Generally speaking, a 1990 purchase was underwater here for 6 or 7 years and didn’t break even again until 1997 or so. Really, it was probably later than that after accounting for the effects of inflation on the dollar. A 1990 dollar was worth more at the time than a 1996 dollar.
Those buyers didn’t have to book their losses so some of them probably didn’t think of themselves as losers, but those losses were there during the mid-90s whether they booked them or not. The ended up okay since then, but only because they stuck with a loser until the market turned. They all would have been a lot farther ahead had they made their purchases in 1995 or 1996.
And therein lies “the point”. You make your money when you buy, not when you sell; and buying at a high point of a known cycle is no way to call yourself a genius or to get ahead. If money is the thing, those 1990 dollars could have been put to much better use, just the same as the 2006 dollars could – for the most part – have been put to better use than buying RE.
If a buyer doesn’t care about the money that’s fine. We should not be characterizing those purchases in terms of financial acumen but instead attribute it to them fulfilling their emotional needs. This here’s America, it doesn’t always have to be about the money.
As for bloodbaths, I wouldn’t have expected Kensington to be a big loser yet. On a geographic basis and all other things being equal a declining price trend will work its way from the outskirts in toward the employment centers, and (locally) from the east to the west. The reverse is true for increasing markets. Kensington is still close to employment so it’s day will come a little later than someplace like Escondido or San Marcos or Chula Vista. That doesn’t mean it won’t happen or that when it does decline that decline won’t make up for lost time. We’re just not there yet, that’s all.
If we assume the aftermath of the unprecedented spike that preceded it won’t have equally unprecedented consequences – and that is an assumption that may prove unfounded – then a person who buys now might indeed recover their position at some point in the future. But I wouldn’t say that the prospects of merely recovering their position after 5 or 6 years (and paying extra for their housing during the process) would economically justify a purchase right now given the current market conditions.
If it is about the money, then wishful thinking shouldn’t be part of your equation. In either direction.
