of short sales and foreclosures, that great deal you just got on the bank-owned property just set the bar lower for the whole neighborhood.

The Ugly

If you don’t know what you are doing or have enough of a cash reserve to justify the risk, this real estate market can eat you alive, especially if you are short-sighted.

Fix It and Flip It

Unless you are lightning fast, experienced at managing renovation projects and holding plenty of cash that you are comfortable risking, that late night real estate fix-and-flip infomercial that was recorded in 2003 should not be considered your ticket to financial freedom. Of course there are gurus who have been waiting for this opportunity, and you are driving around listening to Robert Kiyosaki on iTunes with your Bluetooth intact looking for the bargain of the century. Just do your research, and don’t think that any particular property is the last opportunity you will ever have to get a great deal.

Until you see your local median price leveled off or even slightly increasing for a few months consecutively, you are dependent on sweat equity, which in many cases is wiped out by a few homes in the neighborhood going into foreclosure and further reducing home prices. Again, this market has become hyperlocal, down to the subdivision. In Orange County for example, prices for stronger neighborhoods may be down only 10% in the last year while properties less than a mile away have been cut in half or more in extreme cases.

Are you really ready?

How much are you paying now for rent? You should look at a good principal and interest calculator or talk to your lender to get the whole picture, including monthly amounts for taxes, insurance, any applicable homeowners association dues, and any applicable mortgage insurance. This is important even if you plan on paying taxes and insurance on your own (rather than impounding them and making monthly payments to the lender) because you will want to make sure to budget monthly to set aside for these expenses. So, if you are paying $1,500 currently for rent, and the new home will be $2,500, put your budget to the test and see how well your finances run when you put the amount of the increased housing expense (in this case $1,000) into your savings account. Take it out right when you pay your rent, and don’t touch it. This is a great test of how much you can really comfortably afford, and of course has the nice side effect of padding your savings for a few months before you start shopping for a home.

Of course, if you have a long-term plan to be in the home, the fluctuations and potential decrease in value in the near term doesn’t need to get you down, as the only price that matters is the price you are able to sell for when you need or want to move.