"DSK" wrote in message
...
NOYB wrote:
Good article. She's pretty much on the money.


Did you read the part about how houses are not good investments, and the
risks of 'decline in relative value' is the way she put it, I believe.
Florida is also one of the places identified with over-inflated house
values. I'm a little curious why you so amiably agree with an article that
flat-out contradicts almost everything you were claiming a while back.

"But except in unusual periods, homes aren't terrific investments. "

(We're in an unusual period, and Naples is a unique place.)

" In Zandi's forecast, a handful of markets face declines of 10 percent or
more (southeast Florida, San Diego, Phoenix, Las Vegas and coastal New
Jersey), with another two dozen falling by 5 percent. "

(I'm in Southwest Florida, not southeast Florida. But right now my house
appraises for 65.7% more than when I bought it 18 months ago. If prices
drop 10%, my house is still up 50% from where I bought it. In 18 months!)


"What will happen to your life if the value of your home flattens or falls?

Nothing, if you stay in the house and keep making mortgage payments."

(This is exactly why I was arguing that your home is very safe investment.)



** * ** quote ** * **
Most homeowners imagine that their properties will make them rich. But
except in unusual periods, homes aren't terrific investments. Since 1980,
the price on the median house has risen only 1.46 percent a year, adjusted
for inflation, compared with 9.2 percent for stocks. Homes are even less
profitable if you deduct the cost of taxes, insurance, upkeep, remodeling
and repair.
** * ** end quote ** * **

I don't know where she got those figures, I've gotten returns in the low
teens from my stock investments, although there were a few flat periods in
there.

** * ** quote ** * **
What will happen to your life if the value of your home flattens or falls?

Nothing, if you stay in the house and keep making mortgage payments. The
only change is that you'll go back to building equity the old-fashioned
way—by paying down your mortgage loan.

It's a bad time to borrow the equity out of your house or to buy a house
with no money down. If you had to resell—because you changed your job,
lost it or divorced—you might find yourself with no money left (or owing
money to the bank). Once prices soften, they tend to stay soft for a long
time, Zandi says.
** * ** end quote ** * **

Another way of putting that is to say 'prices are sticky' and it tends to
hold for both ends of the spectrum. We all know examples of people trying
to sell cars, boats, etc etc, for what they think it's worth, and holding
it for a long long time trying to attract offers.

Here's the advice for your brother:
** * ** quote ** * **
But don't sit in a rental waiting for prices to drop so you can buy
something cheap. Prices might not drop. What's more, you'd be losing your
chance to stabilize your long-term homeowning costs, Sinai says. If you
expect to keep the home for at least four or five years, there's more risk
to staying out of the market than getting in.

Get in with a plain-vanilla fixed-rate or adjustable-rate loan. Mortgages
that let you pay only the interest (or less) each month are bull-market
dreams. A few years from now, payments on those loans will jump—a problem
you may be expecting to solve by refinancing or selling out. But if prices
flatten, you'll get trapped. I'm not saying they will—only that it's a
good time to shore up your finances, just in case.
** * ** end quote ** * **

My brother is getting a 7-year fixed interest only mortgage. In 7 years, he
should be earning quite a bit more than he currently earns. If not, he will
sell the place and look for a new job before then. Even if prices correct,
they should rebound to present levels by then.





Notice that she talks about prices flattening, not crashing.

That's the biggest part of her article that I agree with.



You might want to take a look at what the projected median income in your
town will be in ten years, and think about whether or not it's a good time
to take your gains and go find something you can really afford. Just a
little friendly advice.

I can afford this house just fine. I have an additional $1100/mo. in
disposable income right now if I pay interest only. I could apply that
money towards the principle...or sock it away to save for the day 5 years
from now when my rate increases.

Of course, in less than 4 years my business loan is paid off and I should
have an additional $50k/year in disposable income at that point.


You worry too much.