Three Steps to Make Your Home Safe and Sound
O, The Oprah Magazine | From the Summer 2007 issue of O, The Oprah Magazine
The Real Truth of Real Estate Investment
The great real estate boom during the first half of this decade—when home prices jumped 20 percent or more a year in many parts of the country—did some serious damage to our perspective on housing. Based on those outsize gains and the expectation that the good times weren't going to fade away, many people jumped at the chance to buy investment property.
Too many people also took on a no-down-payment, interest-only loan on the assumption that they could use equity to sell the property or refinance the loan quickly. But that's not how things have played out. Since 2005, home prices in some of the once-hot markets have struggled to tread water or have actually sunk a bit.
Here's what you should keep in mind when you are crystal-balling future home values: Over decades—not short bubble periods—home values typically rise at an annual rate that slightly exceeds the rate of inflation. We're talking 4 or 5 percent—not 24 or 25 percent—a year.
Build your financial plan around that realistic real-estate outlook, and you won't overstretch to the point of jeopardizing your quality of life.