Real Estate – Part 2

But first . . .

DO YOU SENSE A PATTERN HERE?

For those who missed 60 Minutes Sunday, the segment began:

Who is Jack Spadaro? He’s a man who’s devoted his life to the safety of miners and the safety of people who live near mines.

He’s an engineer, who until recently was head of the National Mine Health and Safety Academy (MSHA), a branch of the Department of Labor, which trains mining inspectors.

But he lost that job last year, after he blew the whistle on what he called a whitewash by the Bush administration of an investigation into a major environmental disaster. Correspondent Bob Simon reports.

‘I had never seen anything so corrupt and lawless in my entire career as what I saw regarding interference with a federal investigation of the most serious environmental disaster in the history of the Eastern United States,’ says Spadaro.

‘I’ve been in government since Richard Nixon. I’ve been through the Reagan administration, Carter and Clinton. I’ve never seen anything like this.’

What he’s talking about is what he calls a government cover-up of an investigation into a disaster 25 times the size of the Exxon Valdez spill.

SO WHY DON’T THEY RESIGN?

Columnist Richard Cohen in yesterday’s Washington Post (in small part):

In his questioning of Rumsfeld, the nimble [PBS anchor Jim] Lehrer brought up Lord Carrington, the British defense minister at the time Argentina seized the Falkland Islands. Carrington admitted he had underestimated the threat and his resignation was therefore in order. If Rumsfeld had applied that rule to himself, he would be thrice gone — once for Sept. 11, 2001; once for the absence of WMD in Iraq; and once more for not having enough troops in Iraq. If he were his own subordinate, he would fire himself.

But from the president on down, no one in this administration ever admits a mistake or concedes having been wrong. . . . In another country, some officials would quit in shame. In this one they can’t even quit being smug.

REAL ESTATE

Georgia Wong: ‘I sold my 30-year-old condo (dark, no view, no garage or storage space, 900 sq. ft.) at the end of 2002 for $327K. The man I sold it to just sold it for $405K! How surreal is that? According to my former neighbor (I moved to Austin, Texas), someone she knew just snapped up a similar unit for $500K with the idea of “flipping” it in a year for a profit. Crazy!!!’

☞ And not likely to end well.

Kevin: ‘Why is it a problem for a dual-income family earning $100,000 to own an $800K home? Assuming the couple has been in the house a long time, the real estate appreciation has added true wealth, has it not? I have a friend there who is in a $700K house with a ‘small’ mortgage of $1,500/month. So, a ratio of 8 or 10 to 1 does not necessarily mean that the owner is mortgaged to the hilt.’

☞ True. But real estate prices are set by people who are buying and selling – not people sitting pat with no plans to move. So here I am in my dark, parking less $500K 900-foot condo (to take Georgia’s example), and I decide I want to sell (or I have to sell), and all I need is someone who can afford the mortgage and property taxes and pay me enough to cover the $500K I paid plus the costs of selling and moving (figure 10% or so) . . . never mind any thought of profit . . . $550,000.

In Miami, the property tax on a $550,000 condo would be about $15,000, and a 6% mortgage – should rates notch back up a bit – might add another $25,000 or $30,000 (depending on the size of the down payment) – so there’d be a pre-tax cost of $40,000 or $45,000 to own the place . . . plus something for utilities, upkeep and repairs. (Roofs do not come cheap.)

How easy would it be for a family earning $70,000, say, to afford that dark 900-foot condo (let alone your friend’s $700K house)? The seller might have to cut the price to make a sale. And it is of cut prices that real estate corrections are made.

Your friend, not having to move, might not care. He bought the place for $90,000, saw it rise to $700,00, and now, in 2006, it has fallen back to $525,000. (I’m just making all this up, but still.) No big whoop for him. But a whoop-and-a-half for someone down the block who bought a similar house for $700K in 2004 – triply so if now he needs to sell.