I was recently asked what the options are to get out of a $500,000 house if the market crashes, so today I'm clearing a few things up. First, nothing indicates that a crash is on the horizon anytime soon. With that, let's take this hypothetical as an example:
Let’s say that the house moderates from 12% growth to 5%. That $500,000 house is now worth $525,000. You paid down $15,000, so now instead of owing $480,000, you owe $465,000. The next year it's worth $560,000, and you’ve paid it down to $450,000, and that continues.
“People are trying to be smart and not make crazy moves.”
We’re not going to see a 30% to 50% crash; we may see a 10% to 20% correction, but that’ll be taken from the future value. In this hypothetical example, if it's worth $600,000 in the future and drops 15%, it’ll be worth $510,000.
I respect that people are trying to be smart and not make crazy moves. I think a lot of this confusion comes from millennials growing into prime home-buying age and having seen people lose homes in 2008. It was a big pain point, and they're trying to avoid that, but we will never again see a home price crash as huge as we had in 2008.
If you have any questions, don't hesitate to reach out to me by phone or email. I look forward to hearing from you.