Today we offer some perspective in the form of three excerpts from a recent Bankrate.com article. First up, managing expectations:
“Last year, home values appreciated about 12 percent overall nationwide, according to statistics from Neala Richardson, the principal economist with Freddie Mac. On average, appreciation usually runs between 2 percent and 3 percent, according to the Office of Federal Housing Enterprise Oversight, or 5 percent to 6 percent, according to Freddie Mac.”
Next up, managing wealth:
Just keep your new-found wealth in perspective, says William Poorvu, professor emeritus at Harvard Business School and co-author of “The Real Estate Game.”
“Don’t think that because your house price has gone up that you can change your lifestyle dramatically,” says Poorvu. He likens it to those who got wealthy on paper during the tech boom.
Do you dream of “cashing out” when the market hits the top, then sitting on a pile of money while you buy a similar home for a lot less? Not realistic, he says.
Just like timing the stock market, timing the housing market is tricky. “Most people aren’t that lucky,” says Poorvu.
And finally, managing temptation:
If your equity wealth has you perusing loan company fliers and dreaming of exotic vacations, “resist the urge,” says David Reed, author of “Mortgages 101.”
“Equity in your home can be viewed as a safety device,” says Jack Guttentag, professor emeritus of finance at the Wharton School of Business and author of “The Mortgage Encyclopedia.” It should be considered, “a fallback — a source of funding for emergencies,” he says. “One of the potential emergencies is that you lose your job. You’re suddenly faced with a situation where you can’t make the payments.”