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9-21-05 I keep getting asked what to do? It appears the San Diego residential real estate market has burst; there are 15,200 properties on the market and still growing. The last time San Diego had 15,000 houses available, San Diego was heading into a recession. The recession bottomed out at 19,256 properties on the market. What is interesting is the real estate reports are still positive. Just this morning, I saw on the news where new housing was still a hot market. That is because it is based on old data and the general public is still in the dark that the market has changed, and you know it has changed when you get a flyer on a house that has not sold and the commission split is now 5% to the selling agent. The last few years you were lucky to get 2 or 2.5% as the selling agent.
The current differences in San Diego is unemployment is still very low and San Diego’s population has expanded so maybe 15,200 houses on the market may not have the same impact as in the 90’s but at some point excessive inventory will cause prices to start falling. To be honest, I don’t know what that exact number is, but I feel we are getting close as we head toward 16,000 properties available. RealtorsÒ are seeing the issue and switching marketing tactics. “It is time to start working with buyers,” I over heard a realtor say the other day. Listing agents is giving away more of the commission to get their listings sold. Next look for sellers to start reducing prices, especially for those that must sell.
Okay, if you buy into this scenario what should you do and is there a way to protect yourself just in case you are wrong and house prices keep going up. The answer is yes there is a way to have your cake and eat it too.
If you have been buying houses as I have suggested and you have huge gains, here is the problem. If you sell and take your profit, you have selling costs, which aren’t cheap and taxes to pay provided it is not your residence. The idea is simple. Sell high and buy back later when prices drop. But what if you are wrong. Or what if you are right. Is there a better way to take your profit and profit from a falling market? I believe there is.
Interest rates are still historically low. Simply refinance your gain/profit out of the properties you own. There are no taxes to pay. Put the money in the bank, and wait and see which way the market goes. If the real estate market drops, you have the money to buy more at lower prices and if the market continues to go up, you have your original house and money to buy more if it looks like real estate is going to continue to march upward. You win if it goes down, you win if it goes up and the cost of refinancing is much less than the cost of selling and paying the taxes. Just for your information, I have no interest in any mortgage company and I no longer act as an agent (I am retired) so I do not gain nor do I care if you sell or refinance. I am just answering the question “What to do?”
One last point to make: if the market drops you have a house with a low interest rate loan that you can sell with a low down payment. Make sure your refinance loans do not have prepayment penalties. Look for interest rates to continue up as the Fed’s continue to fight inflation, which they have denied, existed. Let’s see: houses costs twice as much, gasoline costs twice as much, lunch costs twice as much, cars costs twice as much but we don’t have inflation. Don’t you believe it!
Leveraged real estate is still one of the best vehicles to use to beat inflation. House investing is still the best way to go.
Have a million dollar day. FEMA is going to be spending 200 to 300 billion dollars. Gosh, and I remember when twenty bucks was a lot of money.