This is my column for this week from the Arizona Republic (permanent link).
If selling is not a viable option, you need to fall in love with your house all over again
The foreclosure market dominates the news, but it remains that good old-fashioned American homeowners occupy the overwhelming majority of Phoenix-area homes. That’s the good news.
And here’s some even better news: If you have significant equity in your home, you can probably refinance right now, reducing your monthly payment.
But here’s the bad news: Unless you absolutely have to, you probably won’t be moving for at least five years.
Don’t believe the number you see on that refi appraisal. At most, your house is worth the same amount as a comparable lender-owned home, plus the net cost to bring that home up to the livability of yours.
Swallow hard. You may have read in the paper that Americans lost $2 trillion in real estate equity in 2008. That’s a specious number. Money is the stuff you can fold up and spend. The equity in your home is unrealized money. You weren’t rich when your home was worth a lot, and you’re not poor now that it isn’t.
But what you are is stuck, practically speaking.
You don’t want to sell your house for what it can bring right now. If you do, you will lose money. But, refi or not, you’re making your payments.
If your home really was purely an investment, like a stock, it might be wise to dump it, take your lumps and move on.
But your home is not only where your heart is, it is very probably where most if not all of your savings are. You need to wait for the market to turn so you can sell at a profit.
So what should you do?
My advice: Paint.
Patch that stucco and paint it. Caulk the wood at the eaves and the trim and paint it. Clean out the house one room at a time and patch and paint the walls, repairing and painting the molding.
You’re stuck in your house for the next five years. It’s time to fall in love with it all over again. When there’s nothing you can do to improve the real estate market — paint.
Technorati Tags: arizona, arizona real estate, phoenix, phoenix real estate, real estate, real estate marketing
Joe Hayden says:
Paint, knock a wall down, plant flowers, get a new stove, etc…
Interesting take, Greg… So many just give up and accept the consequences.
January 3, 2009 — 5:08 pm
Budi Waluyo says:
It’s really a difficult time. Does your tips favorably work ?
January 3, 2009 — 6:56 pm
Louis Cammarosano says:
Yep, sage advice.
Here ya go if you want lists of things to do around the house
http://www.homesalemaximizer.com
January 3, 2009 — 7:09 pm
Jackson Hole Real Estate Broker Rick Armstrong says:
The good news is your mortgage payments can go way down due to the decreasing financing rates. Many experts think these rates are going to keep going down.
January 3, 2009 — 7:45 pm
Robert Kerr says:
I guess “specious” is the new BHB buzzword for 2009.
I think that’s 3 uses in 1 week.
January 3, 2009 — 8:03 pm
Greg Swann says:
> I guess “specious” is the new BHB buzzword for 2009.
> I think that’s 3 uses in 1 week.
Ahem. This would be a spurious objection.
January 3, 2009 — 9:46 pm
Charles Richey says:
And don’t forget to repaint the baseboards! A fresh coat of paint on your baseboards makes a huge difference in a room.
January 3, 2009 — 8:47 pm
Sean Purcell says:
> Ahem. This would be a spurious objection.
Greg, you continue to be my favorite logophile.
January 3, 2009 — 10:18 pm
Greg Swann says:
>> Ahem. This would be a spurious objection.
> Greg, you continue to be my favorite logophile.
You’ve heard people tell you that Eskimos have 21 words for snow. Murder was very important to the Romans, and, in consequence, Latin has dozens of very precise terms for specific types of murder. It just occurred to me that English is especially rich in words to discriminate among various types of lying. That’s not a happy thought…
January 4, 2009 — 8:07 am
Kevin OBrien says:
Greg,
That is some excellent advice. Many more home owners need to realize that as long as they continue to maintain and upgrade their home, they will see a long term appreciation. There is always a upside to a downturn.
January 4, 2009 — 11:23 am
J Boyer Chatham NJ says:
Very good advice. I feel for the Phoenix area home owners who are now feeling poor even though not much has really change for them, unless they really want to sell.
