Writer's Magazine: Misery
The Home Buyer Be Aware + Fast Track to Poor House
Are you considering
buying a home right now? If so this article may help you value your
prospective home in a fairer way, rather than only taking advice
from your local real estate agent
Many estate agents
are trying very hard to cover over the cracks in a fast falling housing
market. Also, many people have speculated on flipping houses and are
stuck with homes that are falling below their cost value. Therefore,
it is only fair that prospective buyers should be made aware of the
future course of house prices if past history is anything to go on.
In my humble opinion this time around it is a great deal worse than
past housing falls. Brought on by the greed of a few clever people
who devised mortgage backed derivative notes that may have little or
no value due to excessive leveraging. This means many banks are in trouble
and loans have become difficult for some and impossible for others ...
Along with overvalued properties, this is a recipe for folks to tread
very carefully. That said, houses will always be a good investment in
the long haul but it may take another 12 years before they start to
become an appreciating asset again.
In 2006 the housing market hit a peak in most areas of the USA.
Since then we slowly entered a major housing recession and most houses
have become a depreciating liability rather than an appreciating asset
that they were from 2000 - 2005.
In a falling housing market there is always a stage of denial
by owners and the longer a person waits to find the correct price level
to sell, the higher the drop in value becomes until it eventually (18
months from now is my guess) reaches a floor. Then it stabilizes for
about 5-10 years with very little increase if any.
People who are thinking of buying a home today should think how much
will the house they are considering buying will be worth in a year to
eighteen months time if prices keep on falling and adjust their buying
Advanced thinking by today's house buyers will pay dividends, for there
is a strong possibility we will find that by the fall, the lower prices
we offer now (below appraisal value), are more or less very fair, if
not better than the value they will be in the fall.
In these hard times, a quick sale by a buyer is hard to find and
thus anyone buying today deserves extra consideration from the seller.
In other words this is a buyers market where cash is king. As the old
saying goes; money talks and BS walks.
This article is done out of my experience as a financial writer who
has a very good 43 year track record of making sense of the extraordinary
times we live in. It is written to help both buyer and seller find a
more comfortable zone to buy and sell homes in difficult times.
If an owner has to sell then the old adage, the first loss is the best
loss may be great advice. Then again, if an owner does not have to sell
then in 12 years time the prices will no doubt start to slowly rise
again in a constantly changing world
Track to the Speculative Poor House
It is said a persons home is their castle. For sure, over many
years, a home can be one of the best investments as well as a place
of joyful entertaining, rest and shelter. There are always high and
low points in any market ... If the main reason to buy a home is for
a family to live in it for a reasonable number of years, the timing
may not matter too much. However, in this present housing slump caution
is the key word for all buyers, for nobody knows how long and how hard
the house prices will decline. Why is it different this time around
and what has caused it to be so?
There are a number of factors why many people are going to face financial
ruin. Although many innocent people have been caught up in a net of
financial shenanigans, there may be some help in sight for them from
the banks with government assistance. Be that as it may, a lot of monetary
difficulty has been brought about by speculative greed, gambling in
home flipping ... also by banks looking for larger profits without understanding
what an abyss of darkness they were getting into. Accordingly, let's
explore some of the obvious and less apparent reasons why property speculation
is a far riskier business than most people realize. And why it will
lead many spectators into the poor house over the next few years.
Over the past six years house prices went on a wild ride of excessive
exuberance. People looking for easy money were attending seminars on
how to buy and sell houses for a profit and it seemed everyone and their
neighbor wanted a piece of the action. Buying fixer-uppers or new houses
and apartments that could be bought directly from the contractor, then
flipped when completed seemed a very lucrative deal. At the same time
builders bought plots of land and built houses in the hopes the boom
would continue to expand.
At the same time mortgages became incredibly easy to obtain with no
money down and very little interest for a couple of years. Every sensible
business person knows this type of dealing in property will end in ruin,
so why did so many speculators get caught out and what can they do now
... The simple answer is, get out now even if it means a loss, because
the longer they hold on the bigger the loss will be for many years to
Why is it foolhardy for speculators to hang on and hope the market will
turn round again soon? The situation may change sometime in the future,
but at this point in time here are a few reasons why the first loss
will be the best loss for existing housing speculators.
The inventory levels in most areas of the USA are building
far faster than the sales.
Higher interest rates are kicking-in to the contracts that
had a couple of years of lower rates.
Even if a home owner wants to move to a new location they
first need to find a buyer for their existing home and that is no easy
Many companies are downsizing especially in the financial
sector and the unemployment rate is set to rise.
Inflation in food and fuel continues to rise giving people
less money to spend and making it harder to save.
Money is tight and banks no longer have the capacity or
the means to give mortgages to any Tom, Dick or Jane.
Home prices peaked in 2006 in most places and the normal
cycle of peak and trough has begun a new downturn. With so much
speculation and cheap money of the past, many people will face insolvency
despite government actions to try stemming the downward tide of despair.
The speculators who are holding on to homes hoping to sell
them face daily losses because they now own a depreciating liability.
Why is a speculative home purchase such a depreciating liability rather
that an appreciating asset?
1. The property needs to be insured.
2. The property needs maintenance.
3. Property taxes need to be paid.
4. Heating and air conditioning bills need to be paid.
5. If there is a loan on the property of let's say 6% on a cost
of $400,000 that is costing the holder $24,000 a year.
6. Likewise, the lack of a sale is costing the holder around $24,000
in interest they could get in a fairly safe closed end mutual fund that
yields 6% tax paid.
To sum up the financial catastrophe; a loss of interest by having no
sale, paying interest on a loan, adding up all the expenses, the total
cost on a $400,000 property may cost the speculator as much as $50,000
a year. Not too many people calculate there holding cost in this manner
and that is why they go broke faster that they expected.
If speculators and builders lower their prices to a level that will
guarantee a sale right now, they may save a bigger disaster in the fall.
What seems to be a below appraisal price right now may turn out to be
an even lower valuation by the fall. Lowering prices more than appraisal
now may also stimulate interest in buyers who have been holding back
looking for a bargain and thus lessen the build up in home inventory.
Consequently, just as the stock market crashes when everyone goes to
the exit at the same time, so might it be with the housing market. If
by mid-summer prices have not stopped falling and speculators have been
holding on in the hopes of a sale, many may try to pull out at the same
time as they view their declining bank balance. As with all speculations,
be it stock market, commodities, or housing, the majority of inexperienced
players, after many small gains, eventually face financial collapse
as panic sets in.
The government will help out some home owners and banks may help them
stay in their homes. However nobody will come to the aid of the speculators
who are holding on in hope someone will take their financial problems
away. The best advice for the youth of today is, learn from this current
lesson in ruinous greed, do not get into debt and if you need to take
out a mortgage pay it off ASAP.
Remember the lines from, Charles Dickens novel; Pickwick Papers ...
Total income one pound, expenditure nineteen and sixpence, result
Total income one pound, expenditure one pound and sixpence, result misery.
© Michael Levy April 7th 2008
International radio host Michael Levy, is the author of eight inspirational
books including the finance book Invest With A Genius. Michael's poetry
and essays now grace many web sites, newspapers, journals and magazines
throughout the world. He is a prominent speaker on health maintenance,
stress eradication, wealth development, authentic happiness and inspirational
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