- Inventory levels are increasing
- Prices are starting to come down
- I didn’t say the real estate market was going to bust, but I did say it was going to rust and that’s exactly what’s happening
SUZE SAYS THE TIDE HAS TURNEDWHY HAS THE TIDE TURNED?
- Interest-Only Mortgages – When these mortgages convert from interest-only to principal and interest, and people start spending more and more money every month because the payments increase, where is everybody going to get the money to pay mortgages?
- Higher Energy Prices – The price of gasoline and heating oil is rising. In the east and midwest, heating bills are probably going to double this year.
- Capital Gains Tax – Many people have seen their homes increase in value 100%-300%. The capital gains tax provisions that now allow you only to pay 15% on any capital gain revert to 20% after the year 2008.
- Credit Restrictions – Bankruptcy laws changed on 10/17/05. Creditors are making it harder to get loans. Credit is getting tighter which means a lot of people can’t buy a home anymore because they can’t qualify for it.
WHAT’S DIFFERENT IN THE REAL ESTATE MARKET IN THE YEAR 2006 COMPARED TO 2002-2003?
- In today's economy, if you can't afford a fixed rate mortgage, an adjustable rate mortgage that has an initial fixed rate for 3-5 years can make sense. But only if you are paying both interest and principal on that ARM. Any other type of ARM that gives you a low rate for a shorter period, or let's you delay paying principal is too risky; if that's the only way you think you can “afford” a home then I am here to tell you that you can't afford to do it.
WHAT’S NOT DIFFERENT?
- Interest rates are going up not going down like in 2002-2003
- Credit restrictions are tightening not loosening
COMPARISON OF REAL ESTATE MARKET TO TECHNOLOGY MARKET AND WHY THEY ARE SIMILAR
- You haven’t changed
- You emotions haven’t changed
- Your emotions that got you in trouble in tech will get you in trouble in real estate
- You got used to 20%-40% increases on your investments
- You don’t want to believe this is the top of the real estate market
- Your emotions may be keeping you from cashing in and getting the true return you deserve on real estate
If the only way to get into real estate is to take out a 401(K) loan, then you shouldn’t be getting in. REAL ESTATE LOAN FROM A 401(K) PLAN
REAL ESTATE BROKERS
- You don’t have to pay it back within the normal 5 years
- You can pay it back in 15 years – length of repayments differ, check with your company
- Usually charge 6%
- Majority represent the seller
- Your agent and seller’s agent split the commission
If you own a piece of real estate and are making money right now with an interest-only mortgage…
- When that interest-only mortgage converts and you have to pay not only interest but principal as well and then you’re just breaking even or even losing money, don’t you think that if the tide has turned it might be time to take your profits on the investment property?
If you have a home equity line of credit…
- There are some financial institutions that will allow you to lock in the interest rate today on the equity line of credit that you have already used
- Call your bank and see if they will allow you to do that
- It’s a far better way to go than refinancing and getting a fixed rate mortgage
- Have a home equity line of credit
- Have an adjustable rate mortgage
- Have an adjustable interest-only mortgage
- & you plan to keep your property
Refinance now and lock in a fixed rate mortgage HOW CAN I TELL IF REAL ESTATE HAS SLOWED DOWN IN MY NEIGHBORHOOD?
- Open up newspapers and look at real estate section. What is selling in your area? How much is it selling for? How long has it been on the market?
- Start a real estate notebook. Keep track of how long it takes a piece of real estate to sell in your area. Is it selling above or under the asking price?
- If you see a trend where homes are staying on the market longer and longer before they sell and the selling price is below asking price, the tide has turned.
- If real estate is selling quickly and selling above the asking price then you are still in a hot real estate market.