Friday, June 27, 2008

Ask the Car-less Guy.

Email question from a friend...

Q: Hey, Car-less guy, our mortgage is a straight xx year, x.x%. We definitely aren't looking to move but I was just wondering about the future. With the current "move to the city" movement, shouldn't that be increasing the value? Or is the fall of the dollar and the recession just overpowering everything?

A: I think the falling dollar's effect is minimal to this equation. If anything, it will bring foreign investors into the game eventually…and new investment…that will probably be what it takes to help get outta the recession. But that is smart money, and smart money will wait and time the bottom, which looks like it won’t be til at least 2010, at the earliest.

The problem was all the fake money stimulated by deregulation driving our best and brightest to find loopholes and figure out ridiculously complicated financial entanglements that nobody could figure out. All the deals were made with loans and debt and money that never existed, from the biggest brokered deals to the newlywed couple in ft. myers florida buying their first house right out of school.

It was a house of cards doomed to fail and there will be lots o’ mcmansions on the fringe that will lose 100% of their value and return to nature presumably. We have mucho surplus of housing, particularly single family housing, which is only worsened by the combined effects of people moving back to cities because of fuel prices and the mind numbing monotony of suburbia.

You have two GREAT things going for you. You have a house in Georgetown. There are few places in this country that are and will be always of great value, and Gtown is one of them. The housing there isn’t hyper-inflated like joe schmo’s cul-de-sac development in Leesburg, which had no real value. Gtown is a historic neighborhood – plus, has transit – plus, has a mix of housing types – plus, mix of incomes (somewhat) – plus, and is close to DC (mega-plus). If it is inflated much, it is only because there are so few places like it.

I always tell people to buy for need and shelter and make it a home. It is a long investment (if at all), but rarely is it a good short term investment, these last couple years were essentially a fraudulent anomaly, that any sane economist would rather not allow to repeat, but it is always a Home.

You will be there for a long time and it will always have value. Remember, the Case-Shiller looks at MSAs, i.e. the entire metropolitan area. Historic neighborhoods, traditional neighborhood developments, and downtowns (and areas close therein – aside from condo hi-rises) are holding their value quite nicely. So short-term you may, MAY see a bit of a dip, but I doubt that. Long term, G-Town is a great place to own and just a downright great place to live…which is the most important thing.