Sell and rent until market drops?

[23109VC]

I live in Temecula but want to move to San Diego.

I own a home in temecuoanthst currently has approx $200k in equity – given current prices.

given all the talk about in pending price reductions one thought I had was to sell my current house and pocket the money and then rent for the next year or two in hopes the prices come down . I’ve looked at houses in San Diego and they’re substantially more expensive Bs Temecula that it would cost too much to get an equivalent house or I would have to move into a condo or something not as nice as my current home.

What is the current consensus here as to whether prices will drop in a San Diego over the next 24 months and how many of you have employed the strategy of selling to lock in equity then Wait for a drop? I know people who timed this perfectly in the last downward cycle …

I have also started to hear people talking about doing exactly what I am suggesting right now – Just curious what everyone’s thoughts are on that here ?

Thx

[The-Shoveler]

Risky IMO.

As long as the Fed keep rates reasonable I am not sure economic cycles apply.

We may not see another recession for a long time yet and if we do it is very unlikely we would see anything even close to what we saw last time with foreclosures etc…

2007-8 was an extreme outlier event IMO.

IMO inflation may outstrip your ability to save or keep up with supply/Demand price hikes.

But just my opinion

[spdrun]

The Fed normally holds steady or even lowers just before a recession. (See 20y plot below.) If anything, the Fed holding steady at 2.5-3% would be a sign of a coming recession.

Rates hit 6.75% just before dot.bomb, hit 5.25% just before the housing skell-dump. Lower and lower each time — a lower plateau doesn’t guarantee an opportunity (aka recession) won’t happen…

https://www.macrotrends.net/2015/fed-funds-rate-historical-chart

[phaster]

one other item to consider about selling,… is there an adverse tax consequence

[The-Shoveler]

IMO even 2007-8 housing crash may have been very very different and may not have even occurred if the fed had handled the bailouts differently.

Australia has gone 27 years without a recession.

Maybe we are getting a little better at managing the economy too.

[zk]

[quote=23109VC] I know people who timed this perfectly in the last downward cycle …

[/quote]

jm2c:

The last peak was so massive and so obviously unsustainable that it was a lot easier to profit from than this one might be.

This was the picture in 2005:

Risks of a Serious Home Price Decline

It doesn’t look quite like that now.

If I understand your strategy correctly, then for your strategy to work (to work well, anyway), nominal prices must drop. There is, in my maybe-better-informed-than-average-but-no-expert opinion, a decent chance that the downside of this peak (whenever it peaks, whether that’s now or in a year or more) will result in a drop in real prices but not nominal prices. Or maybe a small drop in nominal prices.

There’s also a decent chance it will result in a significant enough nominal price drop that your strategy will work. All I’m saying is that, while prices are higher than their historical means (by most or all measures), and they will almost certainly revert to historical means, that doesn’t necessarily mean that there will be significant nominal price drops. And even if there are, timing them can be tricky.

On the other hand, if you want to move to San Diego, then the importance of how much money you make or lose should be weighed against the importance of moving to San Diego. As a person who thinks San Diego is the best place in the world to live (if I had billions of dollars, I wouldn’t move more than a couple of miles), I say it’s worth the risk and worth the money.

If you’re going to take that risk, now seems (in my opinion) like as good a time as any.

[FlyerInHi]

[quote=zk]

On the other hand, if you want to move to San Diego, then the importance of how much money you make or lose should be weighed against the importance of moving to San Diego. As a person who thinks San Diego is the best place in the world to live (if I had billions of dollars, I wouldn’t move more than a couple of miles), I say it’s worth the risk and worth the money.

If you’re going to take that risk, now seems (in my opinion) like as good a time as any.[/quote]

I agree. Seems like he’s not happy where he is now and wants to more to San Diego.

Where are the capitalists who would say “no risk, no rewards” ?

[FlyerInHi]

[quote=The-Shoveler]IMO even 2007-8 housing crash may have been very very different and may not have even occurred if the fed had handled the bailouts differently.

Australia has gone 27 years without a recession.

Maybe we are getting a little better at managing the economy too.[/quote]

That’s what Alan Greenspan said. The great moderation.

Housing is dropping in Australia. People are starting to cry.
Australia is a small economy that rode the Chinese economy. Without China, Australia would have underperformed. The Chinese are buying natural resources and English education. And Australian education is shit. My friend at NU Singapore said they don’t hire Australian graduates because they don’t meet high world standards.

[The-Shoveler]

There are two great perils to the current Chinese gov.

1) The economy, (the current gov would be unlikely to survive a severe economic downturn), that is why they manage it so carefully.

2) The rural/urban divide (remember Mao).

Maybe we are improving/learning.

[Coronita]

I’m not a big believer in selling a primary home to “make money” unless you already have another home lined up to move into that you bought at a discount or you already have other plans to move out of the area.

So even though you get the $200k capital gains tax benefit….

Why? So you can

..pay about 5-8% closing costs/commission to sell
..pay monthly rent which is probably the same or more than your current mortgage payments (if any), and not have any tax benefits for the rent payments you make (unlike mortgage interest)
..and possibly buy back with a mortgage with a much higher rate and possibly pay higher property taxes

For you to come out ahead, you’re assuming that property values will fall more than all those other things above (an other things I didn’t list) that are additional cost items you will incur just to break even. My crystal ball isn’t so clear and can’t say with a high probability that is the case… Doomsayers will say otherwise. But it’s certainly not something I would personally do only for a $200k gain….. unless you are totally cash strapped and/or plan on moving to a much lower cost area like Mexico.

