ild,
there is yet another angle that Berson did not consider, that is the possibility of a NET NEGATIVE investor and second home purchase number.
As I have previously opined, the G.R.E.B. is more of a credit bubble than real estate bubble. Much of this wave of investments and second home purchases were made feasible because the respective buyers were under the impression that they can't lose, or they can actually afford this second home.
If these second homes are primarily purchased with cash, or very low LTVs, that may be the case. However, even a modest second home of say, $300,000k, could cost the buyer $15,000 to $30,000 per year.
How did I arrive at the figures? Easy. Take $300,000 and assume the buyers paid cash with money in the bank. The buyers lost the income on the $300k. I am using 5% return on the $300k or $15,000. On the other hand, if the buyers financed this second home, then the loan amount, plus maintenance, tax, insurance, HOA dues, utilities, etc, can easily add up.
If this "second home" is appreciating at $50,000 a year, no problem. However, if this second home stops appreciating, ooops.
Now there is a question as to whether these second home buyers or investors can actually afford this purchase in terms of cash flow. Many might have taken out equity from existing homes to make the purchases. Could cash flow become a problem? I find it hard to believe that the average baby boomer has so much discretionary income and assets to carry the debt and expense loads. |
