The Economist bursts the bubble

I heard today on the radio that the Economist is predicting a world-wide downturn of the housing market. They are saying that prices are inflated on a global scale, and somethings going to give. Once it does, we'll all feel the pinch.

Well, what is a regular person to think of that? Personally, I always keep in mind that bad news makes better press than good news. So, I take any predictions with a grain of salt. But we are in the days of the global economy. An overheated housing market in South Africa CAN have an effect on us in North America. So, if there is some kind of recession on the horizon, what can we do to prepare?

One thing that we can all do is live within our means. My wife and I made a conscious decision to buy a home that either one of us could afford on our own. We also put down almost 50% on our home. That way, we would never be "house poor" and we'd also have a good buffer against the ups and downs of the value of our home. A couple of years later, when my wife's business took a turn for the worst, we didn't have to worry. I could carry the mortgage on my own income.

I know. That's just not always possible for some folks. Let's face it: Life is expensive. Many couples need both incomes in order to make ends meet. So what do you do then?

A little planning goes a long way. Always buy a little down from the size of mortgage that your financial lender would give you. Instead of stretching to get that big place, take a more modest place that comfortably fits in your budget. It protects you from higher mortgage costs. Why? If the value of your house fluctuates, you don't have to worry, because you aren't mortgaged to the maximum. Remember, if you have to re-mortgage your home and if you then need a mortgage for more than 75% of the home's current "value", it can put you into a different risk bracket, and cost you more in interest. Not every lender will re-appraise your home when giving you a mortgage, but if the market is soft -- they just might.

If you buy a home with a lower mortgaged amount, you also leave yourself more room for life's emergencies. Your mortgage payments will be smaller. You'll have some breathing room. Your car dies? Johnny needs braces? No worries. You have some available income to play with.

There will always be doom and gloom. There will always be those who predict a downturn. Sometimes they happen; sometimes they don't. You can be as prepared as possible for both life's ups and downs by taking a few minutes to review your financial situation, and ensure that you are paying down debt first, and then building up your savings. While not glamorous, it's the standard advice from virtually all financial experts. If you are doing this, you can weather most storms.

Michael

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