If you sell your home and take the equity while it’s still available, that’s not using your home as an ATM; that’s just prudent when you’re sitting on equity gains that have no place to go but down.
Those who use their homes as ATMs actually keep their homes, draw out cash and steadily increase their debt. So no, my advice doesn’t conflict with the position I took because I am advising that homeowners reduce their debt by selling, not that they incur more debt by taking out a home equity loan.
You may be one of the very few So Cal homeowners that doesn’t steadily draw cash out of their homes; kudos to you. But even so, the price of your home will nevertheless be affected by those who have chosen to use their homes as ATMs, and if you decide to stay you run the risk that as they fall behind on their payments and become despereate enough to bail, your home value will be affected by their price reductions. Do you really want to be in the position of having to stay in a house for 10 years in order to recoup your equity? That’s what happened to me in 1992.
As for skyrocketing interest rates, think of it this way: if the price of a home falls far enough — and it will in the next 3-5 years — 9-1/2% won’t be as punishing. If a 750K home falls to 300K, your payments have been reduced from $5K/mo to $2500/mo. Do the math. Meanwhile, you’re looking at the neighbor who refused to sell — who owes twice as much as you do on a house that’s worth half of what he paid for it. It’s all about timing. And it is the smart play IF you believe the market is headed for a steep decline.
Which brings me to the question: do you have any response to the other points I made in my last point, because that really will determine what the smart play is. If, based on the points I made, you really feel like we are in for a soft landing, then by all means sit tight and don’t make a move. If, however, you are disturbed by the signs we are already witnessing — price declines of $25 – $50K/per month on the same house — and you are compelled by the evidence I presented about the future of this economy, in general and the housing market, in particular, then I believe the smart play is clearly to get out while the getting is good and wait on the sidelines.
