With something approaching a flood of recent reports all around the web, including one this morning in the Wall Street Journal, it appears that home prices are rising around the US, substantially so in some cases.  As has been said, in the short term prices are set as a popular contest, with people voting on what they are worth; but in the long run the market is a weighing machine, ultimately pricing items somewhere close to their true value.  Property was certainly overvalued in the early 2000s, especially when accounting for easy lending practices that boosted demand of available homes.  Since supply via construction projects always lag behind demand in a sector like housing, when prices popped we were stuck with a sharp and sudden decrease in demand even as new inventory was still coming on to the market.  The result was a catastrophe that nearly brought down the world economy and severely damaged the United States and most households.

Even those who kept their homes were dealing with decreased, values which made it extremely difficult to sell the homes without a massive loss, and made refinancing into more attractive borrowing terms with interest rates at an all-time low impossible for many.  According to the Wall Street Journal, though, some estimates now claim that as many as 1.7 million households have been pulled “above water” in the past 12 months.  This is obviously an astounding number and good news for the economy.  Here is what it may mean for you:

1. Now could be a good time to buy a home if you are thinking about it:

Prices are not likely to fall drastically in the near term, but still don’t count on easy and rapid appreciation either.  If you are thinking of buying a home in the next 3-5 years, have money for a solid down payment, and your credit score is good enough to qualify for the rock bottom interest rates ; I would strongly suggest keeping an eye on the market.  No need to run out and buy something this month just to do it, but it may be worth looking at homes in the next 6 months.  Don’t forget to be conservative and avoid the mess that got people into trouble in the first place.  Keep you monthly payment to no more than 33% of after tax pay, and plan on staying in the home for at least 5 years.

2.  Look to refinance:

One of the great scourges of the housing market collapse was the inability of borrowers to refinance into lower interest rates that could have saved people thousands of dollars a year.  Banks were reluctant to write down the value of the home and lose money on the transaction, despite programs like HARP that were designed to facilitate these kinds of deals. I think one of the great things that could have been pushed more aggressively legally and politically was a “bail out” for regular people via refinancing.  Would have gone a long way in curing the social strife and real economic harm to the real economy.  Refinancing is cumbersome, you are essentially applying for a loan and buying the house all over again, but it can really pay off over time.

3.  Look to get out of your escrow:

I am a huge fan of trying to make your own escrow account for tax purposes, banks almost always take too much of your money and can keep up to $1500 over the amount they really need as a reserve.  I think if people just pay themselves and escrow they can earn a little bit of interest (but don’t DON’T chase yield by trying to invest this money) and free up he reserve cash that banks almost always demand.  Plus it makes you more aware and take more ownership over your tax bill and will make you more likely to do healthy things like appeal the assessment that can save big over time.  Problem is, most banks won’t allow this until you have at least 20% equity in the home.  With so many people underwater, this was obviously difficult, but now things may be different.

4.  Move if you want to:

You may have not moved or taken opportunities because you were worried about losing money on your current home and didn’t want to stick you toe back into the volatile housing market.  With skies clearer now, moving is probably do-able in a more normal way.  However, I still think moving too often is largely nutty, paying the broker’s fees as a seller and dealing with all the moving expenses, might not get you too far away from just improving your own home.  More importantly, it probably makes a lot of sense to be happy with a bit less if it makes some sense to you.  Don’t go chasing a lifestyle you neither need nor really want just because the advertising industry and home improvement industry seems to be telling you can.

5. Buy an investment property:

The rental market seems to be back, and even with a rebound in housing prices, one lingering affect of the crisis is that many folks are perfectly fine with the simplicity of a rental.  There is even a broader movement away from an ownership society to a world of rentals.  This may be true, but does offer exciting possibilities for those with the cash, discipline, and patience to become landlords.  Property management is a predictable and broadly simple business that you can largely do passively while working another job.  Thus it represents opportunity for many and can net you a nice chunk of spending money every month, plus the long term value of appreciation of the property if you are in the game for the long haul.

6. Save and Spend a Little Bit More:

With rising home values you are, literally, more wealthy.  If you were extremely thrifty for the sole purpose of fearing further depreciation in housing, relax.  The worst is probably over (but don’t count on crazy appreciation).  To celebrate, try and save a little bit extra each month for yourself in a retirement account, and maybe celebrate in a small way every other month.  Buy your spouse something small and unexpected, or treat the kids to a activity that you wouldn’t have a year ago.

Share and Enjoy:

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