Bailed!

[desmond]

I could feel it coming. How many people could afford to buy my 1799 sq. ft house in Santa Clarita (that I bought in 1988 for 289K) at the then inflated prices. So September of 2005 I listed it at $715K. I had two people look at the house and one of them bought it. My wife and I held our breath thru 30 days of torture (escrow) and we closed in October of 2005 with full asking price. Were renting in a new KB home complex that was probably 90% bought by speculators. They all tried to resell to no avail. Check out the listing in this area for all the NOD’s and REO-91354 zip- Coldwater, Dearborn, Whitewater, etc. It was only a matter or time. I never refied, kept my original ARM that adjusted to the 11TH District, which got as low as 3.9%. It will never happen again!

[UP IN ARMS]

Wow bought in a bad bubble time and then sold in a higher bubble time. GOD JOB!!!!!!!!!!!!!!
Ya how many bought in the last bubble and saw this thing coming again.

UP IN ARMS<--------------------- I said in 2003 that this was bad and the credit bubble took over and really mad it disturbing.

[powayseller]

desmond, good move! What was your thought process in selling? Last October, when you closed… that means you listed in September? At that time, the median was all over the “real estate only goes up” stories. Selling to cash out was relatively rare. I did the same thing, listing in October 05. I also was nervous during escrow, because I thought my buyers would figure out we are in a housing bubble that was just starting to leak air.

So, where did you get your information to decide it was a bubble, and that the peak was here?

[anxvariety]

Same thing here.. I bought some property in Feb 05 for 20k, then ended up in escrow in November 05 for 96k. I was trying to rush along the escrow process(yeah I even rushed selling within the 1 year; didn’t care about paying income rate tax), hoping it wouldn’t fall through… LA times was publishing a bunch of housing bubble articles and I thought it would be just my luck for it to fall through, but everything went fine.

Congrats on the big win! Do you know how much total dollar you paid in interest? Don’t the interest payments end up equaling purchase price in 30 years @ 7%? I don’t know anyone that’s had one loan for 20 years… did your tax deductions go down over time?

[desmond]

At the time of listing I had no information, the RE industry kept a lid on it. I was nervous with all the equity I had, over 500K, and the question that kept me up at night was how many people would or could by an 1800 sq. ft. house for 715k? My wife and kids hated my at the time but now I am a Hero! I put All the money in T-Bills (check out Treasury Direct .com). I listen to all the pundits say how good the market is and go crazy. They are no better then what Ken (dead) Lay did to his employees and investors at Enron. I found these websites a couple of days ago after an article I read at The Norris Group website and I have been redeemed!

[powayseller]

What do you mean “kept a lid on it”. What did the realtors day that you dealt with? You were a courageous contrarian. At least I had the data from piggington to help me with my decision. You were acting boldly on your own. Way to go! Do you try to get others to sell also? Have you read Sell Now by John Talbott?

[Bugs]

Considering the lack of information you were working with that was a pretty gutsy move. Most people wouldn’t do what you did based on a hunch. I sure wouldn’t.

That said, I’ll bet you never make another real estate purchase without researching it to death before you do it.

[desmond]

My realtor, the top realtor in the Santa Clarita Valley, was great. I gave him a number that I wanted to make after closing costs and he said he could get more, and did. While at his office during the listing meeting the only thing he mentioned is that the recents listings (9/05)on the MLS had spiked. As I was leaving his office he quietly said “that if I pulled this off I would be a genius”. I knew what he meant but did not discuss it with him then or even today. Everybody in the industry has too much to lose so what can they say. I do not try to get others to sell, it is very stressful, kids, rentals, movers, etc. Also, I had a lot of equity so it was worth it. How many others have much equity after all the extractions of HELOC’s to make it worth it? Plus I don’t want my friends to think I am gloating to them, (my wife and I gloat everyday!)I have not read Talbotts book yet, but I wrote it myself (more gloating)

[powayseller]

desmond, it is worth it to sell for people who have a fraction of the equity you had, if:

1) they have an ARM, I/O, or other resetting type of mortgage, and they won’t be able to afford the adjustedpayments.

2) their job is in the real estate related industries (construction, loan officer, appraiser, realtor, title officer, home inspector, termite inspector, escrow officer, home improvement, selling home materials such as shutters and carpets and wood floors, architects, interior designers). Only a fraction of people in these industries will have a job left by 2008. I would include jobs in retail and restaurants in this category. Government income will dip by 40%, so many government positions will be gone.

3) there is a possibility of them wanting to downsize, leave the area, divorce, or other reasons for selling in the next 10 years.

4) anyone counting on their home equity for retirement, college for kids. In 2008, you won’t get a HELOC to fund that college tuition, because the home value won’t be there, and bank lending will become conservative again. If you try to sell in 2010 to fund your retirement, you’ll be very disappointed.

