If you have been keeping current with the real estate market, you have been watching the housing bubble which predicted that soaring increases in property values would end abruptly and fall into massive decline.
There were various opinions on the reality of the bubble at all. Most real estate professionals denied its existence, while economic experts had a more realistic outlook of what would happen to the real estate market.
The Real Estate market has been on a steady decline in parts of the country. Recent CNN studies showed a year end decline of up to 17% in some cities, while other cities showed a 23% increase in property value.
Although depreciation may be good for prospective home buyers, what will happen to sellers or people who need to use their equity to fix unfavorable financial situations?
The equity in a home has always been a safe haven or backup plan if a family fell on hard times. Refinancing for cash or a home equity loan in an emergency is very available and an easy to way to get cash in an emergency or to pay off major debt.
It is suspected that a market adjustment, or correction, may be necessary. If this happens the outcome may easily affect home owners who may see their equity vanish before their very eyes. In efforts to spur the economy, if the future shows us no factors, such as a decrease in interest rates or an increase in population (buyers), a market adjustment must be made. This will in effect decrease home values even further, possibly by 10% or more. Another hit to your equity.
If you have not owned your home long enough, or did not put and money down to purchase your home, you may end up owing more than your home is worth as your home value plummets and your equity completely disappears. Refinance or home equity loans will not be an option as there is no money left to take out of your home.
It may be wise to ask your local real estate agent to do a Comparative Market Analysis to estimate your homes value. Subtract 10+% off that value to see where you stand. If you are in the safe zone if an adjustment is actually made, cash from your home may be possible.
This looks bleak for those who need financial help out of debt or crisis and are in the position to lose their equity, even more so if their credit is damaged. If you pull your equity out now to get out of debt, your home could be over mortgaged in the future.
This still may be an option for many. If you make this choice, make sure the cash from your home will solve the problem permanently and put you in a financially stable position for at least 3-5 years. Also make sure that you want to stay in this home as long as possible. You can only sell an over mortgaged home for a loss.
If this option does not suit you, you may also consider seeking Debt Consolidation Counseling from a reputable firm. Some firms are good and honest you just need to know what to look for.
I have two last resort options that may be hard to swallow, but desperate times call for desperate measures. If your home is set up for it, rent a portion of your home for extra cash to get you through tough times. And lastly, if your debt is consuming your life and your mortgage is one of the main reasons that you are having trouble, it may be time to sell while you still can, and find something more comfortable financially. Make sure to know your homes value and price it correctly. Also make sure to have time and money to hold out in a slow market.
Trisha Dingillo is a Illinois Licensed Mortgage Broker and Financial Planner. She is the author of the site Debt Consolidation Loan Options