What if you bought during the height of the housing boom?
My timing wasn’t great. My wife and I bought our current home in the summer of 2006. Unfortunately for us, housing prices begin falling right after.
And, as anyone who follows the housing industry knows, those prices haven’t stopped falling since.
Where does that leave us? Our house is currently worth less than what we paid for it. That’s known as being underwater. Is this a drag? Yes. I’d love to refinance our mortgage loan, but because we’ve only owned our house for three years, there’s little chance that our home would appraise high enough to allow for a refinance.
So all these wonderful mortgage interest rates — seemingly falling to record lows every week — do little for me.
Still, being underwater right now isn’t necessarily the end of the world. It’s a little annoying; Everyone wants to see their investments — and housing is an investment — rise. We want to think that we’re savvy folks, that we paid the perfect price for our home. Being underwater means that you didn’t really do that.
But if you’re not selling your house, and if you resign yourself to not being able to refinance your mortgage loan, being underwater doesn’t hurt you too badly. You’re supposed to hold onto a house for a long time — at least seven years or so. If you do that, the odds are great — and this is backed up historically — that your home will increase in value. By the time you sell it, you should have made a nice, solid profit.
The days of buying a home and selling it two years later for huge profits are over. And I don’t think they’ll be coming back anytime soon.
This isn’t necessarily a bad thing, by the way. Runaway housing prices led us to our current economic mess. Housing prices shot up too high, too quickly. The price appreciations were unrealistic, and, worst, unsustainable.
A housing correction hurts. But it’s also necessary. We need housing prices to settle at their proper levels. Apparently, we haven’t hit those levels yet, as home prices continue to fall month to month.
If your home isn’t worth what you paid for it, try not to think about it. You’re certainly not alone. And if you’re not selling, concern yourself with the bad news that really matters, like the fact that the country’s unemployment rate hit 8.5 percent in February. Now there’s something to fret about.
