The Florida housing market is in the midst of a housing boom as people buy homes to live in them. Unlike in the period from 2004 to 2007, only a few speculative apartments are being built.
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The 2004-07 housing bubble was driven by easy money and subprime lending, and the current market is driven by actual demand and cash. The last decade of housing construction in Florida and America has caught up with our growing population and it will likely take several years for this urge for housing to be resolved.
There are two hard lessons from the housing bubble that today’s homeowners should remember. During the housing bubble, excessive remodeling and refinancing doomed many homeowners who saw significant increases in the value of their equity due to accelerated market appreciation.
They essentially used their cheap home value and mortgage to accelerate equity to purchase non-home related items. That was a big mistake and led to many unnecessary foreclosures.
Currently, many homeowners are locked in their homes because values have risen so much that a modernized home is unavailable due to high prices. Sure you can sell your existing home for a big profit, but good luck finding something better at a decent price.
In many cases, a homeowner selling their home today only finds a home of lower quality and value on the market for a higher price. Then why move – let’s rebuild. This is where many homeowners ran into trouble during the housing bubble over a decade ago.
When you take your current home and shell out equity for a remodel, there is a tendency to over-remodel with features that add little value to the home. Yes, you can take a simple 1,600-square-foot home and turn it into a luxury home, but the location and size usually stay the same.
After the real estate bubble burst, homeowners became very frustrated with appraisers who gave no real value for any improvements they made to the homes. In fact, only size, condition and location mattered.
Keep in mind that additions like Italian marble floors or special granite countertops will not significantly improve the value of your home unless you do something structural about the home, such as adding an accent. B. a larger size or a pool.
Probably the biggest mistake most homeowners made during the bubble was refinancing their homes to raise equity to pay credit card bills, buy a boat, or other luxury items.
Yes, right now many existing homeowners are able to get equity out of their home because values have risen so much, but by doing so you are increasing your debt, your monthly payments, and expose yourself to foreclosure when the market cools.
Refinancing a home can be expensive with hidden closing costs, and despite what you may hear or read, there are no free closing costs. Somehow these fees are built into the price since Doc stamps by the state, reports and surveys are not free.
Additionally, interest rates on traditional mortgages are approaching 5 percent, and often refinancing a home with moderate credit can add additional points of interest.
Let’s face it, refinancing your home to pay off credit card debt doesn’t solve overspending problems because you’re just shifting your debt from short-term to long-term.
There’s this fairytale belief that reallocating your debt like this will save you money. Realistically, that doesn’t happen because within a year most people will exhaust those same credit cards again and then they’re really financially exposed.
Here’s some wise advice on home equity – don’t touch it! Keep your home mortgage rate low and keep all of the equity in your home because you never know what this housing market will be like in a few years.
As tempting as it may be, discipline yourself to remodel hard cash through small projects, which prevents over-remodeling. Consider the equity in your home your family’s true wealth and strive to do something truly new – pay off your home and don’t have a home note.
In many cases, refinancing your home is an indication that you are overspending, and unless you change this behavior, a debt restructuring will not solve any problems.
Protect your home equity and keep your payments low. Doing this will ensure that you’ll likely never face foreclosure like many post-bubble homeowners were forced to do.
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc. and he is also the host of the “Around the House” show, which can be seen on AroundtheHouse.TV.