I talked about this conundrum with many folks. Yes, when home prices go up, you’re really happy because the property value of your primary goes up. You’re initial response is “wow, I can sell this place”, make a lot of money, and “do something with the extra money”… And then reality hits. Shit, I still need a place to live…. And then reality sucks… Well, shit, that place that I really like now costs a heck of a lot more…And crap, if I buy it now, I need to pay a heck of a lot more in property taxes than I did before….So my exit strategy was… Take advantage of either a low mortgage OR a very awesome equities market so that you can pay off your mortgage…and rent your primary house at the ridiculous high prices the current market conditions allow you to… to maximize your rental income while the going is good….Your rental income across your properties just might more than cover the new mortgage payments of the new home you are thinking about.

[FlyerInHi]

The question was that he doesn’t like temecula and wants a strategy to move to San Diego.

Sell,… Live with friends and relatives, or rent something small in temecula, save money and wait for an opportunity in San Diego.

If he keeps the house in temecula, he may never get a chance to move to San Diego. What do risk taking capitalists say about achieving your dream?

[The-Shoveler]

Kidd’s/Family?

Sell and Wait, Riskily unlikely to pay off as much may you think.

I would not do it unless you just have move out of Temecula.

I did it back in 2005 but I had a second house to move into that I bought in 2002, have upgraded since then.

I would add I did it knowing full well even as extreme as the housing bubble was, it could have turned out VERY different had the fed acted differently.

[FlyerInHi]

[quote=The-Shoveler]

I would add I did it knowing full well even as extreme as the housing bubble was, it could have turned out VERY different had the fed acted differently.[/quote]

Had the fed acted differently, we would have had a Great Depression, tech would have gone belly up and California house would have been like Florida or Vegas. People with cash would have gotten even more at the bottom.

So nobody answer the question on how to move to San Diego. What would the capitalist way?

Maybe the OP will tell us, but I’m reading into his post that his capital is locked into the house. Why not trade for a small 1 bedroom or 2 bedroom condo, or rent an apartment. Save money, keep good credit and have the downpayment ready when there’s an opportunity in San Diego. When opportunity strikes, no seller is going to accept an offer contingent on the sale of the Temecula house.
The goal is move to San Diego. What’s the best way to achieve that?

If I were in the OP’s shoes, selling at a high, given that we are 10 years into an expansion, is a risk I would take. You guys are telling him to suck it up and stay in Temecula forever, or until such time he can save enough to buy a house in San Diego, trading up without gap.

[an]

Like some others, I wouldn’t sell me primary residence unless we experience something like 2008 again. Back then, something that rent $1700 was selling for ~$550k. Today, that $550k house is now about $600k, but the rent of that house is about $2600. So, assuming similar rent to price ratio, price would have to get to at least $760k to even be in the same ball park. That’s before we’re talking about rent to mortgage payment ratio. In 2008, mortgage rate was ~5% and today, it’s <4%. So, if we're talking about mortgage payment to rent, we'd have to get to well over $800k to be in the same ballpark. Because of this, I don't see any major crash. At least nothing that would make it worth the risk in selling and rent.

Supply is still very low. If you want to sell, rent, and hope to buy at a lower price, I would keep an eye on supply. In order for this strategy to work, you have to be pretty sure that price would have to drop enough and in a short period of time. Else, rent would eat away at your lower price saving. Not to mention time and retirement. In 2008, supply spike before price start to fall. That would be what I'd keep my eye on to guess as to when price might fall.

[temeculaguy]

First off, bless your heart, I remember you from 2007 and this is housing related. Also, thank you for keeping your screen name.

Secondly as I remember, we gave you lots of advice back then and you didn’t take it.

But it was fun reading the old posts

https://www.piggington.com/harveston_down_the_drain

You are older and wiser, perhaps the advice will resonate now. You caught the falling knife due to spousal pressure and regretted it within a year. But looks like you hung in there and won anyways.

I’m with the others, I don’t see a nominal fall in prices in SD, but I do see an inflation adjusted correction. What AN said is mathematical support for this, the ratios aren’t out of whack like they once were in many parts of SD and inventories support his theory as well, plus there is no shadow inventory these days.

If you can afford it, just sell in Temecula and buy in SD. Just know your housing dollar stretches less in that direction than someone going the opposite direction. If you can sell and live super cheap, with family like someone mentioned, then you might be able to time the market. But odds are your rent in SD will cost more than your mortgage in Temecula, so if you are not saving now it will be worse with that move and you will end up eating your profit. Sell and rent worked great in 2006, I’m just not seeing the same math today. I am glad to see you are still with the same wife, her wants and your desire to fulfill them were your downfall last time, but wives are worth it. Reminds me of Michael Dell’s high school teacher who invested the money he saved for a new wedding ring for his wife when dell was just starting. He saved to buy a better ring for his wife who married him when he was poor but invested it in dell at the beginning when ot was in a garage. Once it was worth something he sold half of his interest and bought her a 7k ring( his original investment), leaving the remaining investment in the company which ended up being worth some crazy number like 100 mil. So he reminds his wife daily that he hopes she likes her 100 million dollar ring because that is what he lost because she had to have it right then. I made up the numbers from memory so apologies in advance of they are wrong but the sentiment is the same. But again, they are worth it.

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