How to Get a 20% Discount on a Florida Mansion
Housing-Market / US Housing Jul 20, 2010 - 07:28 AM GMTBy: DailyWealth
Steve Sjuggerud writes: For the last two months, a man has stood on the corner of the busiest intersection in the Florida beach town where I live, holding up a five-foot high placard and waving to passing motorists. He's advertising a beachfront mansion with nine bedrooms and nine bathrooms for sale at $2.2 million.
This week, the man and his ad are gone. At a party this weekend, I heard the owner had agreed to sell it for $1.75 million... a 20% discount off the asking price. And three years ago, that beach mansion would have sold for much more.
Look, even if you're not in the market for a mansion, housing has never been more affordable in America than it is right now.
I'm not joking...
Mortgage rates hit record lows this week, at around 4.6%. With rates that low, you can buy a LOT of house. A household with an income of $35,000 can afford a $170,000 home – and that's the median home price in America right now.
You can talk about a housing bust all you want. It's happened... Phoenix? Down over 50%. Las Vegas? Down even more than that. South Florida? Yikes! Prices are DOWN!
With home-price crashes and record-low mortgage rates, residential real estate is as affordable as it's ever been in America. It is CHEAP.
After four years of housing bust, it's getting HATED – it's finally off people's radars. This needs to happen for home prices to find a bottom.
The one thing we're missing right now is a legitimate UPTREND.
The thing is, home prices are not like stock prices... Since homes are illiquid, you can get incredible deals at the bottom of a market like this.
Around the office, we have a saying about how the bust of a bubble goes: "First the guillotine, then the sandpaper." (It's not our saying, actually. As far as I know, market legend Bob Farrell said it first.) The guillotine is the initial crash – like the Nasdaq bust in 2000. The sandpaper is what follows – like a decade of Nasdaq stocks grinding sideways, but going nowhere.
I think we're at the bottom of the guillotine now. And I think you have the opportunity to pick up a home incredibly cheap... way below market prices.
But the sandpaper is coming. Unfortunately, the length of the sandpaper period often depends on the bubble that preceded it. This bubble was huge... so we may have 15 years of essentially flat real estate prices. The market needs to burn off all the speculators before a new bull market can begin.
The Fed is going to do its best to disrupt this. The Fed would love to see real estate come roaring back. But I don't believe the Fed can interrupt the sandpaper process.
Bottom line: It is not smart to speculate on higher prices in real estate. Don't buy real estate at close to market price, betting on a rise in price. The sandpaper will get you. But if you need a home, go out and get one.
Find your dream house, negotiate the price lower, and then take out a mortgage at the lowest rates in history.
You'll get a fantastic deal... just like the person who went and bought a Florida mansion at a 20% discount on an already low price.
Good investing,
Steve
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