OT: lots of changes goin' on...getting off the real estate roller coaster

C

cognitivefun

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Oct 24, 2004
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Hi Fellow Cantina-ites, I wanted to share...

Tuesday we put our dog down. He wasn't old and seemed very healthy, but about two months ago we suspected he might have cancer and his body was already riddled with it. Putting him down was the right thing to do and we're getting over it of course. I still expect him and see or hear him. He will always be with me in a way.

We are also moving. From one house to another. What makes this interesting is that we are getting off the real estate roller coaster...we will become renters and we will bank the money we make on our house. I think the house values here in the Washington DC area are in a bubble like they are in SoCal and other places and we want to cash in and get out. We bought in 1999 when we moved from Los Angeles for business reasons.

I am not crazy about Northern Virginia and when our kids go to college we can move elsewhere. Now we won't have to worry about real estate values. And you know what? If we sold too soon, so be it. We have done well and you can't buy at the bottom or sell at the top.

Most people think we're crazy for looking at our home in a financial way. But we've been through some real ups and downs in real estate and the way I look at it, the universe is handing us a bunch of money and telling us "cash in your chips and leave the game for now," and we're listening unlike most people.

But...the move is very sudden and stressful, and it is very hard to move quickly when we have years of stuff here and are in a hurry to get out.

Thanks for listening.
 
Nice work.


when our kids go to college we can move elsewhere

Both my wife and I moved to other States when the youngest entered college.

Our mistake was leaving a paper trail for her to find us.




(Actually, as I've recently told my children, my relationship with my wife is becoming somewhat strained. For the past 15 years, she's been living in Minnesota, with another man, whom she calls her "husband." I tried to break it to the kids gently...but this could have serious consequences for Mommy and Dad. The children insist that the divorce makes it ok, but...I think they're just being brave. On the other hand, she and I have not had a disagreement in over 15 years!)
 
I live in Southern Commiefornia where real estate has boomed. I know a few others who have sold out hoping that prices will drop in the future and then they can buy back in cheaper in the same local area. It's a bad strategy unless they believe there is going to be a major recession or interest rates climbed significantly. If I go to the stores here, people are spending money and I do not see a recession in sight. Also, don't believe the Fed will raise interest rates fast or that will really kill the economy with oil prices rising the way they are.

What has worked over the years is for people to sell their homes in a high priced area like CA and move to cheaper areas of the country. That is a sound move if you don't plan to move back.

Also the thing about renting in the same area house prices are high - that usually means rents are high. It's OK if you don't plan to do that for long.
 
they believe there is going to be a major recession or interest rates climbed significantly.

Many do. We have never really recovered from 2000, we have simply hid the impact behind cheap home equity lines. But, with the Federal debt maxed out, a Current Account that costs up an additional $60 billion+ monthly, a poor jobs picture (only adding low-end service jobs), and rising inflation; there is clearly a limit out there, and we may run into it at any time. Big corporate has recently pushed through a tightening of personal bankruptcy laws, and local governments have set the stage to benefit from eminent domain; clearly they are preparing for a big bubble burst. Something like 40% of our economy is driven by rising realestate prices, and that is based upon nothing more then perception and foreign and domestic speculation. Once that goes, we are going to have to deal with 6 years of real economic decline and 4 years of runaway real estate inflation. Timing is everything, but we know the summer is here and we are standing in the middle of a large frozen lake; and, it is only a matter of time before we all take a chilly swim.

n2s
 
n2s,

When you say 2000, are you referring to the stock market? On that I agree, and that's why people have shifted their money into real estate. When someone asks a high price for property and someone else antes up there is real money moving around. I do agree there is a bubble, however, but don't believe it will burst within the next year in California. Also, the federal deficit and spending is out-of-hand but who is going to cut back before the 2008 election? Inflation and recession may happen, but I don't think before 2008 - I am speculating.

As for CA, the governor is trying to cut back but he is up against teachers, firefighters, and other public employees. I am a Republican and will vote for his proposals this fall but feel the proposals are doomed, just as Bush's proposals to amend social security. Remember that old man who killed the leopard with his bare hands in the other thread.
 
When you say 2000, are you referring to the stock market?

In part; people have shifted moneys to real assets out of disgust and distrust of the market. But, keep in mind that the market looks at gobal valuations, not just domestic, so it tends to soften what has been happening in the US. To the market, a profit is a profit, and return on equity is just that; but to John and Jane Doe, the economic reality is what ever is happening in their home town. Moving a factory from North Carolina to China means much more in North Carolina then it ever will on Wall Street.

the governor is trying to cut back but he is up against teachers, firefighters, and other public employees.

