Real estate is a lagging indicator. First the economy
tanks, then the layoffs start, people try to carry the
mortgage by cutting back other expenses, then they miss
a payment, make a payment, miss a coupleof payments,
realize they can't make the payments, try to refinance,
finally throw in the towel and put the house on the
market to try and get some of their capital back. This
takes time. People with big mortgages don't get anything
back. If it gets bad enough (as it did in 87), the
banks, credit unions, mortgage companies will start
offerng properties at big discounts. They don't want the
expense of carrying properties. Upkeep, maintenance,
insurance, negative cash flow. They don't want to be in
the rental business. There is that period of time, though,
when people are still trying to hang on, waiting for
the economy to turn around, waiting for a job to appear.
If the recession lasts past a certain point, then the
whole thing starts to crumble. When things were really
hit bottom a friend of mine who is a mortgage broker started
buying up everything he could afford. Rode out the
tail end of the recession and then flipped the houses.
Made a bundle. It's an ugly business but profitable.
The trick is to get the timing right. If Q4 is really
ugly but Q1 2002 turns up, then it shouldn't be so bad.
A lot of people will be able to ride it out. If it goes
into Q2 of 2002 then cash will be king. You're right,
of course, the spiralling prices of the last couple of
years (especially driven by tech salaries and profits)
has set a lot of people up to lose their homes. Even
waterfront. |