All the above ought to sell now, while prices are high. The longer they wait, the more paper profits will evaporate.

The only group that ought to stay put is those who’ve paid off their homes, or those who are very confident their job is secure *and* they can service their mortgage through the down cycle *and* they will not care if their house loses 50% of value. Everyone else, sell now.

This downturn will financially devastate millions of households. Americans have counted on rising home equity to finance their everyday living expenses, increase consumption, and build dreams of a secure retirement. This is about to be shattered. How will Americans pay their daily living expenses without rising home equities? I realize that each person that is helped comes at the expense of one person’s loss…Each person that is convinced to hold off buying means that one seller is stuck with his overpriced home.

[desmond]

Awesome post, but try to explain that to somebody not listening! The same time I was selling, my mother was also selling her house in Escondido (92027), she was going to sell her house and then buy a Condo owned by my older brother, also in Escondido, at the then inflated prices (10/05). I told my brother that mom should sell and then rent. He slammed the phone down on me and I have not spoken to him or my mother since!

[powayseller]

Wow! Why isn’t your mom speaking to you? Did your brother sell his condo? Did your mom sell her house?

[desmond]

Yes, my mom sold her house and then bought my brothers condo!

[anxvariety]

That’s one of the earliest investment lessons I learned.. there is no protection in cashing out, if you end up putting your profits right back into the same overinflated assett… 🙁

I have some issues with my parents real estate choices too… it’s a really hard topic, because as a child it’s sorta hard for some parents to accept you might know more about certain things…

[Anonymous]

Chris Johnston

Anxvariety – good point about cashing out. I took a well into seven figure profit, and just payed the cap gains tax to avoid just upping the ante. I can tell you from my business of advising folks how to invest their money, that all you can do is give the best advice available. It is ultimately up to the individuals to make the decisions.

My best friend from college is a General Manager of an NBA team, who has repeatedly been burned by “money managers.” One lame penny stock recommendation after another. I warned him of an upcoming stock selloff a couple of months ago. He asked that I just tell him when I sold out, and he would also do so.

I called him in early May and told him I had exited, and that he should do the same. I gave him the reasons why. I sent him a copy of my newsletter that fully explained the reasons why, and showed them graphically.

Well, he has not sold any of his stocks yet, and now is wondering what to do. I have another friend who owns a general contracting firm, that I had the exact same conversation with. He is now calling me asking what to do next? He also wants to invest a bunch of money in Real Estate because it is a can’t lose situation. I have really been diligent in trying to talk him out of that. All you can do is give the proper advice, you cannot make people follow it.

Good call on the RE sale Desmond. I think it is clear at this point that the drop has begun. How far it goes is anyone’s guess.

If anyone knows of a way to collectively monitor developers collective buying and selling of land in a numeric fashion, please let me know. I would love to be able to construct a index that dispays this for research purposes. They do so many private deals, that this seems to be hard to track. Bugs, maybe you have an idea of how to do this?

[theplayers]

Desomond,

Congratulations, I believe you’ve made a wise move, and I understand what you experienced. My wife and I also went through what you went through when we sold our home, stressing during the escrow period, worrying that the buyer might ask themselves why they were buying our home for such an outrageous price, and then change their mind (we had already fallen out of escrow once, when our first buyer lost their job 1 week into escrow).

We sold in July of 2004. At the time, the market was in a frenzy. Inventory was near all time lows. We immediately had multiple offers, the first day the house went on the market, at prices that suprised us and our realtor. Everyone we knew told us we were crazy to sell our home and then rent, that we’d be priced out and never be able to afford to buy a home again.

Believe me, it was not an easy choice to make, as we were very much in the minority of people who believed that San Diego was going to see a big correction. There were no housing blogs at the time, and virtually no talk about the bubble. I found maybe one mention per week, and rarely was it in the mainstream media. But I did lots of research, especially looking at the last correction we had in San Diego in the early 90’s, and saw many similarities to this cycle. I found Prof. Pigginton’s site in October of 2004, and was relieved to find that I wasn’t the only one who thought that San Diego was headed for eventual disaster.

Did we sell at the top? Probably not, we were probably a little early, but that’s fine. Could we have waited and maybe sold the home for more? Maybe, but not much more. I have followed the market in my old neighborhood since we sold, and can tell you that I’ve seen only one other comparable home sell for more than ours did, and it only sold for about 3% more.

Even more interesting, the buyers of our home in 2004 are now trying to sell it. They put in an estimated $25,000 of improvements, and are asking about 10% more than they bought it from us for. If they sell at their asking price, after closing costs, commissions and the improvements they made, they would see no gain, and would actually take about a $15,000 loss. The home has been on the market now for about 7 weeks.

[Author]

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