The Top 5 Big Bad Mistakes in a Housing Bubble

The Big Bad Wolf destroying a perfectly good straw house.

From everything we’re seeing in the news and hearing on the internet, the U.S. is headed for a recession. And, not a mild one, either.

Part of the reason for this is the rise in interest rates. Last year interest rates were around 2%, now they are above 20-year highs at 6%. They only look to be going higher.

This means that the days of easy money are over. At least from the Federal Reserve’s point of view.

And, home prices have concomitantly skyrocketed, too! Home sellers could just put their house on the market and it would sell in a few days. Often with buyers outbidding each other and jacking up the sales price. This was OK, I guess when money was cheap. But now it ain’t cheap.

So, what should you do? Should you buy now? Let me cover 5 big mistakes to avoid in the current market.

  1. Do not flip houses or lend money to a house flipper. It’s going to get much harder to buy a house at a low price because people still think that their house is worth a lot more than they really are. And, you as a flipper, have no idea how long your house will sit on the market. This is due to the fact that people who could afford a property at 2% interest, can’t afford it at >6%. Kapish?
  2. Don’t buy an expensive house. Why? Because everything is going to lose value and you’ll find yourself quickly underwater. As a homeowner, you’ll be unable to sell your house if you have to move.
  3. Don’t get an adjustable-rate mortgage. You definitely don’t want to have your interest rates go up even higher than what you’re paying right now.
  4. Avoid doing expensive rehabs in anticipation of getting more money for your house. You’ll price your house out of a decelerating market. It’s a lot like Flipping. The only exception is if you’re renting out a property. Fix it up to get higher rent. That’s all.
  5. Don’t pay off low-interest or no-interest debt. Inflation is your friend with regard to low-interest or fixed-rate money.

These are just some of the things to be wary of during a housing bubble.

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