What Lessons From the 2007 Financial Crisis Still Apply Today?

Today, I want to share with you five important lessons that I learned from the 2007 financial crisis

With housing prices as high as they are today in California, there are many communities here where prices are far higher than they were even back in 2007. I spoke to a lot of homeowners back then who were going through extreme difficulties, and I learned some very important lessons that I want to share with you:

1) Don’t buy a home that you can’t afford.

Back then, so many people bought homes they couldn’t afford, feeling that if they didn’t buy them, they’d be priced out of the market and never be able to buy a home ever again. Well, we know now that if they’d waited a few years, they would have found that homes were a lot more affordable. Don’t buy into the hype that if you don’t buy now, you’ll never be able to buy again.  Just keep on saving for the day when buying a home becomes in reach.

2) Don’t always believe that your home will go up in value.

A lot of people believe that California home prices will always increase. In reality, they don’t; they fluctuate up and down, sometimes quite a bit. If they go down by a lot during a time in which you find yourself needing to sell, you could be in a bit of a tricky situation. This is important to consider when you’re buying a home: it’s a long-term commitment, and you want to jealously guard any equity you have in your home.

3) Make sure you have adequate reserves.

At the beginning of the 2007 financial crisis, many people could continue to make their housing payments. However, as the crisis worsened, a lot of people didn’t have adequate cash reserves, and when someone lost a job or got sick, they got into trouble with the mortgage. Experts say you should have six months’ worth of cash reserves in your savings account in case of any short-term financial hiccups.

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4) Make sure you have a big, healthy down payment.

In 2007, many were buying with 100% financing. Today, very few are buying with nothing down, but many are putting down just 3.5% to 5%. If there is a downturn in prices at a time when you need to sell your house, that will become an issue for you, so make sure to put down the biggest down payment you can possibly afford; it’ll make your home more affordable on a month-to-month basis, which means it will be easier for you to hold onto your property.

5) Buy low and sell high.

That’s great financial advice for any kind of investment that you’re making, but I find that a lot of people buy homes and think they’ll be able to sell them in two or three years if something unexpected should arise. Real estate is best held as a long-term investment. I always tell people the best time to buy a house was 20 years ago, when prices were cheaper. It always seems like prices were low 20 years!

However, there’s no question that the market is a lot higher today than it’s ever been – could it be a near-term peak?  Quite possibly – and so if your own home is more of an investment vehicle than a roof over your head, this year could well be the best time to sell for the foreseeable future.

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About the Author
Seb Frey helps long-time Bay Area homeowners make their next move easily the next one yet. If you're looking for a minimum of hassle, maximum net cash on sale, and certain results, contact Seb today.