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Lessons From the Housing Crisis
The nightmare is ending, but the dream continues.
Despite the foreclosure crisis, the public still has “strong support for the association between owning a home and accumulating wealth,” according to one of the housing experts contributing to “Homeownership Built To Last,” a recently published book from the Joint Center for Housing Studies at Harvard University and Brookings Institution Press.
Indeed, new, stricter mortgage rules enacted in the aftermath of the crisis should help ensure today’s borrowers will find owning affordable, stress several contributors.
But they also warn that the rules are works in progress, and homebuying still is not a foolproof financial decision.
Here, some lessons that we should learn from the crisis:
Don’t Expect a Quick Profit
In the housing boom early last decade, many thought home prices would always rise and that a home could be easily sold at a price to pay off the mortgage, no matter how big it was.
Based on government data from 1975 to 2012, home prices tend to track annual inflation rates sometimes, with 1 or 2 percent tacked on.
Still, equity – the value of the home minus the total mortgage amount – represents the biggest source of wealth for most Americans. Equity is built by slowing paying down mortgage principal each month.
Know What’s Really Affordable
Homebuyers tend to fixate on the monthly mortgage payment, and if they’re approved to borrow a certain amount, they consider that their limit. But it’s better to look at a big picture, like how much maintenance and utility costs will be for a particular home.
Look for Impartial Advice
Buyers look to real estate agents and lenders for advice, but they should balance that information with guidance from impartial sources. The Harvard/Brookings book advises that some of the best advice come from government-sponsored housing counseling agencies, like those listed on www.hud.gov.
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