2007 Minneapolis Real Estate Outlook not as good as 2006
Picking up where I left off in Part 1, the fact remains that intelligently priced homes will sell. Sellers have been blinded by the last few years of 20-40% price appreciation, and are in the mindset that a 5-8% annual increase is a bad thing. In fact, it is more the natural norm and previous market trend before the big housing boom. Word to the wise, price for the future, not the past.
Another topic put forth as the MBA convention was the Pay Option ARMS. The financial market has been flooded by these types of loans the last four years and offer “creative” financing to certain buyers who may not fit a conventional loan. Buyers are sweetened up with a low interest term loan, but knowing the rate will increase according to the Adjustable Rate Mortgage. They typically forget or ignore what their payment will be in 3-5 years once the higher rate takes affect. While they should be putting the extra money they save into paying off credit cards or maxing out their 401k, they are instead buying expensive cars, furniture, and gadgets that will never help them financially. Many are banking that their home will continue to appreciate 20% or more a year, or that interests rates will stay low so they can refinance in a few years. Don’t count on it.
What should buyers do who are already suffering from “payment creep”? If you used your “saved” money wisely, you might already be ahead because you have paid off other debts. You most definitely should call your bank and talk about your options. Most likely you can refinance to a fixed-rate loan and breathe a sigh of relief. If you need to speak to a real estate agent about selling the home to get out as soon as you can, call a local professional. You might only “break-even” on the sale of your home, but it beats going into foreclosure because you can’t make payments.