Here in New Jersey we did not take near as hard a fall, and it is still very possible for many of the home owners who purchased before 2005 to have some too large amounts of equity in their homes, and especially if they are looking to move up into a larger more expensive home, to do so at an advantage. What we have seen with price declines here is that the higher the price range of the home, the larger the percentage price decline it has seen over the past few years.
So a condo owner could possibly sell their home for a 0% to 5% loss over what it could have been sold for in 05 and purchase a single family mid level home for 12% to 20% less than it could have been purchased in 2005.
Not a bad trade off if the home owner needs the space.
Keep on writing the good stuff Greg!!
January 4, 2009 — 11:50 am
Jayson says:
That’s great advice. I think some people believe that prices are going to shoot back up in a year or two…maybe three. It’s simply not the case, IMO, we won’t see prices like we saw in ’05 for at least 10 – 15 years. We need to move only if we NEED to and CAN financially, otherwise, we need to be happy with the roof over our heads and as you said – fall back in love with our homes.
I think the next big wave or foreclosures is going to come from families figuring that $100,000 + in home debt is a lot less than a few + years of bad credit.
January 4, 2009 — 2:02 pm
Robert Kerr says:
Here in New Jersey we did not take near as hard a fall
J, where in Jersey are prices holding?
The Verona home (Linden Avenue area) I sold 11/03 for $525K just sold this summer for $409K. That’s 22% down. And Zillow shows it for sale again, at $369K. That’s another 10% down, just since summer.
January 4, 2009 — 8:45 pm
David Shafer says:
@Greg Great post, its really all about the psychology involved. Of course, folks could have really changed their perspective if they had done some planning for the bad times! See my post here on this situation for a couple of my clients: http://shaferfinancial.wordpress.com/2009/01/05/different-thinking-different-outcomes-a-case-study/
@Jayson We are already seeing this wave of foreclosures in areas where the depreciation is over 20%. This is a rational reaction to the situation folks find themselves in. A really interesting question is how long before the market allows these folks to purchase again, assuming this is the only black mark on their credit???? My guess is quicker than most people believe. Lenders always want to lend and most forget quickly the bad times!!!
I think 10-15 years is a little long, but would not qwibble with 5-8 years for pricing to return to 2005 levels.
@Jackson Hole Rates are pretty much as low as they are going to get in my opinion at 4.5%-5.125% for purchase money.
January 5, 2009 — 10:33 am
Erika Napoletano says:
Seriously – and you could also consider the rental property option. If your client is in the position of putting the property up for rent, they still have an “out” from the home they want to get out of. Slap up some of @Greg’s paint, get a property manager and get on the search for your new home while there are true bargains to be had in the real estate marketplace!
January 5, 2009 — 4:39 pm
J Boyer Chatham NJ says:
Hey Robert Kerr,
I don’t know much about the market in Verona, though I know it is not one of those towns that makes people just have to live there.
I do know that the markets here cannot be generalized to a state level, or even county level. In many towns there is a huge difference in price performance even by price range. In several of the towns I cover starter homes (250K – 400K) have virtually lost nothing from the peak of the market.
I mainly work the towns of the Morristown line of New Jersey transit, many call it the Midtown Direct. These towns have tended to be doing better than the state as a whole as they have many good things going for them, such as good transportation into the city, much better property taxes than neighboring Essex County, great school systems, … Another thing about these towns is that they have had virtually no foreclosures to drag things down.
January 5, 2009 — 10:02 pm
Todd Covington says:
Great article. Americans have become so soft. It would be great to seem some people improve their current property. A little elbow grease never hurt anyone. I do see prices rebounding in a few years but certainly not 2009. It should be a flat year. Here in Beaufort, SC I can’t see a rebound anytime in the near future. Homeowners could really help themselves with some home improvements while waiting for the rebound. Anyone reading, start with kitchens and bathrooms!!!
January 6, 2009 — 11:13 pm
Dotti Driver says:
You are so right. Now is the time to fix the little things that annoy you, paint, redo the garden and enjoy your present home. The market will come back, but as you said, it may be five years from now.
January 9, 2009 — 12:51 pm