BATTLECALL GUEST EXPERT: Chris Ciabarra, Business Consultant And Real Estate Investor

According to a story from Public Radio International's radio show Marketplace, the average price of a new home was down 9.7% last month from the same time last year, and that's the "biggest plunge in 36 years." At the same time, new home sales are up slightly because sellers are lowering prices significantly. But the big question is, when will the real estate bubble pop? Or has it popped already?

The truth is that the swift rate of price appreciation and construction in past years created a bubble in the real estate market that has in fact recently popped. According to economic expert Christopher Thornberg, "The bubble's popped, and it's gonna take time to work its way out of the system. There is no soft landing here, we haven't found the bottom." Especially along the East and West coasts, the housing market swelled enormously since 2000, with prices and sales up over 30%.

Many have reported a slowing of home sales, even in real estate hot spots like Southern California and the Bay Area. Signs declaring, "reduced price" in front of homes along oceanfront property in Venice and Hermosa Beach, CA, confirm that the real estate bubble has popped. The major issue for current homeowners is that as prices drop, so do home values. And as a result of skyrocketing prices, many were forced to settle for adjustable-rate-mortgages (ARMs), allowing them to purchase houses in desirable areas that they could just barely afford. Over one third of home loans in the last five years were adjustable.

It was reported on National Public Radio's Morning Edition on October 27, 2006 that ARM rates have now begun to rise, leaving millions of homeowners with higher mortgage payments. Experts expect that in the next several years ARM rates will continue to increase, a change could have disastrous results for the housing business. The combination of rising interest rates and a popped real estate bubble means that homeowners will often be unable to sell their properties for what they bought them for.

Some analysts even believe that a collapse in housing could bring down the U.S. economy and create another recession. A burst real estate bubble could have dire consequences for the national economy. 750,000 real estate foreclosures are expected over the next five years. Homeowners are being forced to look at their options. The main recommendation of real estate agents and lenders is to find a way to get out of your adjustable-rate-mortgage or equity line of credit and find a more stable loan. Even if this means paying certain one-time fees, the savings will be considerable in the long run and could help thousands keep their homes. Lenders all over the U.S. are reporting that customers are coming into their offices to do whatever they can to get a fixed-rate mortgage.

Refinancing is the Best Option

If you're a homeowner, you should think about the best way to safeguard yourself against rising interest rates. Mortgage refinancing is the choice that many are making in order to preserve their financial stability.

In my case, refinancing will allow me to switch from an ARM to a fixed-rate one, with fairly little hassle. I know that whatever fees I will have to pay now will pay off in the long term, since interest rates are likely to keep rising indefinitely. I am tired of having to worry about my family's stability, and whether or not we can keep our home. I want to know that my children won't suddenly have to move just because I didn't watch the real estate bubble and find out whether it was going to pop soon. After finishing the refinance process, I'll feel secure knowing that no matter what happens with interest rates, I will pay a stable mortgage payment every month and be in control of my own finances.

Once again, due to the instability of the market, you should refinance your ARM or balloon mortgage to make it a fixed-rate payment as soon as possible. As for the economy, is it in for a crash? I don't want to cause you to panic, so I'm not going to say either way. But if you want to protect yourself against the popped real estate bubble, it's best to refinance so that you can keep your home in the long term. 

Ask any real estate expert, and they'll tell you that now is the best time to take advantage of refinancing. In five years, you'll thank yourself.