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Life After The Bubble – Lessons Learned And What’s Changed With Borrowing

 July 22, 2014  /  Comments Off on Life After The Bubble – Lessons Learned And What’s Changed With Borrowing

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It’s been six years since the United States housing bubble burst, and millions are still feeling the effects. Currently, just about 14 million homeowners are underwater, owing more on their mortgages than their homes are worth. But besides the mismanagement put forth by the U.S. Government, there were many things that homeowners believed erroneously which most likely contributed to long-term damage.

Life After The Bubble - Lessons Learned And What's Changed With Borrowing

The Illusion of Fast Cash

When the housing market was booming, American homeowners either refinanced or second-mortgaged their way to over one trillion dollars in equity cash-outs, and all at variable interest rates which were below those of fixed mortgage or line of credit products. This happened because homeowners believed that their home prices would never fall, which led to the assumption that periodic equity cash outs were no big deal.

The one thing that many homeowners failed to consider was whether or not their incomes could support the vacations, home improvements and lifestyles they were trying to fund with these cash-outs. As a result, when the bubble burst, interest rates rose and home prices began their freefall. At the end of it all, over five million Americans had their homes in foreclosure and had lost unbearable amounts in the trillions in household wealth.

Good Lessons

It’s easy to look on any hardship in our lives with an evil eye before we move on. But just like life, the housing bubble contained numerous lessons that experts say we can take with us over the long term. As well, we can use those lessons to ensure that another bubble burst doesn’t happen again.

Planning and Timing

Market timing is one important lesson which was learned. Homeowners were so thrilled with the rising prices that they were convinced those prices would last forever and they could just relax as the market swung upward and took equity with it. No one expected what came after.

Experts say that planning is no way to ensure a high selling or low purchase price on a home. Instead, they suggest taking a longer-term approach by looking for a home that will offer a steady increase in value over the years as well as being a home that your whole family can enjoy.

Doing Your Homework

Before the bubble burst, many homeowners simply relied on their mortgage professionals to tell them what was best instead of considering whether it was in their best interest. As well, many likely didn’t check the credentials of their mortgage professionals. Of course, these days everyone seems to be calling their financial adviser, looking online for mortgage advice or reading books on the subject to get up to speed. This is because homeowners now know they have to be careful who they trust.

Evidence of Recovery

It was observed that, in the first quarter of 2012, home equity rose to its highest level since 2008, reaching $6.7 trillion. The numbers showed that homeowners were now refinancing and record-low rates.

Homeowners appear to be realizing that housing debt is not necessarily something they are willing to do. Where a mortgage represented more of a leveraging tool before the bubble burst, it is now considered by the majority of homeowners to be a risk.

Speaking of risk, many homeowners are reconsidering due to high unemployment rates continuing to be reported. Lately, it seems that paying down a mortgage carries more importance than making big purchases. The same is true for those homeowners who may have previously put money away in the bank instead of paying down their mortgage.

Perhaps the biggest lesson learned was about change. In another comparison with life, experts are saying that the only constant thing in the housing industry is change, and that this is what homeowners most need to keep in mind as they consider any type of mortgage product.

Guest author Tony Donovan writes on a variety of topics, particularly related to the mortgage industry.  He recommends www.refinancehomemortgageguide.com for consumers to identify thoughtful questions before they dive in on a refinance.

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  • Published: 3 years ago on July 22, 2014
  • Last Modified: July 22, 2014 @ 6:22 am
  • Filed Under: Finance, Legal

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