Buy real estate for the right reasons

Be wary of low interest rate bait: Think long term

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There were 1 million foreclosures nationwide in 2010 and there are expected to be more in 2011. Many consider now a good time to buy because mortgage interest rates and home prices are low. But how can you keep from ending up in a distressed-sale situation, or ending up underwater with a loan amount that is higher than the market value of your home?

According to Robert Shiller, a professor at Yale and known for the S&P/Case-Shiller Home Price Indices, housing bubbles aren’t that common and are usually more localized than the one that began in the summer of 2006, which wreaked havoc with the housing market in this country.

Shiller points out that housing bubbles are dependent on extreme public exuberance. He and colleague Karl Case have been surveying homebuyer opinions since 1988. Speculative investment fueled the most recent housing bubble.

If anything, homebuyers now see homes as a risky, rather than a great, investment. This is a move in the right direction, and a good guideline to keep in mind going forward. Home prices will stabilize and appreciation will return to the market at some point. But we’re unlikely to see the stratospheric prices reached in some areas of the country in 2006 and 2007 anytime soon, if ever.