We are living in interesting times when it comes to Real Estate. On the surface, the market seems great, especially here in Central Florida. Inventory is steady, rates are low, and foreclosures are dwindling little by little. As a matter of fact, the Orange County seems to have completely recovered from the 2008 housing crisis. There's a problem, however.
A big one.
It seems like there's not a lot of attention being paid to it, however.
There's a big, ugly, stinking bubble, building up, right in our blind spot, it seems.
This new Republican controlled House and Senate have already taken action to reform the Dodd-Frank act, originally aimed at providing regulations on banks and financial institutions. The Volcker rule, designed to prohibit forms of risky/unethical trading by the very same banks, has long been a target.
Just like prior to 2008, the rise in home prices here in Central Florida is rising more than 13 times what wages are rising. Legislators are expected to begin to raise interest rates very shortly (they can't stay at historic lows much longer.)
With a giant influx of all these new homes and buildings being built, soon to be unaffordable housing by the masses, increasing interest rates, and a deregulated banking system, we are headed towards the abyss of another housing collapse, and nobody wants to acknowledge it.
Well, the question has to be asked...how do you survive it? Taking a few steps now, will ensure you can make it through this upcoming crisis:
1. If you don't own a home, buy. NOW. Interest rates are still at historic lows. The economy, for now, is vibrant. If you are paying rent, change that to a mortgage. It will be easier now than later.
2. Emergency/rainy day fund...whatever you want to call it...just GET IT! Old fashioned thinking mandated a rainy day fund of 3-6 months, but given the volatility we've all seen over the last decade, that may not suffice. We all know how many people had to suffer through job losses, financial difficulties, and couldn't afford it. Save as much of your money now.
3. Reign in your spending. This is a two fold step. First, establish a monthly budget...every single thing that you pay on a monthly basis, write it down; then make an honest commitment to cut that budget 20 to 50 percent. Credit cards. Store Cards. Any outstanding debts. ESPECIALLY second mortgages, HELOCs, and kind of extra payment on your primary residence, take care of it, now.
4. When you buy, don't buy what you can afford. Buy less. We've always been taught to live within our means. We live in a society where whenever we make more, we tend to spend more. This is not the time for that thinking. True, its nice to move to a larger, nicer home, as a reward for years of hard work and sacrifice. Maybe you just got that promotion, or that higher paying gig, and you want to enjoy the fruits of your labor. There's nothing wrong with that at all. The issue is that many people started doing the same exact thing, from 2005-2008, and...well...we see how well that worked out. Don't fall into that trap. When you go to purchase, buy what you can afford IF you caught a tough break...that way you are not only comfortable in your new home, but also, with your bank account.
5. INVEST. Especially, in yourself. The best possible way to assure yourself that you will be best suited to withstand what comes next is to prepare for it. If you've been considering going back to school, do it. Need that extra certification to make an extra $X per year? Now's the time. There is no better time. Do it.
That next bubble is coming, whether we want to acknowledge it or not. Regardless of what our legislators do, we can control how well we survive it.