Have the Geographic Arbitrageurs Left the Building Already?

Thanks to Business Lit for directing me to the Blog Calacanis.com.   The author followed up today with a news blurb about the continuing data stream that suggests coastal real estate markets are hurting…bad.   If you read one of his earlier posts about the same topic, you’ll see that it got a LOT of response.  I can understand why.  Where once people could count the 5-figure increases in home value every month, now their houses are ticking time bombs with "losses" of measurable value per month.  "It’s just paper losses," some cry.  Tell that to the guy who’s on an interest only ARM and hasn’t gotten around to refinancing yet.  "My payment is going up by WHAT!!!…but I can’t afford that with gas prices, milk prices, and…….," blah blah blah.  His house now wont appraise for WHAT HE OWES.  That’s called being upside down and it’s a fantastic recipe for foreclosures.  (Good for investors like me). 

I pulled the trigger 12 months ago on my Riverside county CA home.  I waited an extra year to gather the courage to execute my geographic arbitrage and received an additional $100k for my timidity.  What a gift. 

When I did pull the trigger, the home sold in 2 weeks. I didn’t have multiple offers.  I didn’t have people clamoring to buy it.  I think that was the beginning of the "end".  Of course some people still experienced that..but at 1800 square feet, our home was at the bottom of the size range common today.  We actually went on vacation the day it listed.  I bought a fax machine and signed the papers while away.  We came home to a closed deal.  My home was purchased along with 4 others in my town by an investor.  The investor put $30k down on a $540,000 purchase.  They intended to rent it out.  Taxes and insurance were going to be about $800/month.  Market rent was about $1800-$2000.  I’m not a mathematician, but I don’t have the stomach for that one.   I’m guessing they were banking on an appreciation that would allow them to pull more cash out, etc.  I’ll do some research and see what’s happened to my old house and report back. 

I had purchased at the "bottom" of the market by accident in 1997..and now had sold at the perceived "top" of the market…at least until the next cycle pulls things up as it always done.  Now, I’ve purchased 3x the space for 1/2 the price and am living a very nice life in one of those "Boring fly over states".  Frankly, I think we should keep embellishing the image of places like the Des Moines Metro area of Iowa.  We’re all just here watching the corn and soy grow here in Ethanol Alley.

I was listening to my old LA talk radio station today, KFI 640 AM.  Bill Handel mentioned something that I was not aware of.  He mentioned that there were about 2 or 3 mortgage companies still advertising on KFI (mega Clear Channel station), when not too long ago, there were more than 12.  The mortgage business quickly sheds the excess suppliers when there’s little incentive to refinance and people are renting to wait out the market. 

It is happening.  There are houses sitting here in Des Moines where the market has seen only slightly above average appreciation.  This house near mine was already reduced...and there are hundreds more like it around town. 

If you only make $300k on your house in CA versus $400k..don’t fret.  You’ll still be very well positioned.  You too may find yourself smoking a cigar, pulling a bottle of wine out from your cellar, and putting on a movie in the theater room.  Humidity and cold are a bit easier to deal with than one might think 🙂

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