ContraCostaTimes.com | 08/14/2006 | More use homes as main asset
The trend to tap equity seems especially prevalent in the East Bay, primarily because of the white-hot housing boom in the region. Valentine, who has hundreds of clients, sees differences in the portfolio mix of his East Bay and Peninsula customers.
“Among my East Bay clients, I often see a person’s retirement plan and equity in their home comprise well over 90 percent of their net worth,” Valentine said. “Among Peninsula clients, it’s only about 50 percent.”
Valentine believes South Bay clients tend to have more individual stocks and bonds, or wealth accumulated from venture-capital investment than is the case with East Bay clients, who have gained wealth from rising home values over the past 15 years.
Data specific to the East Bay seem to confirm that. In May 2004, the value of the average refinance mortgage was about $333,000. In May 2005, that climbed 17 percent to $390,000. In May 2006, it went up an additional 7 percent, to $417,000.
But tapping the equity in your house constantly, or cutting back on saving for retirement because of rising home values, can backfire, warned George Feiger, an executive with Berkeley-based Contango Capital Advisors.
“You are mortgaging your future,” Feiger said. “If you borrow money on the house, you have to pay the interest. That’s cash out of your pocket. So, you are betting not only on the house value appreciating in the future, you also need enough cash flow to service that debt.”
Fortunately, in the long run, real estate always appreciates. Of course, in the long run, we’re all dead.