Foreclosure rates are as alarming as unemployment rates. Deciding what to do if your home is threatened in this way is a severe test of maturity. We don’t want to lose what is usually both our biggest financial investment and, truly, our safety and refuge.
Consider the Real Estate Market
If you are upside down on your mortgage or have little equity in your home, take stock of the real estate market before making your decision to keep or walk away from your home. If the market is slumped, and appears to stay that way for some time, your best option may be to let your home go. If the real estate market appears to be perking up (meaning prices may rise quickly), it might make sense to try to keep your home even if you have negative equity.
But how to know what the market will do in the future? Even if the market is a bust, judging by history, home prices will ultimately rise again. As Mark Twain is reputed to have advised a young man, “Buy land! God isn’t making any more of it.” Of course, knowing when prices will rise is the key question.
No formula can predict how soon a particular real estate bust will be over. But watch for signs that the market is either improving or stagnating. If some or all of the following factors are present, there’s a good chance the market is not headed for a speedy recovery:
- a collapse of the subprime loan market
- high numbers of foreclosures predicted to continue for a year or two
- an accelerated decline in residential real estate values
- an overall tightness of the credit markets
- a high likelihood of recession, or
- consumers who are tapped out and increasingly unable to make good on any of their debts, mortgages included.
Remember, there is no guarantee that your house will ever recover its original value. As the old saw goes, you don’t want to throw good money after bad. If the housing market doesn’t rebound quickly, every sacrifice you make now to keep your house could be for naught if you ultimately lose it.
Reprinted with permission from the publisher, Nolo, Copyright 2009, NoloWh