Mike Corrigan

By Mike Corrigan

BN Columnist

If you remember the advice I gave you five or six years ago to invest in real estate because as a class it never goes down, you have a faulty memory.

I never said that and neither did any of the other thousands of experts in real estate and money and investing and lying, who became experts because we, unlike some people, used to have real estate and money, but it went down. What we said was, be cautious, because prices are rising too fast, and they were already insane, and so only an insane person would deal in real estate, or give out loans for overpriced houses, or take on a house at any interest rate and at those ridiculous prices, or give away free Hawaiian vacations merely for looking at a condominium near what still isn't a golf course, due to the downturn, or even go to Hawaii because then a person would probably be tempted to a buy, for no money down, a fourth house there, for “investment” purposes.

You don’t remember any of that, because it never happened, we never said that. You are just rationalizing now and trying to blame somebody else, and I must say denial isn’t your most attractive quality. We told you to invest instead in a 401K and watch the prof-… No, wait a minute, we never said that, either.

As I remember, we said we were getting out of the markets for awhile because a big crash was obviously coming, starting with the housing market, and we were right — only most of us played it a little too close to the vest because we didn’t like the fact, at first, that bonds paid a return of only a couple percent. Okay, fine. We’re not perfect. We all learned a lesson, let’s just say that.

The main lesson we learned is that housing prices do go down, but only once every few decades, and now that they are coming back up where they should be we can all rest easy knowing it will be 30 or 40 years before we see another downturn. In short, real estate is the best investment a middle class family can make, except for any other investment not involving the Nigerian Lottery.

Here are some questions you might ask yourself:

Can I afford it? No, you can’t. But that should be no impediment to buying now; these deals are too good to pass up. By using the formula, Annual mortgage=ahi/3.14—$40,000, one can easily determine the affordability of any home for any family. Let’s say you make $80,000 a year, among the kids and two parents, plus maybe Grandpa’s job at Wal-Mart. It’s not enough, unless you can find a house selling for under —$26,000. There are no houses like that. But here’s where the government comes in, riding a white horse. You’re getting 0% interest rates from the government! You’d be a fool to pass this up. What you do is, you borrow $26K from the bank, and you can now afford the down payment of zero dollars; now you borrow, let’s say $200,000 from the government, taking out a 100-year mortgage, and your monthly payment is just $166.67 a month, plus taxes! Call the total payment $500 a month, or $6,000 a year, which is deductible. (At least it was until last weekend. But let’s skim right over that.) Certainly, you can afford $6,000! You’re making $80,000 a year! Get on the gravy train. And here’s the kicker: In 100 years, the house will be worth a million bucks, at least!

Just because I can afford it due to these programs and deals, how is it right that a so-called “$200,000 house” is really worth only about $70,000? Don’t ask stupid questions. Everyone involved is running a con game. You’re lily white? Just take the money.

What happens if I lose my job and have to default, because Grandpa’s job at Wal-Mart, which by then will be the only business left open in town, pays only $80 a week? You have an out. Many people are suing their “too big to fail” banks, claiming that the bank that says it holds the mortgage doesn’t really hold the mortgage on their houses! And people are winning in court! When “derivatives” were sold among the banks last time, the risk was effectively split up among so many financial institutions across the world, that in many cases no one bank could truly be said to be “holding” the mortgage! The bad debt caused by this situation accrued to many tens of trillions of dollars when prices crashed and many millions of people found that they could not breathe underwater, low-interest loan or no low-interest loan. Many defaulted, and that money is gone, it’s never coming from anybody, ever. So relax. You can just walk away. Your house will be put up for auction, just like now, nobody will meet the asking price, just like now, and the bank will have the place torn down, just like now. There goes your once-and-future million-dollar investment property! And sure, this reduces the housing stock. But that’s good for the market! Think, in five years, pent-up demand will drive up the price of remaining housing stock, and to meet growing demand developers will build new houses, creating jobs, and prices will grow more and more insane again. New government programs will enable the extension of long-term low interest rates and the market will continue red-hot, theoretically forever.

Theoretically? Trust me.