Where exactly is the real estate market going? Owners of Palos Verdes real estate as well homeowners across the country would love to know the answer. In addition to the “in your face” reporting about real estate (which can be pro or con depending on the reporter and which forecast he is looking at) there are other subtle indicators.
Recently Newsweek had an article buried on page 61 entitled “Finance – Cash, on The House” talking about a new take on reverse mortgages. There are several lenders now offering a new loan product where the lender will share future changes in value 50-50 with the borrower. The borrower must not sell the house for at least five years. The example given was a $71,000 loan on a $500,000 home. After five, years when the property is sold if it is worth $600,000, the borrower owes $121,000 (original $71,000 plus $50,000 which is half the appreciation). If the home only sells for $400,000, the borrower pays the lender $21,000 (original $71,000 minus $50,000 which is half the depreciation).
This is not an altruistic gesture on the part of lenders. They are betting the market will be up in five years — not flat, but up. Lenders are looking to make a profit. Historically, real estate has been an excellent long term investment.
