You bought the biggest house they said you could qualify for, taking advantage of low rates and creative financing. Who knew you could afford such a great home?
But now, several years later, your low-interest rate has disappeared and the adjustable-rate mortgage that seemed like a good idea keeps pushing your payments higher. Or perhaps you took out a fixed-rate mortgage with an inflated interest rate due to your super low down payment.
If all that isn't bad enough, instead of increasing in value, your home's market value appears to be slipping. You worry it's about to take a nosedive.
A recent survey found that 78 percent of community bank executives are concerned that the real estate market is going to crash, that there will be a "housing bubble and price correction" by 2026. As a result, 83 percent of them believe it's a good time to sell.
On the other hand, there are plenty of experts who say that's wrong—that price growth will slowly cool throughout 2022 without a market crash.
Stay CalmIf you can afford your house payment, a falling market is not likely to hurt you, provided you're not planning to sell right now. Your home's market value is only a number on paper.
Stay PutWhile you might be tempted to bail out, selling now might cause you to suffer a loss needlessly. Enjoy your home. Time has a way of righting a slumping market. If you can hang on to a home for five to 10 years or more, you improve your chances of riding out a downturn unscathed.
Get FixedInterest rates are creeping upward; it may not be too late for you to refinance into a fixed-rate loan. Do it now. With a fixed-rate mortgage, you always know what to expect.
Don't BorrowAs we experience the fastest home-price growth in at least 45 years, people are tapping home equity at the fastest rate since the 2007 bubble. If your home has appreciated significantly in the past few years, you might be tempted to cash out the equity before you lose that gain in a potential market downturn. Don't do it. Equity appreciation is not money in the bank. Cashing out will widen your debt and increase your monthly payment. If that equity is money you really need for some other purpose, sell your home now and downsize to a cheaper area. Otherwise, don't run the risk of falling into a trap where you end up owing more than the home is worth.
Double UpIf you're in a position to target your mortgage more aggressively, step up your payments to reduce your principal quickly so you owe less than the property is worth.
Widen the GapYou need to maintain a healthy gap between your home's current market value—the amount it's worth today in its current condition—and the amount you owe; never less than 20 percent is my advice. Concentrate on widening that gap now and you'll sail through any market downturn.
Keep UpEven in a down market, your home will be more likely to stay at the top of its class when it reflects your pride of ownership. Keep the place well maintained.
Stay FocusedWhile staying aware of your home's current market value is interesting, it's not nearly as important as your outstanding mortgage. That's the number that deserves your focus and full attention. Set a goal, and then create a realistic plan to pay off your mortgage so that one day you'll own your home free and clear.
Every dollar you pay toward the principal starting right now will bring you one step closer to living rent-free for the rest of your life.