Flutterby™! : pop! 2006-09-01 16:27:57.189539+00

pop!

2006-09-01 16:27:57.189539+00 by Dan Lyke 3 comments

Wow! Even SFGate is acknowledging that the real estate crash is here:

He recalls one recent client who pulled their Union Square pied a terre from the market when it didn't fetch the price she wanted. "She found it hard to accept that the unit was not as valuable as she thought," he says. "Now she wants to rent it."

Whew! I just sold my last condominium - for less than I wanted but I am relieved to be out. Sales in Mayberry are actually up 9% year to year but down %50 in Sarasota Florida it was reported to me.

Rule 1: it has to rent for more than it costs to own it. Not easy to do in some markets.

#Comment Re: made: 2006-09-03 20:29:17.551893+00 by: Dan Lyke [edit history]

Because it's easier for me to link to him than to dig out his current email address...

Dave defends his ARM. Yeah, no problem with adjustable rate loans, as long as you're consciously making informed bets. It's when people start depending on the rise in value of the house, their principal amount is rising rather than falling, and they don't have the resources to time the buying and selling of the property, that I predict pain.

Real estate people are fond of saying "your home is your biggest investment". Beyond "that's not thinking very positively", I think it's totally reasonable to say that while a house can be a great investment, your home is an expense. If you can't say "looks like the market has topped out, it's time to sell and do something else with the money", then it's not an investment. And real estate held over the long term just doesn't have that much in the way of asset appreciation, you have to either make it an income property (per Ziffle's Rule 1) or time your market.

Definitely, Dan. When I got my ARM, going adjustable saved me about 1.5 percent over a fixed. More importantly, it gave me payments I could afford while I was dumping an additional $25k into the house, which gave me about $35k in value before any rise in the market.

On top of that, I looked at the worst case of going up a full point every year as it could, and decided that I could still afford that, especially after doing the upgrades that will save on heating costs. As it stands, I missed one of the possible rate increases, and another got held off six months longer than I expected, so I'm still 1% lower today than I expected to be in the worst case.

Here in Minneapolis, the people who are getting most screwed by the rising rates are slum-lords who are completely leveraged on their rental houses. The vacancy rate popped up a bit as new construction was finished, and their payments went up at the same time, as did heating costs in a market where heat is always included in the rent. Sure, a few are in good shape (the ones who pay cash for all their properties), but the ones who were counting on low rates and high rents are feeling a lot of pain right now. Just wish I had more cash on hand at the moment so I could play contrarian and start buying some of those places that are going up for sale now.