While the latest housing statistics brought mostly bad news for homeowners, there was a silver lining if you happened to be the owner of a debt consolidation business. That’s because both home sales and housing prices fell in January. And this means one thing: In a nation where most people have their wealth tied in to the value of their homes, shrinking housing values mean that debt consolidation loans are becoming an important option for a growing number of individuals.
Gloomy Housing Numbers
The National Association of Realtors reported that the sales of existing single-family homes, townhouses, condominiums and co-ops dropped 7.2 percent in January when compared to sales in December of 2009. This means that home sales are on pace to reach 5.05 million in 2010. That seems like a big number, but it’s actually far lower than the sales numbers that the housing market generated from 1999 through the first half of 2006, the housing boom years. What’s even more important, though, is that the national median existing-home price has been stagnant. In January of this year, the median sales price stood at $164,700. That is the exact same rate as in January of 2009, but down from December. The reason? Distressed properties. According to the Realtors Association, foreclosed and distressed housing accounted for 38 percent of all residential sales in January. This acted to bring down the median sales price.
What it Means for Debt
For too long, U.S. consumers counted on rising home values as the source of their wealth. The formula was simple: Buy a house for $200,000. Five years later, with housing values skyrocketing, it might be worth $270,000. Unfortunately, that money was never “real” dollars. Once home prices began falling in late 2006, U.S. consumers saw their wealth, which was largely imaginary, begin to plummet. At the same time, unemployment began to rise. People who lost their jobs could no longer take out home equity loans to cover their expenses. They instead had to rely on credit cards for their weekly purchases. That has led to skyrocketing debt for a growing number of consumers. And that, of course, has led to increased interest in debt consolidation for many of these individuals.
Research is Key
Debt consolidation is not necessarily evil, though some press coverage paints the industry in those terms. These loans, which consolidate consumers’ debt into one single monthly payment, can act as safety valves for individuals who are working through difficult financial times. The key, as with any financial decision, is for these consumers to research their loans before signing on any dotted lines.