I’ve said before that the market will change, because it always does. That means we’ll see some reversals in pricing, and we’ll see drops in volumes. How much will prices and volumes drop? I can’t say. But, as someone pointed out earlier, we have seen drops in value in the 50% area before. ’81/82 saw a doubling of values and then roughly 40% drop across the board. Clearly some properties didn’t lose 40% of their values…but other lost even more than that.
Jeff expressed the view that the market is currently 100% over-valued (hopefully he didn’t mean it was over-valued by 100% of its value! 🙂 ) and that a 50% decline was in order. I wondered, as I drove around, what that would mean for some people. Consider these numbers:
An investor has a three property portfolio currently valued (conservatively) at $500,000. Its mortgaged for 50% of value, and has slightly positive cash flow. The properties are all very rentable. The investor is a long term holder in his 40s. What happens if values drop 50% and the portfolio is only worth $250,000?
Does the picture change if the investor bought the properties 5 years ago, at which time they were positive cash flow with 25%-40% down?