Web Extra: Hear an Extended Version of Shawn Tully's Interview with Farai Chideya
Should you buy a home in a safe zone? Keep renting in a danger zone? Shawn Tully of Fortune magazine examines the realities of some of the more volatile real estate markets in America with Farai Chideya.
The American economy has gotten a tremendous boost in recent years from the super-hot real estate market. But many experts say that market is overheated and overpriced. A recent "cooling trend" has all but extinguished most of the hottest real estate market.
Tully says to beware of "bubble" real estate markets, where the price of a house completely diverges from the fundamentals that determine the value of a home — personal income and rental rates in a particular market. In some markets, it is much cheaper to rent than it is to buy, and that's figuring in all the tax breaks for home ownership.
Consumers worried that renting means losing out on building equity should beware of "negative equity" when a housing market goes bad, Tully says. "If you buy a house for $400,000 and you put down $100,000 — and then the price drops — you could have a tremendous loss of equity. People buying in now could see a lot of that equity disappear. It's a very good time to sell, because sellers are going to be desperate soon."