The housing collapse may be bottoming out, with buyers moving back into some of the hardest-hit markets.
If so, it’s a good time for home shoppers to review some of the lessons of the boom-bust cycle, to avoid making the same mistakes again.
Most important: a house is a home, not a road to riches.
The housing crisis arose out of the belief that home prices would always go up. Buyers would pay just about anything, taking out enormous, high-risk loans if necessary, confident they couldn’t lose. Buyers, sellers, real estate agents and lenders just rolled their eyes when naysayers pointed out that home prices cannot go up faster than incomes forever.
Of course, the naysayers were right, and prices collapsed in much of the country.
Now hard-hit areas like Sacramento, Las Vegas and parts of Florida are reporting a surge in home sales, though prices in the most devastated areas are only half what they were a few years ago.
Low prices and rock-bottom interest rates make a house purchase tempting, especially for the first-time buyer who doesn’t need to sell one home to buy another. Interest on a 30-year, fixed-rate mortgage averages 5.06 percent, according to the BankingMyWay.com survey.
The Fixed Mortgage Loan Calculator says you’d pay just over $540 a month on a $100,000 loan at that rate. Put another way, a household with $75,000 in income and no other debts could qualify for a $312,000 mortgage, according to the Maximum Mortgage Calculator.
But seeking the biggest possible loan is so…well, 2006. These days, it’s best to keep payments low in case of a financial setback like a lost job.