The pop heard 'round the world when the housing bubble burst brought a lot of bad news -- from plummeting home prices to mounting foreclosures.But with all bad times come a slew of good lessons to be learned, says Shari Olefson, author of "Foreclosure Nation: Mortgaging the American Dream."
Depressed home prices and low interest rates may have you wondering if the real estate market has reached its bottom, but even if the worst is behind us, it makes sense to take in the lessons of the past few years so we can avoid making the same mistakes twice.
Lesson No. 1: Adjust expectations. Years ago, people purchased a home, lived in it all or most of their lives, passed it down to their children and enjoyed a gradual increase in wealth as the home gained value. But in the last decade, people bought a house expecting it to increase in value about 5 or 10 percent in a couple years, and they'd move on to something bigger, says Brendon DeSimone, a Realtor with Paragon Real Estate Group in San Francisco.
If the housing bubble nightmare has shown us anything, it's that you can't count on a home to be worth more than you paid for it when you're ready to sell. "It's back to basics," says DeSimone. "You have to be in it for the long haul and you can't be looking at your home value every month to see how much it's gone up."
“Those who cannot remember the past are doomed to repeat it.” -George Santayana
Lesson No. 2: You can't time the market. When home prices were skyrocketing, many people bought homes they could barely afford -- or not afford at all -- thinking they'd ride the wave of rising equity since the market was on the upswing. Likewise, today, many potential homebuyers are sitting on the sidelines waiting for the market to reach its ultimate low.
"You will never sell at the all-time high and you'll never buy at the all-time low by planning it," says Tim Burrell, a Realtor for Re/Max United in Raleigh, N.C. "The market will time you. You will sell and on occasion you may happen to hit the all-time high or happen to hit the all-time low but to study it and plan it and figure out and actually do it -- it doesn't happen." Instead, take a long-term approach to real estate and look for a home that enhances your life and will increase in value over time.
Lesson No. 3: Don't treat your home like a piggybank. At the height of the real estate market boom, "We had a whole bunch of people refinancing high-interest credit cards with a low-interest second mortgage on their homes," says Olefson. Today, some of those people have lost their homes or are in danger of doing so because they were unable to handle the mortgage debt.