Listen to the experts, but also use your
own judgment. Timing the market is difficult, even for
the pros, but watching key factors can help you assess
whether home values are likely to drop:
interest rates going up?
||Are existing houses sitting on the
market longer? And how does that trend compare to
months and years past?
||Is it much cheaper to rent?
||Is the number of second homes increasing?
||Are people investing in the local
home market to make money, rather than to live in
a home? "One of the frequent definitions people
give for bubbles is if people are buying just in
expectation that the prices will rise, than out
of some underlying need," says Andrew Leventis,
an economist with the Office of Federal Housing
||Has traffic in housing permits slowed?
"Developers are really sensitive to the market,"
says Mike Schenk, vice president of economics and
statistics for the Credit Union National Association.
||Are local unemployment rates up?
Or do you expect they will increase?
DO eliminate uncertainty
If you suspect rates are going to rise and values are
going down, and you have an adjustable-rate home equity
line of credit or home equity loan, this might be a
good time to step up the payments.
"Minimize your exposure," says Nicolas Retsinas,
director of the Joint Center for Housing Studies at
Harvard University. "A home equity loan is one
more front you have to be prepared to defend or cover."
Put yourself on a budget to get it paid down more quickly.
Any time you can limit unknowns, like adjustable payments,
you insulate yourself from the effects of a downturn.
You also want to consider your personal financial situation,
says Schenk. Is your job stable? Are you likely to be
laid off or transferred? Are you part of a single- or
dual-income family, and what are those job prospects?
DON'T borrow more money
You've done the research, believe the bubble is going
to burst and calculate that you will "lose"
a big chunk of equity.
The temptation often is to tap it now with an equity
loan. Bad idea. Depending on the drop, you could end
up owing more than the home is actually worth, or close
to it (Figure an extra 10 percent for closing and moving
cost.) So if you have less than 15 percent equity in
your house, you're in the danger zone.
"To me, it seems more risky to accumulate more
debt when the value of what you have is probably going
to go down and rates are probably going to be going
up," says Schenk.
Equity is money on paper only. If you were truly counting
on the money, sell and move to a less expensive home,
a less expensive area or rent for a while.
Nationally, homes appreciated an average of about 12
percent last year, according to figures from Freddie