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Moves to make


Always dreamed of being in the right place at the right time? You may be right now.

On the bubble? Heed these do's and don'ts
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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:

Are long-term 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 Enterprise Oversight.
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 Mac.

-- Posted: March 1, 2006
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