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The housing market will get substantially worse before it gets better. It is not likely that credit will loosen up in the wake of the subprime mortgage meltdown, and many people will not be able to obtain loans even with the best credit. In nonrecourse states, in particular, money will be very hard to borrow due to the declining market and a record number of foreclosures; and for new construction, it will be even worse. (Nationwide, over fifty percent of all construction loans are in default.) And now with bank failures, there will be much tighter controls over lending practices. It is going to be very, very ugly.
A "nonrecourse" state is one that has enacted laws providing for anti-deficiency protection for homebuyers. Such laws generally provide that if a bank or mortgage lender finances the purchase of a home that is the borrower's residence, then the lender has only one form of action in the event of default, which is to foreclose on the property; and if the property is not sold for the amount of the outstanding debt, the borrower is protected from suit for the deficiency. For example: if you borrow $500,000.00 to buy your home, and subsequently default on your mortgage payments, the bank's only recourse is to foreclose on the property and sell it to recoup the money lent; and if the property is sold for less than you owe (e.g., $400,000.00) the bank cannot sue you to recover the deficiency. Most anti-deficiency laws do not cover refinanced mortgages, secondary mortgages such as home equity lines of credit (HELOC) loans, or loans for commercial or investment property. There are also exceptions such as federally guaranteed loans (e,g., VA loans) that trump state anti-deficiency laws.
Real estate in my area has held steady or gone up.
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