Change is the only constant in the universe. And this relative fact is true in the real estate business. With rising inflation and fluctuating interest rates, it’s not hard to understand the drastic effects it can have on us.
And in some markets it is worse than in others. It has even happened where values have risen exorbitantly and then level off a bit, then go back down. And with the recent changes in interest rates, it seems that these circumstances are becoming more common. If you get the deed to a house and get someone to live in it, a year from now, that house might not be worth what it is now. So how do you handle this type of situation?
First, the best thing you can do is not worry about it. It is for these reasons that you do not want your name on the loan for one. It is very likely that the value of these houses will not drop enough to destroy the equity in them. This is because the value initially rose rapidly. And even if the equity is affected, the worst case scenario would be the seller getting involved with it again.
It is true that in some areas home values have fallen by as much as fifty percent. But this was more than twenty years ago, and the value of the property rose again after only a few years. And keep in mind that in the meantime, people still needed and had a place to live. This is a need that never changes.
The truth is, you can hardly buy houses today that don’t have some equity in them as soon as you buy them. Because of this, there is not much chance that it will fall where you will lose all the capital you just acquired. Due to the rapid rate of inflation, prices have been rising steadily. And if the owner has financed the house at 100 percent of its value, he probably doesn’t want it anyway.
But suppose you run into a situation where the value of the property falls below principal or below what is owed. At that point, you would probably first see if you can sell it to someone who wants to buy it for cash. You could then call the lender and explain the situation and tell them that you have a problem and that you are here to fix it if you are willing to discount the loan.