Housing market shift
New figures on home construction suggest the housing market is officially slowing down. Kai speaks to Elizabeth Razzi, author of "Fearless Home Buyer," about the future of the housing market and what it means for home buyers and sellers.
A "For Sale" sign hangs in front of a home in a city that a recent survey declared the most overvalued housing market in the US in March 2006 in Naples, Florida. (Photo by Joe Raedle, Getty Images)
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TEXT OF INTERVIEW
KAI RYSSDALL: The government came out with some data on new home construction this week. Some of the figures were better than expected. But others might mean a scary economic shift for some of us. A slowdown in real estate. Elizabeth Razzi is the author of the book, "The Fearless Homebuyer." Elizabeth how are you feeling about the market?
ELIZABETH RAZZI: You know it's been a long times since I've seen for sale signs linger. And it kind of got back to normal, but it's not scary. At least not yet.
KAI RYSSDAL: Well break it out for me then, what is happening that's causing all that?
ELIZABETH RAZZI: Well a bunch of things are happening. One is interest rates went up a little bit and reminded people that adjustable rate mortgages do have a down side -- which means higher interest rates. People came to learn more about the scary and dangerous features of interest-only mortgages and payment option mortgages that can leave you owing more than you borrowed at the beginning. People figured that out, and once you see that the interest rates can go up again, you can see how that can hurt you. Also we started paying more for gasoline -- that takes a bite out of our budgets. And just things don't look quite as rosy anymore and investors got spooked.
KAI RYSSDAL: Now when you say investors do you mean speculators in real estate?
ELIZABETH RAZZI: Yes, and that's a good point. There were a whole lot of speculators who were buying options to buy condos and reselling that or flipping it before the thing is even built. That's pure speculation. There are a lot of people who were also buying two, three, four beach condos, figuring it's kind of a hobby, a great way to make a whole lot of money quickly and that's to be differentiated from the investor who buys a property for the long term, rents it out at a reasonable cash flow, maybe even covers their expenses with the rental, and looks at it as a big building block of their wealth. That's real estate investment. That other stuff is speculation.
KAI RYSSDAL: Now, what about a poor schlep like me who is fortunate enough to have gotten in on the Los Angeles housing market four or five years ago . . .
ELIZABETH RAZZI: Good for you.
KAI RYSSDAL: Pure serendipity, trust me. But you know my house has basically doubled in value; it would be great to take some of that cash, but this might not be the best time to do that?
ELIZABETH RAZZI: When you say take that cash -- if you're going to sell that and move to a small town in Idaho where things are less expensive -- great, you're going to get to keep that cash. Otherwise you are going to borrow against that cash, and you know a home equity loan is just another word for a loan. You really don't cash out your equity, you borrow against it and you have payments to make.
People kind of forgot that for a while, that cashing out their home equity and putting their equity to work -- that's what the lenders would sell it as -- but that was just borrowing money.
So it depends on what you want to do. If your income has grown an awful lot since you bought that home and you can carry the payment on a second home, you want to borrow against the first one for the down payment, that's a reasonable use of your equity. If you want to cash it out and buy a new suit or go on vacation, that's less wise.
KAI RYSSDAL: Elizabeth Razzi's latest book is called, "The Fearless Homebuyer," Elizabeth thanks for your time.
ELIZABETH RAZZI: Oh you're welcome.
