Real Estate - How to survive From Housing Bubble?

May 3, 2006 · Filed Under Announcement, Real Estate

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According to Deborah Fowles from About.com, a real estate bubble occurs when housing price experience an unhealthy climb instead of rising gradually with the inflation rate. Anyway, no matter we are really at the stage of housing bubble or just a normal housing boom, we still need to learn how to protect ourselves against the real estate bubble trouble.

So below is some of the tips that Deborah Fowless shared with us :

Don’t overextend yourself. Buy a house that you can afford with a traditional mortgage where you make principal and interest payments at a fixed interest rate.
Follow the rule of thumb that you should limit your housing costs (including property taxes, principal and interest, and homeowners’ insurance) to between 25% and 32% of your family’s gross income.
Don’t assume that your house will continue to appreciate at the fast pace that it may have in recent years.
Don’t buy a house whose price is artificially inflated just because you’re afraid you’ll miss out on the opportunity to buy before prices go up yet again.
Don’t buy a house you can’t really afford just because you think it’s a good investment. The more real estate prices rise, the less likely they’ll continue to do so. Eventually the bubble will burst, and you don’t want to be caught in “bubble trouble.”
Don’t indulge in cash-back refinancing and use the equity in your home to buy cars or boats, take vacations, or pay off debt (unless you’re committed to avoiding the spending habits that got you into debt in the first place). It could come back to bite you if real estate values decline.
Don’t purchase real estate with an interest-only loan if you can’t afford the property otherwise. These loans usually have adjustable interest rates, which could make your payments unaffordable. Once the interest-only period ends and you must start paying principal as well as interest, you may not be able to make the payments and could be forced to sell the property at a loss.
Choose a modest home in a good neighborhood rather than buying a home larger or fancier than you need or a bigger home in a less desirable neighborhood.
Avoid buying a house in an area that has appreciated well above the average rate of appreciation in that area over the past few years.