It is had to cut back on public spending so long as the private sector remains stagnant. People are not going to volunteer to starve or go bust, and the only fountain of work, of supply contracts, for many is the public sector. Increase private sector opportunity and stability and these same public servants will flee in mass to seek more lucrative jobs in the private sector; that is when you can make real inroads on public spending and tax reductions.

n2s
 
IMHO, real estate is in a bubble in many areas all over the world including the US. Prices will fall and it will be good to have cash or gold for now, on the sidelines, waiting.

We are in the midst of a horrendous asset inflation and that would seem to make it a good idea to hold onto the house, but there is evidence of things slowing down and I don't mind missing the top as I said. I'd rather be out right now and if I sold early, so be it.

We went through the real estate crash in California in the early 90s and it took 5 years for prices to even recover...we lost money over 7 years that we owned a house in a good area. It's not worth the stress to have that situation.

Debt levels are at all time highs and that is the part that to me means the bubble will burst. People buy in order to flip, "knowing" that they'll make money or at worst things "may level off" but never go down.

Well, we've seen things go down and we believe this will happen again.
 
People aren't shocked by prices anymore. They determine whether they have the cash flow necessary to afford the payments and, if they qualify, they buy. Most are buying up, shifting inflated equity around. What many don't fully understand is that for each tick-up in mortgage rates, the number of would be buyers at specific pricing points - drop off the face of the earth because they can't qualify for the loan. Maybe my economics 101 is stone aged but but the following scenario doesn't seem too far fetched to me:

Assume that my neighbor and I purchased our homes on the same day for $400K. Each of us mortgaged 80%. Four years later, interest rates have dropped to 5%. I have my home reappraised at $600K. I find that I can refinance 80% of that reappraised value - and have the same monthly payment. That allows me to pull $160K of "equity" out of my house to spend. My neighbor also chooses to refinance - however he only refinances the original $320K - at the lower rate. Like so many others, I spend my $160K of "equity" on a variety of things - significantly contributing to the booming "low interest rate" economy of the past 4 years.

Lets speculate and say that over the next two years, as U.S. debt levels rise, potential buyers (including foreigners) of these bundled mortgages and other debt packages - get jittery. They want higher rates of return because of what they consider to be increased risks of default. Interest rates continue to tick up to a recessionary level. Mortgage rates hit 6.5% My neighbor and I lose our jobs. After an unsuccessful job search we decide to put our houses on the market for $600K. We find that the vast majority of our "would be" buyers simply can't qualify for a mortgage of that size at the prevailing rate. All of a sudden, my neighbor takes a $475K offer and moves. I ask him why he doesn't hold on to the house and rent it out. He explains how gross rent multipliers in high cost areas are relatively low and he doesn't want to hassle with negative cash flow, property managers etc. He is able to recoup his down payment and a $75K profit (less realtor and closing costs) and take advantage of a job offer in another state. Now the neighborhood has a very recent comp for my model of tract home. I'm not feeling very well.
 
not2sharp said:
Increase private sector opportunity and stability and these same public servants will flee in mass to seek more lucrative jobs in the private sector; that is when you can make real inroads on public spending and tax reductions.

n2s
Click to expand...
n2s,

The reality is I work for a large aerospace company that both private sector and government contracts. However, our division has just been sold to another corporation that is cutting benefits, including very important health benefits. In addition, many manufacturing tasks in the U.S. are being shifted offshore. As you should know, all of this is par for the course.

To think that the private sector will create more lucrative jobs to lure public employees away from their lifetime jobs that have all the benefits is a pipe dream. Look what happened recently to retired United Airlines employees and the penision and benefits. Guess where I'm going to look for my next job.
 
To think that the private sector will create more lucrative jobs to lure public employees away from their lifetime jobs that have all the benefits is a pipe dream.

That is precisely my point; unfortunately, we are becoming ever more dependent on the public sector. I don't know what it is going to take to change that; but, I suspect that we will all find out sooner rather then later.

n2s
 
the reason the housing bubble will pop is that rents are far, far lower than costs of ownership. They are so out of whack that it doesn't pay to own, it pays to rent.

Incomes are far too low for people to afford costs of ownership at today's bubble prices. Sooner or later, prices will fall far and long. Because incomes aren't rising due to pressures from places like China and India (source of low cost goods and low cost exportable services).

And this is true in many places including the US, Europe and even many places in Latin America.

That's why we are getting off the roller coaster. And when things fall, they will go further and farther than anyone can imagine today, I believe. It could be 10 - 15 years before prices recover. Who knows, I certainly don't. I just think we are better off with the cash than the "equity."
 
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