I took the strategy of selling, renting, and will bottom fish. Agent commission of 4% plus $2K moving costs each way is minor compared to the money I took off the table. Earning 5% interest on the profits vs. losing 15% annually on the $800K house! As far as tax deduction, this has been covered before: you’re basically deducting part of the interest. Well, I DON’T pay interest now. No capital gains taxes on the first $500K profit (eliminated in late 90s). I also don’t have property taxes, no home improvement/repair/maintenance. My financial situation has greatly appreciated since I sold my house.
It’s questionable whether commodity prices will stay high. I read Steven Roach’s report today, and he makes good points about the parabolic rise in commodities showing another asset bubble. People are buying on specualation of further increases. Prices have risen much faster than actual demand for the commodities. There’s always a “it’s different this time” story. The commodity different this time story is China. China will not create enough demand to make today’s commodity prices stick. Despite high inflation, wages have been flat for at least 5 years, and will continue to be flat due to the global low wage market in which we compete.
As far as why this time the drop will be greater: the imbalance is much greater between incomes and housing prices, 80% of San Diegans who purchased in the last 2 years will face foreclosure bec. they got ARMs, most SD job growth is RE dependent and we will see huge job losses as RE unravels, banks will fail as foreclosures rise, and if you need to quickly move because you lost your job in the RE bust you’ve got more flexibility if you’re not tied down to a house. MEW was 90% of GDP. Without it, GDP would be less than 1%, and that’s what you’ll see next year when MEW stops.
Rich is not recommending that people sell their homes. He never has. But I’ve said it all along. I highly recommend that everyone sell their home and rent until they can bottom fish. Check with your accountant first to make sure there aren’t any unusual circumstances for you. For most people, this is a prudent financial move. Let the landlord carry the loss for you.
We are hoping to afford a house near the coast when this is all said and done. We’ll pay $800K for today’s $1.5 – $2.0 million house. And we’ll do it with a 15 yr fixed mortgage.
