You’ll recall, dear reader, that your editor is moving to Florida. He does not intend to actually live there, only to become a resident. He lives in Europe, but he needs a place to call home in the United States too, for tax reasons (that he can no longer recall). Florida seemed like just the place, since it has no state income tax. Besides, we don’t really like the sun or the beach…so it makes it easier for us to stay away; otherwise, we might get homesick.
But we’ve been wondering about Killeen, Texas. What’s it like?
America is a cheap place to live. Especially if you don’t live in the major metropolitan areas on the two coasts. According to USA Today, you can buy a four bedroom, 2 ½ baths, 2,200 square foot house in Killeen, Texas, for only US$136,000. That’s less than 100,000 euros – a price that would be unheard of in Europe. That’s not only the cheapest price in the United States…it might be the cheapest price in the entire world. Even in Granada, Nicaragua, the price for a similar house would be about US$150,000. In Mexico City, you’d pay US$277,000. And in London…well, don’t even think about it.
Meanwhile, other cheap alternatives in the US are Minot, South Dakota, where the house would cost you US$139,000…or Canton, Ohio, with a US$146,000 price tag.
Here’s an obvious idea, dear reader: Sell the digs in Beverly Hills; buy in Killeen. But wait. You say there’s nothing to do in Killeen? We don’t know…we’ve never been there.
Maybe they have no Starbucks…no TGIFs…no multi-plex cinemas…no super-shopping domes…no sports stadiums…no fancy restaurants. C’mon, use a little imagination. There must be something you can do. How about rodeos and bull riding contests? Maybe they hunt and fish. Maybe they spend long, slow Sunday afternoons rocking on the front porch. Or, maybe they just hang out at the local saloon. Hey…this is sounding like the sort of place we might like!
Maybe some Dear Reader from the area can tell us what the heck people do there. Besides, if you don’t like it, you can always do what we do with our home in Florida – not live there. Just to make the math easy, let’s say you sell your house in Beverly Hills, or San Francisco, or New York, for US$2,136,000. Then, you buy a house in Killeen, put your furniture in it…and keep driving. You’ll have US$2 million left over. Invest it safely; shoot for a 5% after-tax yield. That’s an annual income of US$100,000 – the equivalent of about US$150,000 before taxes. Rent a little pied-a-terre in Paris…hang out on a Caribbean beach…or simply rent a house wherever you choose. We’re not clairvoyants…but it could be a very smart move.
The Case/Shiller housing index tells us that housing prices in the United States have fallen every month this year. If prices keep going down at the present rate, the average house in America’s top 20 cities will lose more than 5% of its value this year.
But that’s just the beginning, says an expert interviewed in the Las Vegas paper. Houses there are already down 5%…and he says they’ll probably keep going down at least until 2010, probably sinking another 15% or so.
In Las Vegas, people speculated on houses…they didn’t merely buy them to live in. What is a teaser-rate, no doc, ARM anyway? It is just an option to buy a house – if things go well. If they don’t go well, you’ve got no equity in the place; you just walk away, just as you would from any other option contract that expired out-of-the-money.
There are now some 30,000 housing units for sale in Las Vegas – and another 23,000 in some stage of construction.
“If those numbers were not bad enough,” writes The Survival Report ’s Mish Shedlock, “the number of ARMs that are going to reset in the next six months is staggering.”
“We are unlikely to find ‘a’ bottom until May 2008. ‘The’ bottom can be years away. It all depends on how much the Fed fights the slowdown (the more the Fed fights a needed recession, the longer the recession will be).”
And the recession has not even started.
Markets and Money