With almost daily news of price and interest rate hikes and dropping real estate values it is perhaps not surprising that some younger people are starting to question the once sacred conventional wisdom of private home ownership.
They are asking: “Should I forget a family home and buy a rental property and continue to rent myself?”
It’s a good question and it highlights the underlying economic problems all householders are now facing on a daily basis.
In fact, only the economists seem comfortable with the response of government ministers who point to the two headed dragon of rapidly increasing interest rates combined with higher escalation figures (that in turn are inextricably tied to rising costs).
Both of these they are quick to point out are external, i.e. not under their control, viz. the US sub-prime market collapse was the catalyst for the interest rate fiasco and fuel costs are linked to inadequate energy supply growth on the world stage.
The sub-prime problem does not seem to be getting worse, at the moment, however it is also clear it is not about to go away soon and a report by the US investment bank Goldman Sachs suggests the price of oil could reach $211 a barrel as early as October which would seem to lock in our current petrol woes for at least the next six months.
How does this all affect the average ‘family/business person’ who already owns a home and, more to the point, what can be done about it?
Well, I think we all know deep down how it affects the way we live. For many it simply means cutting back on nights out and only going to restaurants who offer special family deals - since this expenditure comes from what’s left of the weekly pay packet once the staples such as mortgage repayments, food and vehicle costs have been covered.
The economists call this discretionary income – but frankly there’s not a lot of it left for an increasingly large proportion of the wider community – and it’s a whole lot more serious than simply curtailing one’s social life for a lot of people.
In practical terms the sale of a family home on the present market is not a good idea (for obvious reasons) although for some it may be the only choice, and there will always be buyers at the ‘right’ price.
For those with some capacity/equity left to move in (and not willing to crystalise a loss) or alternatively be able to also buy in the same market, and thereby cancelling out the initial loss, the strategy is reasonably clear: refinance. Incidentally, my sources tell me there is in fact finance readily available and lo doc loans are still on the market for the self-employed.
I should point out that I am not a financial adviser or in fact in the real estate industry but I have been in business (and owned property) for over four decades so I have seen these situations recur over the years. As they say, there’s nothing new under the sun.
Of course, in times of personal crisis it is always advisable to seek independent professional help; so if you have reached the point where you are actually considering selling your family home find yourself a financial adviser straight away.
And forget any free advice - remember this is one of those times where you only get what you pay for!
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