International investments
in our global economy connects everything. Yesterday’s
message saw how a series of unfortunate events led to the
point where a downturn in tiny Iceland led to panic that
pushed emerging markets down around the globe. See
yesterday’s message.
One of the biggest connections that pushed
prices down in Iceland and abroad started right here in the
US. Lower US interest rates allowed lower euro and yen rates
as well. These rates that made it possible for investors
to borrow low and deposit into emerging markets for much
higher returns. When investors perceived higher rates, they
panicked and fled the emerging markets.
These lower interest rates also allowed
real estate prices in numerous countries to rocket sky high.
British real estate prices seem unreal,
especially in London. Parts of the US have had really high
real estate price appreciation as well..such as Merri’s
and my old home town, Naples Florida.
A Barron’s May 29, 2006 article looks
at this in detail and begins:
“What a difference a year makes. People
aren't laughing anymore when you bring up concerns about
the housing market.
“IT WOULD SEEM TO HAVE IT ALL: four
bedrooms, a guest house, a pool and a rock waterfall. But
the vacation home in Naples, Fla., hasn't been drawing much
interest from buyers, so the seller recently threw in that
most modern of amenities: the $1 million price cut. That's
brought the asking price down a full 25%. ‘If you want
to sell, you've got to go back to '04 prices,’ says
Chip Harris of Coldwell Banker Previews International, which
is handling the property.
“The market for second homes could
use a second wind. After a long string of double-digit annual
price increases, a number of second-home meccas across the
country are suddenly suffering from plunging sales volume
and burgeoning inventories of unsold homes. Result: Naples-style
discounting is starting to spread. It hit the town of Pocasset,
on Massachusetts' Cape Cod, just as retired executive Jack
Reen was trying to sell his four-acre, six-bedroom beachfront
home. He cut the price several times, for a total of 42%
off the listing price, before striking a deal at $3.95 million.
Reen takes a philosophical view of the experience, noting
that the original price was set at the top of the market. "Calling
the tops and bottoms is impossible," he says.
Though the official figures on sales prices
have yet to reflect the current round of cuts, interviews
with real estate pros and others strongly suggest that the
averages are deteriorating in a number of key markets. Just
look at green and hilly Litchfield, Conn., about a two-hour
drive from New York City. It was a magnet for Wall Streeters
during the past five years, and prices climbed accordingly.
But in the past 10 months, prices in the lower end of Litchfield's
market -- homes of $300,000 to $600,000 -- are down 12%-14%,
and volume is falling at the next level up, says Stephen
Drezen of the local Portfolio Properties Group. With mortgage
rates rising and home-price appreciation slowing or vanishing,
buyers in Naples have pulled back in a big way. The area's
sales of homes costing less than $1 million declined 45%
in unit volume in the first four months of this year. The
Naples experience is being repeated, to one degree or another,
in a variety of other vacation hot spots -- from Palm Desert,
Calif., to Phoenix, Ariz., to Ocean City, N.J. Phoenix in
recent years has been overrun by property flippers from California,
says Mike Messenger, president of Russ Lyon Realty in Scottsdale.
But unit sales now are down by 40%-42%, and the city's inventory
of unsold homes has shot up more than five-fold, to 39,000.” You
can read the
entire article
The article points out that this is not
all bad news and says: “All the same, many experts
are cheering the current shifts in the markets. They call
it an essential correction, a step that must be taken before
the second-home market resumes its ascent. ‘In general
this is a very good thing, because it got too far on the
speculative side,’ says broker Ashby in Naples. ‘It
needs to correct. If it didn't, it would burst.’ There's
certainly hope for the long term. The baby- boom generation
continues to amass both inherited and earned wealth.
And many a boomer will buy a second home
with an eye to eventually retiring to it. With any luck,
they will see some nice financial returns. ‘Vacation
homes have turned out to be one of the best housing investments,
particularly on the coasts,’ says McIlwain.”
Remember though that every action creates
opportunity! First, realize that in this connected global
marketplace falling US real estate prices and a crashing
US dollar will create a new wave of buyer, the overseas investor.
US property especially on the east and west coast will suddenly
seem cheap in foreign currencies. This is a built-in buffer.
Second, real estate sales in Florida are causing real estate
prices in North Carolina to boom! Some of the money seems
to be coming north. Third, real estate remains the ultimate
inflation hedge.
Emerging equity markets crashed mainly because
investors were fearful that rising US inflation would push
US Japanese and European interest rates up. If this is true,
well chosen real estate, purchased with fixed mortgages will
be one of the best investments around.
If you want to stay on top of Naples, Florida
real estate prices contact our friend, Micky Enright. She’s
a great friend and client…a Naples broker at (mickyreal@comcast.net)
website is http://www.naplesispriceless.com
Our friend Trey Morrison (treymorrison@bellsouth.net)
is a North Carolina broker and he sends us frequent listings
so we can stay in touch with the market. Values here are
still very good. Take for example this condo listed in Jefferson
Landing (the premier resort in the area). This is a ground
floor property surrounded by golf course and is in walking
distance of the pool and tennis courts. The patio faces the
#2 fairway and ponds. This condo has an open floor plan,
with great windows to enjoy views. Features include living
room with gas fireplace and vaulted ceilings, a spacious
kitchen, roomy counter space and oak cabinets, and large
walk-in closets. Furnished and ready to move-in including
a spacious 26’ by 12’ garage at an asking price
of $252,500.
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Learn about investing
in emerging currencies, gold, silver, Ecuador, import-export,
overseas markets and more. Join Merri and me at our September
15-16-17, 2006 International Business and Investing Made
EZ course in North Carolina. Review where to invest and do
business now and learn which markets and currencies may be
strong in the year ahead. Our May course was overbooked and
the September session is already filling up fast. Our free
accommodations are reserved on a first come first served
basis so do not delay! DETAILS
Here is what a departing delegate just wrote
about the May course: “Gary, You and Merri did a wonderful
job with that seminar. I got some really useful information
out of that which will help my investing perspective for
the long term... The people were great too... I was really
sad to leave the place and the people behind and come back
to my regular life.”
Gary |
